The Mexican manufacturing industry accounts for 44% of the total value of annual domestic production. It is largely supported by companies using the Mexico Maquila Program (IMMEX). In addition to other positive attributes, companies enjoy advantages that are the result of eight significant benefits of the program:
Tax credit for VAT payment
Considering the large volume of temporary imports made by companies that operate under the Mexico Maquila Program, being able to pay the VAT generated by these processes through a tax credit is beneficial because of the cash flow savings that this represents. For this purpose, companies must obtain IMMEX certification from tax authorities. This tax credit is not part of the advantages included in the trade treaties signed by Mexico. Tax security is one of the main factors that foreign companies that carry out manufacturing processes in Mexico have required.
Permanent establishment protection
Tax security is one of the main factors that foreign companies that carry operate under the Mexico Maquila Program have sought. Examples of this include the Permanent Establishment (PE), or the ability of a State, other than that of residence, to tax wealth-generating operations regardless of the nature or structure of the businesses that are involved. The tax authorities, in conjunction with those of other countries, have created an appropriate and competitive environment for these organizations that provides protection in this area for residents abroad. It is important to consider that this benefit applies only to some companies operating under this modality and enrolling in the IMMEX Program. For this reason, it is relevant to review the particular situation of each company
Network of trade treaties concluded by Mexico
Mexico has been negotiated 14 free trade treaties that cover commercial relations with over 50 countries. This has favored the arrival of various investments that have sought to profit through market access into the signatory countries of these agreements and the significant growth of the Mexican domestic market. The use of these treaties provides legal certainty for residents of the signatory countries and the possibility of accessing reduced import rates for goods considered to be originating in the countries that are party to the treaties.
Optimizing processes through the temporary import of goods
Companies in this sector can temporarily import the material inputs that are used to manufacture products in Mexico, as well as the machinery and equipment necessary to do so. Because most of the companies operating in the Mexico Maquila Program are exporters, this benefit has allowed them to optimize their processes and use virtual “pedimentos” or shipping manifests (export and import of goods without having to take them out of the country) between companies in the country operating within the parameters of similar programs. In this regard, the periods of retention of imported goods in Mexico should be reviewed depending on the type of IMMEX Program that is available.
“Special” transfer pricing rules
Given the environment in which companies in the Mexico Maquila Program have operated, and the operating characteristics involving domestic and foreign goods, special Transfer Pricing rules have been established for several years. These are only applicable to manufacturers that operate in the country under the “shelter” model and are in place to determine the level of profits to be generated in Mexico; following international trends and adapted to the Mexican environment. It is relevant to review these rules to determine the options that are available and use the one that best suits each company’s environment. Compliance with these rules is linked to the above-mentioned Permanent Establishment protection.
Combination of programs for efficient foreign and fiscal trade operation
Additionally, and with the primary objective of optimizing the customs and fiscal situation of manufacturing companies in Mexico, various programs have been implemented that support companies that are registered in the country’s IMMEX Program. For example, support for companies’ manufacturing activities can be obtained through the utilization of Sectoral Programs (PROSEC) that reduce import tax amounts that are applicable to material inputs that are not originating in countries with which Mexico has free trade treaties.
Additional deduction in exempted benefits
Companies that carry out manufacturing operations in the Mexico Maquila Program have the benefit of an additional deduction of almost 100% of the exempted benefits granted to their workers. This is because they typically have a labor-intensive workforce and employ significant numbers of direct and indirect laborers. This deduction is granted by a presidential decree that has been issued by the Mexican Federal Government.
0% VAT rate on export manufacturing services
Since manufacturing services are provided in Mexico and finished products are exported to international markets, or beneficiaries of such services are resident abroad, companies may enjoy a rate of 0% value-added tax (VAT). This represents an important benefit for these organizations and manufacturing company customers by not incurring unnecessary costs related to this tax. It is important to note that this advantage is not subject to the terms and validity of the various free trade treaties signed by our country.
Manufacturing is one of the most important pillars of Mexico’s economy in terms of exports, job creation, and foreign exchange earnings. This is due, in large part, to the implementation of the IMMEX Program. Its growth in the last fifty years has been constant with companies that bring greater added value, that is, in many cases, it has changed from intensive labor processes to automated and capital intensive processes. This represents new challenges for companies that must be covered through the optimal use of available programs. Prince’s manufacturing in Mexico experts can help you to navigate the country’s rules and regulations in the critical area.