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Maquila Matters Issue 2: Basics of the Maquila Program
Mexico’s maquiladora program offers an excellent opportunity for companies producing goods or providing services for the export market to reduce their tax burden, streamline their operations and increase overall profit margins. Taking advantage of these benefits allows companies to significantly reduce start-up and operational costs (including finance costs) and achieve healthier cash flow levels than would otherwise be possible.
Overview of Benefits and Drawbacks
Under the IMMEX regime, maquilas can eliminate or defer the payment of duty and value-added tax on imports of the following inputs and machinery, provided they are used in the production of goods to be exported. As indicated, some imports must be used or reexported within a certain time frame, while others can remain in the country through the duration of the maquila’s IMMEX program.
|Raw materials, parts and components for use in the production of goods to be exported||6-18 months|
|Containers and packaging materials||6-18 months|
|Labels and booklets||6-18 months|
|Fuels, lubricants and other materials for use in the production of goods to be exported||6-18 months|
|Containers and trailer boxes||2 years|
|Machinery, equipment, tools, instruments, molds and parts for use in the production process||Through the duration of the IMMEX program|
|Equipment and apparatus for such activities as controlling pollution, research and training, industrial safety, telecommunications and IT, laboratory measurement, product testing and quality control||Through the duration of the IMMEX program|
|Equipment for administrative development||Through the duration of the IMMEX program|
Additional cost savings can be obtained through special customs rules that apply to maquilas. These include increased flexibility in the customs treatment of any scrap generated during the production process, the option to have goods cleared by Customs at an authorized office during special hours, and the ability to transfer temporarily imported inputs to other IMMEX companies through a “virtual declaration” (or without a declaration for certain automotive activities)
At the same time, the Mexican government has established more stringent requirements for maquilas to use these benefits. Some of the most notable recent changes include requirements for:
- all imported goods to be exported physically or virtually;
- a foreign resident to own at least 30 percent of the fixed assets (i.e., machinery and equipment) used in the maquila;
- revenue associated with production to be derived solely from maquila activities;
- maquilas that have not been certified by the Tax Administration Service (SAT) to pay VAT for temporarily imported inputs and machinery; and
- IMMEX applicants to provide proof of positive tax compliance.
Companies operating under the IMMEX regime are also required to comply with a web of complex and bureaucratic oversight and reporting requirements that could result in higher administrative and legal costs.
Even so, the benefits derived from a well-run maquila operation can far outweigh any potential drawbacks.
Basic IMMEX Requirements
Companies will not be cleared by the Ministry of Economy to participate in IMMEX unless they comply with several requirements, including being a Mexican entity, having a commercial relationship with a foreign entity, having annual foreign sales of over US$500,000 or exports of at least 10 percent of annual sales, and fully complying with all applicable tax obligations.
Once approved to participate in IMMEX, companies have a number of responsibilities, including using any inputs and materials temporarily imported under the program solely for their authorized purpose, storing temporarily imported goods only at authorized locations, exporting processed goods within the legally established timeframes, notifying the Ministry of Economy of any changes in company shareholders or partners or the company’s legal representative, and keeping an automated inventory control system, as stipulated under Annex 24 of the General Foreign Trade Rules.
IMMEX participants are also required to submit a monthly operations report to the National Institute of Statistics (INEGI) on their volume of imports and exports as well as an annual report to the Ministry of Economy (due in May) showing the volume, value and details of their imports and exports.
How to File an IMMEX Application
To sign up for IMMEX a company must submit to the Ministry of Economy an application with the following information.
- general information about the company, including its shareholders and/or partners as well as its legal representative
- a detailed description of the company’s production process or service to be covered by the program, including information on installed capacity and capacity utilization
- for companies producing certain products, the tariff classification of any temporarily imported raw materials, parts, components, containers, packaging materials, labels, booklets and other inputs, as well as the tariff classification of the goods to be exported
- a commercial description of any temporarily imported containers, trailer boxes, machinery, equipment, tools, instruments, molds, parts, equipment, etc.
- the productive sector to which the company belongs
- a commitment to make annual foreign sales in excess of $500,000 or exports of at least 10 percent of annual sales
- any additional information that the Ministry of Economy may require
Applicants must also provide certain additional information, such as corporate documentation, a copy of the document showing possession of the premises where the IMMEX operations will be carried out, and a contract, purchase orders or other similar information showing the existence of an export project. In addition, the applicant must have an advance electronic signature certificate issued by SAT, an active tax identification number, and both its fiscal domicile and the domicile(s) where the IMMEX operations will take place appropriately registered with SAT. Prior to the approval of an IMMEX program the Ministry of Economy will conduct an inspection (by itself or jointly with SAT) of the premises where the operations will take place.
The Ministry of Economy must issue a decision within 15 working days from the day following the date of receipt of the IMMEX application. If the application is approved, the company will be provided an identification number that must be used in all subsequent IMMEX-related administrative formalities.