On February 23rd, 2017, the Mexican government published changes to their regulations for tax incentives relating to Research and Development (R&D). Since 2013, Mexico has undergone governmental reforms with the goal of attracting investments into the country. The new R&D credit is a major vehicle to continue to incentivize businesses to invest.
It is worth noting that until 2009, Mexico encouraged R&D projects through tax credits. However, between the years of 2009 and 2013, against a global worldwide trend, the credit was extinguished and replaced by funded grants for Research and Development projects. Fortunately, the Mexican government has returned to their previous fiscal strategy by promoting R&D investments via a tax incentive.
The benefits consist of a tax credit of up to 35% (thirty five percent) that is applicable to offset Income Tax otherwise payable. Similar to the USA R&D Tax Credit, the Mexican tax incentive is calculated on an incremental basis. Current qualifying costs for the credit calculation are the ones exceeding those captured in the three previous fiscal years. Companies can receive up to MX$ 50 million in credits for the development of innovative products or processes.
Of special note regarding Mexico’s R&D tax credit is that it is heavily based on material and subcontractor expenses as opposed to wage expenses.
Costs that can be captured for the incentive include, but are not limited to:
- prototypes for the development of the product and/or process;
- sample collections of data; and
- specialized tooling.
Costs that cannot be taken include:
- capitalized equipment;
- salaried employees related to the project; and
- publication costs.
Additionally, each R&D project shall be previously submitted to a government committee during a specific call period (now from April 1st to May 31, 2017) that will analyze its eligibility, according to criteria specified in the regulations, such as relations with universities and public research centers, generation of patents, and other factors that demonstrate a relationship with productivity and benefit generation for the country.
For 2017, the period for submission of projects for analysis and authorization will occur between April 1st and May 31st, through the CONACYT (Consejo Nacional de Ciencia y Tecnologia) System.
ABGI Group (ACIES CG in France, BGI in the United-States and Inventta+bgi in Brazil) is an international consulting firm specializing in tax incentives for research and innovation, with a strong cohesive operational base encompassing Mexico, Brazil, Canada, the United States, France, Great Britain and Ireland. Our multidisciplinary science, engineering accounting and tax teams are comprised of seasoned professionals, all of whom have many years of corporate experience and research tax credits advisory work.
ABGI has, for more than 30 years, provided high value-added consulting services to a wide range of clients, backed by practical industry specific experience. As an international R&D tax specialist with locations and experience in North America, South America and Europe, our quest is to deliver the highest quality service based on a strong commitment to integrity and transparency.