The advent of Mexico’s maquiladora industry in the 20th Century signalled a seismic shift in how many US-based companies manufactured products and provided an indirect benefit to Mexico’s economy by way of boosting employment. Seeking lower cost manufacturing alternatives, US companies sent their raw materials and equipment on a temporary duty-free basis to Mexico for manufacture or assembly, and then re-exported back to the US. Though most profits generated by the finished products are realised in the US, the maquiladora’s have provided employment for thousands. But many US-based companies still ask how the maquiladora program in Mexico (IMMEX) can help improve their operations by reducing costs. The duty-free programmes have changed over the years, so it’s important to keep up-to-date in order to be compliant with changing regulations.
Mexico’s IMMEX programme is defined as an instrument to temporarily import goods and services that will be manufactured, transformed or repaired, and then re-exported without payment of taxes, compensatory quotas, and other specific benefits. In the past, there used to be two separate programmes in Mexico: Pitex for ‘temporary’ imports and exports and the maquila programme for maquila-specific operations. The new IMMEX programme consolidates the benefits of these legacy programmes and facilitates interaction with government authorities to operate under the programme.
There are four high-level trading activities the companies should consider in order to assess the appropriate usage of the maquila programme:
- US and/or foreign exports.
- Mexico imports.
- Mexico exports.
- US and/or foreign imports.
As the Maquila programme (IMMEX) is regulated in Mexico, ‘2’and ‘3’ activities are appropriate to consider for IMMEX. These activities occur when a firm temporarily imports goods and materials for six, 12 or 18 months or more depending on the type of goods, and then later exports the processed or finished goods. The objective of the IMMEX programme is to promote the export of goods so Mexican companies can access international markets. In addition, IMMEX should also stimulate modernisation of the national manufacturing infrastructure by attracting specialised technology and transferring technical knowledge to the workforce in the region.
Benefits of IMMEX
The main benefit of the IMMEX programme is the ability to defer taxes on goods that are temporarily imported into Mexico and the ability to consolidate import declarations. In addition, companies can access the PROSEC programme (Sectoral Promotional Programme) to reduce or possibly eliminate import duties for goods and materials that are imported temporarily or definitively depending on the industry or services they provide. Key benefits available to IMMEX participants include:
- Avoid paying the General Import Tax in Mexico (IGI, Arancel-Ad-valorem), which varies by industry and goods/materials.
- Avoid the payment of VAT, which is typically 15% of the import value or 10% for cities that border the US.
- Avoid the payment of compensatory quotas, which are duties applied to products protected by Mexico’s government (i.e. anti-dumping).
- Reduction of the customs fee (DTA) from 8% to 1.76% of the value for machinery and a flat fixed fee of 179.00 pesos for goods.
- Avoid payment of taxes in domestic purchases (which will be incorporated for the goods exported).
- Ability to create virtual pedimentos (also known as import/export declarations) between companies registered in the IMMEX programme.
- Ability to create consolidated import pedimentos.
- Receive a VAT refund when a company has a positive balance in its declarations, typically within a 20 day period, according to the law.
- Ability to use Sectorial Benefits Programme (PROSEC), which allows the import of machinery, equipment and spare parts by service companies.
- Automatic inscription in the national importers registry without performing the petition.
IMMEX Requirements
The process to obtain IMMEX approval is not difficult; however, companies must meet a specific profile and are beholden to government reporting requirements:
- To export US$500,000 in a one year period or to export 10% of the company sales in Mexico.
- To import only the approved goods (Harmonised Tariff Schedule (HTS) classifications).
- To use the goods solely for what they have been approved.
- To respect the terms under the law (Article 108 Mexico Customs Law & Article 4 IMMEX Decree).
- To be a legal entity in Mexico with the obligation to pay income tax (ISR).
- To have the goods in the registered & approved addresses.
- To inform the Economy Secretary (SE) in advance of the petition to the Secretaría de Hacienda y Crédito Público de México ( SHCP) about the following:
- Changes on the legal name of the company, Tax ID (RFC) or address.
- Changes of address of the companies, which provide sub-maquila services (three days in advance). Notify the suspension of activities in a period no later than 10 days.
- To have inventory control according to what is stated in Customs Law (Article 59).
Depending on the goods imported, the authorised timing for the goods to be in Mexico are:
- Six months: service companies that import textiles goods.
- 12 months: chicken legs, powder milk and corn, and some textiles.
- 18 months: combustibles, lubricants, raw materials, parts and components which are incorporated to the goods exported, containers, packaging, instructions and labels.
- 24 months: trailers.
- While the programme lasts: machinery and equipment, tooling, instruments, molds, spare parts, equipment to avoid pollution, research equipment, training and administrative support equipment.
Leveraging IMMEX
In order to effectively leverage the benefits of IMMEX, companies need to evaluate their entire cross-border operation. One of the biggest challenges for companies is they fail to pull together all the necessary pieces to realise cost savings and comply with regulations. The most important topics a US firm should consider include:
Landed cost analysis (inbound and outbound)
Companies should create a business case that includes a landed cost analysis and consider all the variables in order to ensure that it will be a cost-saving operation. Some of the elements to consider are: duties and taxes, transportation costs, facilities, labour, transformation costs, administrative costs and legal advice cost may be considered depending on the type of operation.
Inventory control
According to Mexico law ‘Anexo 24’, inventory controls must be implemented to track the imported goods and materials to ensure they are re-exported within the appropriate timeframe of six, 12 or 18 months depending on the customs regime being applied.
Classification of goods
Verify that the classification of goods and materials is according to the appropriate classification rules to ensure the correct tariff is applied. The goods and materials need to be classified in Mexico and comply with US export laws.
Origin determination
Accurate qualification and certificates of origin solicitation is important since they serve as the basis of many duty-free programmes. There are specific rulings and formulas that allow companies to properly determine the origin of the goods.
Special trade programme utilisation
Properly define which programme(s) the company will be using and have the specific procedures for each programme. Include the qualification process to help assess the regional content of the goods which helps determine the origin according to applicable rulings.
PROSEC utilisation procedures
To define if the company goods may be considered under one of the PROSEC approved industries.
Non-tariff regulations
Companies should be aware there are some non-tariff regulations that should be considered in order to properly introduce goods into Mexico. An example would be sanitary permits, quality and standards, packaging requirements, and/or other regulations applicable to the specific goods that are being imported for processing in Mexico.
Customs brokers selection
Select an approved customs broker and provide them with all the necessary information in order to legally act on the company’s behalf. In Mexico, customs brokers are required to process an import and/or an export and have shared responsibilities with the importer and/or exporter.
Audit procedures
Set up an audit plan for the transactions and periodically reconcile operations and inventory balances against the government information to identify if there are any risks associated with regulatory compliance. If you find an area of weakness, develop an improvement plan.
IMMEX Operations Can Be Complex
IMMEX is one of Mexico’s most important customs programmes. It is governed and referenced in a host of laws that add complexity to its utilisation by US firms. More details about specific usage and application of IMMEX can be found in one of the following laws:
- Decreto IMMEX.
- Decreto que estable los Programas de Promoción Sectorial.
- Ley Aduanera y su Reglamento.
- Ley del Impuesto al Valor Agregado y su Reglamento.
- Ley Federal de Derechos.
- Ley del Impuesto al Activo.
- Ley del Impuesto Sobre la Renta y su Reglamento.
- Código Fiscal de la Federación.
- Tratado de Libre Comercio con América del Norte.
- Tratado de Libre Comercio con la Unión Europea.
- Tratado de Libre Comercio con la Asociación Europea de Libre Comercio.
- Reglas de Carácter General en Materia de Comercio Exterior.
- Reglas de Carácter Fiscale.
- Reglas en materia aduanera del Tratado de Libre Comercio con América del Norte.
- Reglas en materia aduanera del Tratado de Libre Comercio entre los Estados Unidos Mexicanos y los Estados de la Asociación Europea de Libre Comercio.
Conclusion
The IMMEX programme has many cost-saving benefits for US-based businesses. If a company is interested in investigating the specific benefits of IMMEX for their operation, they should first perform a readiness assessment to create a business case that outlines specific cost savings, potential operational risks, and regulatory compliance requirements.