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 Vientek plant inaugurated in Ciudad Juarez
Vientek plant was inaugurated, creating 500 jobs to manufacture. blades for turbines that generate aeolic electricity. This is the second plant of its kind established in Ciudad Juarez and produces 25 and 45 meters long blades that are installed in aeolic towers that generate electricity, which are booming in several parts of the world. The blades are purchased by companies that produce and sell electricity.
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Ferrari bicycles to be assembled in Mexico
As of May 2008 the Mexican company Biciclo will start assembling Ferrari. bicycles in its plant located in San Luis Potosi. Known for its Turbo line, Bicilo obtained the concession to sell two- wheel vehicles all over the world. To immediately start with the sale of Ferrari bicycles, manufacturing will start in Taiwan, because in that region there is a maquilador partner with installed technical capacity to do it.
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ProLogis invests US$200 million in new industrial park
With a US$200 million investment, ProLogis., the manager and developer, of distribution facilities, inaugurated a new industrial park: ProLogis Park Apodaca, in the State of Nuevo Leon. ProLogis new park has a 102 hectares surface and concentrates 320 thousand square meters, distributed in 16 industrial buildings, two of them already occupied by Hitachi Transport and General Electric.
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Grupo Salinas will bring Chinese automobiles
Ricardo Salinas Pliego, President of Grupo Salinas, signed an agreement with a Chinese automotive company to install a production plant in Mexico, which low cost automobiles will be sold by Salinas' companies. "The agreement has already been signed and he (Salinas Pliego) will announce it soon in Mexico", a source close to the negotiations confirmed, but would not provide any further details on the agreement. In order for Grupo Salinas to be able to sell Chinese cars for competitive prices, the automotive company must install a plant in Mexico to avoid paying import tariffs, as stated by Mexican laws.
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Sharp opens new TV sets assembly plant in Mexico
The Japanese Corporation Sharp inaugurated in northwest Mexico their second plant to manufacture large screen LCD TVs, where US$170 million were invested, the Company informed today. The new facilities, located in Rosarito Municipality in the State of Baja California, will produce 200,000 units per month, but production is expected to be increased to 400,000 TVs per month by 2009, Sharp pointed-out in a press release.
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Delphi sells part of its operations
Delphi's Board of Directors approved yesterday a master sale and purchase agreement with the private investment firm Renco Group, Inc. for the sale of its Interiors and Closures business, according to a press release. Xochitl Diaz, Delphi Mexico Corporate Issues Manager, explained that there is a group of 80 engineers working in Juarez in the division that will be sold and will therefore stop belonging to this company; this will be the only effect on the labor environment. At least nine plants are included in the agreement.
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Bos Automotive inaugurates plant in Irapuato
With a US$15 million investment to be made within five years, and generating. 800 direct jobs, the German Company Bos Automotive inaugurated a new plant in Irapuato. Founded in 1910 in Stuttgart, Germany, Bos Automotive has a strong presence in the development, manufacturing and distribution of systems for vehicles interiors; annual sales average ¬ 395 million. Nowadays the Company employs more than 3 thousand 600 people all over the world in 13 plants located in Europe, Asia and America.
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ARTICLE OF THE WEEK
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| 2008 Mexican Tax Reforms Part 1 - Executive summary |
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By PriceWaterhouseCoopers |
 On October 1, 2007, the President enacted legislation establishing two new tax burdens, reformed diverse federal tax laws and repealed the Asset Tax law. The new taxes are: the Single or Flat Rate Business Tax (referred to as "IETU" for its acronym in Spanish or "Flat Tax") and the Tax on Cash Deposits (referred to as "IDE" for its acronym in Spanish), both of which aim to increase the tax revenues.
This bulletin highlights the most important aspects of these new taxes, and summarizes certain other reforms made to the Mexican Income Tax Law ("MITL"), the Excise Tax law the Federal Tax Code ("FTC"), and provides case studies on the application of the Flat Tax.
Flat Rate Business Tax (Flat Tax)
The Flat Tax law will be effective on January 1, 2008 and replaces the Asset Tax law. The Flat Tax applies to Mexican resident taxpayers' income from worldwide sources, as well as to foreign residents with permanent establishments in Mexico, for such income attributed to the establishments.
 A tax rate of 17.5% is applied to the Flat Tax base. In general, the Flat Tax base is the excess of the income collected relating to: the sale or disposition of property, the provision of independent services, and the granting of the temporary use or enjoyment of assets (i.e. rental income and unrelated party royalty income), over amounts paid for: the acquisition of assets, the receipt of independent services and the temporary use or enjoyment of assets, as well as certain other expenses.
Salaries and wages, employer contributions to the social security system, employee non-taxable benefits, most interest income, as well as royalties received from related parties for the temporary use or enjoyment of intangible assets, are not included in income under the Flat Tax law, and payments for these types of expenses are also nondeductible for purposes of the Flat Tax law. Nevertheless, the employer is permitted to obtain a Flat Tax credit on "taxable" wages and social security contributions, which is equivalent to deducting these two items.
Certain taxpayers are exempt from the Flat Tax, mainly those that are not considered taxpayers under the MITL, including non-profit organizations, if those organizations are authorized to receive tax deductible charitable donations, and they do not distribute retained earnings to any person. In this sense, the Flat Tax applies to educational institutions organized as civil societies and civil associations if they do not have the authorization to receive tax deductible charitable donations. Nevertheless, if by the end of year of 2008 the educational institution obtains the authorization to receive tax deductible donations, they will be able to obtain a refund of the monthly advance taxes paid during the year.
 The Flat Tax operates as a supplemental tax to the Income Tax, to the extent the computation yields an amount which is higher than the Income Tax for the taxable year. Accordingly, the initial Flat Tax computation is reduced by a "credit" for an amount equal to the Income Tax of the taxable year, as well as the Income Tax arising from distributions of dividends exceeding the cumulative tax basis earnings and profits account (CUFIN).
The Flat Tax is calculated on a calendar year basis; nevertheless, monthly advance Flat Tax payments are due based on the month-to-date Flat Tax gross income, minus the authorized deductions in that same period.
Depreciation and amortization are not deductible for Flat Tax purposes. However, a transitional rule provides that new investments in depreciable assets and certain deferred charges and expenses acquired and paid for between September 1, 2007 and December 31, 2007, will be eligible for straight line depreciation over a threeyear period beginning in 2008. Moreover, a Flat Tax credit is available for depreciable assets acquired in the period 1998 through 2007, other than those new assets for which the previously mentioned three year election is made. This Flat Tax credit is claimed over a 10-year period, and the annual credit is equal to 0.875% (0.825% in 2008 and 0.85% in 2009), applied to the net/adjusted tax basis of the asset for income tax purposes as of December 31, 2007, as updated for inflation.
 Any payments for these types of investments made as from 2008, are deductible in-full at the time of payment.
Recovery of the Asset Tax paid in prior years
Taxpayers having Asset Tax Credit carryforwards as of December 31,2007, will be able to obtain a refund of unrecovered Asset Tax paid in the 10 previous taxable years, to the extent the income tax in the applicable carryforward year exceeds the lowest Asset Tax paid in 2005, 2006 and 2007. However, the annual refund will be limited to 10% of the unrecovered Asset Tax.
Inventories and losses as of December of 2007
The Flat Tax law does not establish a transition regime to deduct the inventories on hand and net operating loss (NOL) carryforwards as of December 31, 2007. However, Congress indicated that the Executive branch should establish transitional rules to deduct inventory on hand as of December 31, 2007 and to permit NOL carryforwards for Flat Tax purposes, to the extent immediate deductions were claimed for accelerated depreciation of assets acquired from 2005 through 2007 and such deductions are included in the NOL carryforward.
Tax on Cash Deposits (IDE) Law
Beginning on July 1, 2008, the new IDE tax applies to monthly bank deposits exceeding $25,000 pesos, or its equivalent in foreign currency, at a 2% tax rate. This tax can be credited against the Income Tax of the same entity, and any excess can then be credited against Income Tax it withheld on payments to third parties. If the IDE still exceeds those taxes, such excess can be offset against other Federal Taxes, and in the final instance, a refund can be requested.
Income Tax Law
The deduction for charitable donations is limited to 7% of taxable income of the corporation or the taxable revenues obtained by individuals, in the preceding taxable year. The tax authorities will be authorized to provide a different treatment than the legal form of transactions for purposes of determining Mexican sourced income for transactions with related parties, in theory to provide a tax treatment more in line with the substance or that which might have resulted on an arm's length basis.
As of the day after the publication of the decree, the gains on the sale of shares through the Mexican stock exchange will be taxed to individuals and foreigners or groups of people who directly or indirectly alienate more of 10% of the shares of the issuer in one or several transactions during a 24-month period.
The income tax table for salaries and wages is simplified since it incorporates the wage credit subsidy into the overall tax rates.
Conclusion
In general, the fiscal reform for 2008 is eminently designed to increase tax revenues and requires the implementation of additional controls, and may also require some companies to change their procedures relating to purchases and sales, to avoid overpayments of taxes.
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MEXICO'S WEEKLY HEADLINES
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| » Purchasing operation of Aeromexico takes shape
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| » JControls trusts obtaining Chrysler's project |
| » Government of Chihuahua will construct railroad for Electrolux |
| » Alcoa expects growth in Coahuila |
| » Mexico favors the opening of fixed telephony to foreign investment |
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