Mexico Free Trade Zone

The new President of Mexico, Andres Manuel Lopez Obrador, announced in his December 1 inaugural that he intends to create the largest free trade zone.  This Border Free Trade Zone (“Border FTZ”) would be along the northern Mexican board border and would stretch 25 km (approximately 15.5 miles) into Mexico.

According to the President’s announcement, enterprises located within the Border FTZ area would be entitled to the following incentives:

• Reduced Mexican income tax rate of 20% (from 30%) would be applied;
• VAT rate would be reduced to 8% from 16%; and
• Gasoline, natural gas, and electricity cost would be reduced.

However, the President intends to increase the minimum wage rate from 89 pesos to 176 pesos per day.

The Border FTZ is expected to be enacted as part of the Budget package that will be presented to the Congress in mid-December since the President’s political party controls both the Senate and House of Representatives.  US enterprises with Maquiladora operation in the Border FTZ area should consider the potential tax, operational and cash flow impact.