Mexico's four Special Economic Zones. Mexico's four Special Economic Zones.

Despite US tax cut, SEZs more attractive

The Special Economic Zones will have a zero tax rate for 10 years

Whatever happens with the United States with regard to its free trade agreement with Mexico and tax reform, the three special economic zones (SEZs) in southeastern Mexico remain “an overwhelming opportunity” for investment, the director of the federal agency overseeing their development declared.

In fact, the Mexican SEZs will have even more competitive tax rates, Gerardo Gutiérrez Candiani explained.

“The United States will reduce the rate from 35% to 20% but we have a zero rate in the economic zones,” he said.

President Enrique Peña Nieto signed decrees for the creation of three SEZs in Coatzacoalcos, Veracruz; Lázaro Cárdenas-La Unión, Michoacán; and Puerto Chiapas, Chiapas, in late September.

A fourth zone is slated for Salina Cruz, Oaxaca, but the September 7 earthquake has caused delays.

At the time, Peña Nieto said the zones were designed to encourage the development of the poorest areas of the country and allow them to catch up with other regions.

Significant incentives will be offered to attract companies to the areas, where US $5.3 billion in private-sector investment and the creation of 12,000 jobs are forecast to follow over the next three years.

In the first 10 years after setting up in the SEZs, investors won’t pay any income tax, Gutiérrez said, and in the following five years rates will remain competitive.

“The special economic zones are a robust opportunity for investment,” he asserted.

However, several business sector leaders argue that the Mexican government needs to respond to the U.S. corporate tax cuts by implementing its own reforms to stimulate investment across the country and not just in the SEZs.

Business Coordination Council (CCE) president Juan Pablo Castañon said the government must implement a measure that mirrors the U.S. move. There is a global trend to reduce the burden on large companies that generate employment, he said.

The corporate tax rate in Mexico currently stands at 30%.

The Mexican Employers’ Federation (Coparmex) also said the government must undertake fiscal reform that offers long-term sustainability to public finances but also keeps the tax system competitive.

National president Gustavo de Hoyos added that a reduction in work benefits was needed, such as those that that require employers to make payments into welfare and pension funds.

Meanwhile, Economy Secretary Ildefonso Guajardo said yesterday that the U.S. tax reform schedule clashed with the timetable established for the renegotiation of the North American Free Trade Agreement (NAFTA) but that it would not affect the decision-making process.

More analysis of the reform is needed to better understand its different components and the effect that that it will have, he added.

Source: Milenio (sp)

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