Blog by Reagan Smith, TAB Intern. Photo by REUTERS/Daniel Becerril.
Earlier this month, Mexico made a stride in their effort to attract foreign investment through the proposal of tax breaks as an incentive for companies to relocate their production within Mexican borders. This decree, given on October 11, targeted 10 key economic sectors including the semiconductor, automotive, agribusiness, and electronics industries. According to the Official Journal of the Federation, these sectors were chosen following a selection process based on “criteria that weigh the magnitude of Mexico’s opportunities to integrate into global value chains.” Following the supply chain disruptions that occurred as a result of the COVID-19 pandemic, many of the companies within these sectors are hoping to move their operations closer to home. This approach has been popularly coined as “nearshoring.” The Mexican government is looking to reap the benefits of this relocation trend by gaining new foreign direct investment currently up for grabs. The proposed tax breaks would allow for a deduction up to 89% on the expenditure of new assets and 88% on new machinery and equipment. Additionally, Mexico would offer a 25% deduction in worker training expenses. Through these incentives, the country hopes to promote their economic growth through an increase in the level of foreign investment and competitiveness. This decree is not the first effort made by the Mexican government to attract the attention of foreign investors. This past June, Mexico released their plan to offer tax incentives to enhance employment and investment in the Isthmus of Tehuantepec trade corridor located in the southernmost region of the country. As Texas’ largest trading partner, these initiatives are exciting for the Texas business community and will only continue to improve the already strong economic partnership between Mexico and the Lone Star State. If taken advantage of, these incentives will cultivate a favorable environment for Texan businesses to expand their operations across the border in a mutually beneficial endeavor for both economies.