Common Concerns Manufacturing in Mexico Maquiladora
1. Mexico Shelter Manufacturing
1.1 Advantages of Manufacturing in Mexico
1.2 Mexico Manufacturing Savings
1.3 Company Sectors
1.4 Maquiladora Definition
1.5 TACNA’s Service Rate Structure
1.6 Mexico Workforce Turnover
1.7 Labor Employer in Mexico
2. Mexico Manufacturing Startup
2.1 Starting Manufacturing Operations in Mexico
2.2 Establishing a Mexican Corporation
2.3 Managerial and Technical Talent Pool in Mexico
2.4 Direct Labor Pool in Mexico
2.5 Company Size for TACNA’s Services
2.6 Industrial Real Estate Availability in Mexico
2.7 Industrial Real Estate Type and Cost
2.8 English Speaking Managers and Employees
2.9 Costs and Issues Moving Freight Across the Border
2.10 Obtaining Necessary Permits
2.11 Labor Unions in Mexico
2.12 Equipment and Operations Insurance
2.13 Materials and MRO in Mexico
3. Navigating Business in Mexico
3.1 Immigration and Business Visa Requirements
3.2 Passenger Border Crossing
3.3 Import/Export Customs and Duties
3.4 Commercial Border Crossing
3.5 Security Issues and Safety in Mexico
3.6 Mexican Automobile Insurance
4. Operating in Mexico
4.1 Obtaining ISO and Other Certifications
4.2 Local Calibration of Test Equipment
4.3 Shipping Finished Goods Directly to Customers
4.4 Contract and Arrangement with TACNA
4.5 Process of Moving Goods Across the Border
4.6 Exporting Manufacturing Waste and Scrap
4.7 NAFTA on Imports and Exports
5. Mexico Regulation and Legal
5.1 Environmental Regulations in Mexico
5.2 Foreign Ownership of Mexican Corporations
5.3 Foreign Ownership of Mexican Land and Buildings
5.4 Corporate Social Responsibility in Mexico
5.5 Intellectual Property Protection in Mexico
5.6 Title of Property or Inventory in Mexico
5.7 Mexican Import Restrictions
5.8 Special Packaging Requirements for Import/Export
5.9 Selling Goods in the Mexican Market
5.10 Taxes and Licenses Required
5.11 Personal and Corporate Liability in Mexico
For U.S. manufacturers or manufacturers with US target markets, the most obvious advantage of doing business in Mexico is the increased profit from the much lower labor cost enjoyed just across the U.S. border in Mexico. Factory direct workers are paid a fully burdened wage rate in the two to three dollar per hour range. Many U.S. in contrast factories have fully burdened labor cost often in excess of $20 per hour. With just 100 positions moved, labor savings in excess of $3 million annually could be realized. Beyond labor savings, there can be other savings such as rent, utilities, duties, etc. Proximity to the U.S. vs. other off-shore locations results in substantial freight savings, administrative benefits, ease of coordination and simplified logistics. Many of these benefits are derived from operating in the same general time zones and hemisphere as is the final market. For more on benefits of manufacturing in Mexico, see Why Manufacture in Mexico.
Labor is the biggest savings with many companies saving 75% or more of their U.S. cost of labor for similar positions. Depending upon originating location, there can also be savings on rent, utilities or other costs. The actual savings are very much company specific. Our normal exploratory process with a client includes working together to create a pro-forma operating model to help clients understand their potential costs of a maquiladora factory in Mexico.
TACNA’s current and former clients fit among the following industries. Medical Products, Aerospace, Consumer Goods, Cosmetics, Industrial Hose, Magnetic Resonance Imaging Systems, Fireplace Logs, Power Distribution Units, Consumer Batteries, Sporting Goods, Sewing Operations, Parachute Manufacturing, Carpet Samples, Skate Boards, Surf Boards, Paint Rollers, Electronic Components, Cabinetry, Pizza Ovens, Printing and Publishing, Building Products, Pistol Grips, Pregnancy Testers, Artificial Fingernails, Camouflage Suits, Aircraft Valve Assemblies, Automotive and Truck Parts, Telephone Cabling Assemblies, Plastic Injection Molding, Steel Fabrication, Large Industrial Medical Transformers, Sand Paper Manufacturing, Ball Bearings, Silicone Hoses, Transformers, Magnetic Components, DC to DC Converters, automotive headers, pc boards and Window Shutters. We are capable of working with most manufactures as the nature of our services provided are similar, regardless of the product made.
The word Maquiladora has become synonymous with manufacturing companies who produce primarily in the Mexico border region to take advantage of the low cost labor in close proximity to the United States markets. The term Maquiladora as it relates to manufacturing has its origins in a farmer having his grain ground at the local miller. The grinding fee was often paid in the form of a portion of the grain ground. Similarly, a portion of the profits earned in Mexico with low cost labor are paid in the form of a sharing of profits with the employees. There are several other terms associated with manufacturing in Mexico. Among them are production sharing, co-production sharing, off-shoring, shelter services, off-shore manufacturing, twin plants and In-Bond.
Our fee is based on paid labor hours. The rate is higher for clients small groups of employees and declines as an operation grows in size of labor pool. See also Why TACNA
Not unlike any other area of the world, companies who establish a good work environment and motivate the employees enjoy high retention rates. Because jobs are plentiful in the border region, there is somewhat of a higher turnover rate than may exist in certain areas of the U.S. Employee attendance and punctuality is often encouraged with compensation structures such as a small attendance bonus and a punctuality bonus. Once employees demonstrate they can be successful in an operation, some employers grant step increases. Just like your employees in the U.S., Mexican workers are motivated by recognition for a job well done and Mexico market based reward, or compensation, commensurate with their relative contribution. Like the U.S. turnover is much less during periods of recession. In periods of high employment, turnover increases. When labor is plentiful at the border, workers gravitate from inland in the country toward the higher paying maquiladora jobs at the border. This helps to stabilize labor pools if the labor market heats up.
In most cases, technically speaking, TACNA is the employer in Mexico, however employees are assigned to your operation and work under your direction and requirements. You, or people you direct, make all hiring decisions, after candidates have been screened by TACNA. TACNA takes responsibility for payment of employees, difficult terminations etc.
There are many complex regulatory and other requirements which must be fulfilled in order to set up and operate in Mexico. Among them are establishing the legal entity, finding or building a suitable facility, issuance of a Immex and other permits by the Mexican government, completing an environmental impact report, registration with federal, state and municipal agencies, contracting utility services, classifying all products under the harmonized tariff code for import and export purposes and tracking of all inventory and equipment temporarily imported to Mexico, to name a few. Our clients spend their time manufacturing, rather than, getting and staying up to speed on these regulations. For more information on starting a business in Mexico, see Our Shelter Services or Mexico Consultation.
We have opened many Mexico corporations; it takes as little as a few weeks. You need an operating address to obtain the critical operational permits. The cost is a several thousand dollars. Many operations in Mexico choose to have TACNA or its owners own the Mexican entity as insulation from liability in Mexico and to simplify U.S. tax reporting. You still maintain effective control of the plant and its operations in spite of TACNA’s ownership of the Mexican corporation. TACNA’s ownership of the corporation is an option, not a requirement.
Tijuana has the largest and broadest manufacturing base of any Mexican city. To stay relevant, the Mexican Federal, State and municipal governments have invested in many technical training and college programs. Tijuana has 40 technical colleges and institutes, which graduate thousands of trained engineering and other technical graduates each year. There are also active chapters of professional societies in Tijuana such as the American Society for Quality and the American Production Inventory Control Society. Many professionals have received training provided by their employers locally and abroad. For example, there are many Japanese trained engineers available in Tijuana who understand and drive lean manufacturing techniques. In short, there is a broad pool of trained capable technicians and professional managers in the border region of Mexico.
In the past five years, the Mexican work force has been plentiful and stable. Many of the companies moving to Mexico have had a substantial pool of Mexican laborers in their U.S. plants and are already accustomed to the hard work ethic and reliability of the Mexican workforce. Similar attributes exist within the Mexican workforce on the other side of the border. Mexico is a country with a population of over 100 million people. The birth rate is relatively high, keeping the workforce young and in steady supply. The border region typically pays a wage premium compared to the wage rate paid more inland in the country. This wage rate and opportunity attracts a plentiful supply of enthusiastic young capable workers to the border region for its relatively high paying Mexican jobs (fully loaded $2 to $3 per hour range for direct labor)
We are best equipped to serve companies who want to move between 25-1,500+ positions to Mexico. Headcount is important to us because our Maquiladora contract fee is based on paid hours. Depending upon your growth plans and the nature of your operations, we may be able to help you, even if your size is smaller, but growing. Feel free to call us at 619.661.1261 for a confidential discussion about the possibility of helping you set up and operate in Mexico. Our minimum Maquiladora contract fees are somewhat higher for smaller operations. For more information, see Why TACNA.
Mexican real estate developers are quite entrepreneurial and have found commercial real estate to be a good investment. Large US Real Estate Investment Trusts (REIT’s) have invested heavily in Mexico’s border region. Additionally, the global recession of recent years has made industrial property more available in Mexico, like it has in the US. U.S. financing is also increasingly available in Mexico for buildings through insurance funds or other sources. Accordingly, A, B and C grade building space to suit need can typically be found at reasonable market prices rather quickly. Note that in most cases the landlord is responsible for the building shell and the tenant does all improvements. Most buildings are rented on a triple net basis, however the property tax element of triple net in Mexico is much lower than it is in most U.S. cities. It is also possible to arrange for facilities on a build to suit basis.
There is generally an adequate supply of buildings in the Tijuana Metro area. These range from first class new industrial parks with full infrastructure, to much older buildings in older neighborhoods. As of 2011, rents run from about $.28 per square foot to the mid $0.50 per square foot per month. Like elsewhere, rents are driven by demand, length of the contract, square footage rented and the financial strength of the tenant. Most contracts are denominated in U.S. dollars and have renewal and rent escalation clauses. Tenants are typically responsible for all improvements and the landlord’s responsibility is limited to the roof, walls and plumbing. If the facility is in a remote location, it will be necessary to provide worker transportation as few direct level employees would have their own transportation.
In the border region it is not uncommon for supervisors and professionals to speak fluent English. Many children in Mexico’s border region grow up watching American television and some are educated in U.S. schools. For these reasons, surprisingly, even some direct laborers on the factory floor speak English with a high level of proficiency. Most schools in Mexico would require students to study English as a foreign language. In short, skilled workers with moderate or better levels of English fluency are plentiful.
In most cases, a Mexican and U.S. broker are used in the regulatory process to move product or equipment in or out of Mexico. Costs vary depending upon what is moved. For example hazardous materials require a higher rate of transportation and more paperwork. TACNA can review the specifics of your inventory and equipment and give you a better sense of costs. Because TACNA does a great deal of business with its brokers, we have been able to negotiate favorable volume based rates, which our clients benefit from. We also provide a consolidation function at TACNA’s U.S. warehouse to minimize the number of Southbound crossings. Your vendors ship directly to our U.S. location and TACNA consolidates the entries for movement into Mexico saving you both incremental freight and brokerage fees. Freight costs from the U.S. border into the border region of Mexico run from a $120 to $200 per load depending upon size and frequency of movements. Some carriers can pick up your load in the U.S. and take it directly into Mexico. TACNA has an LTL freight movement capability, allowing you to pay as little as half of the full freight costs, if loads are combined with others.
Like any country, the regulatory process is somewhat unique, ever changing and complicated. TACNA’s job is to simplify that complication for you. We obtain and maintain all necessary permits and help you comply with the laws in Mexico.
Most factories in Mexico are unionized. While any union is required and expected to look out for the interests of the employees, there are unions who take a more business minded approach and those who do not. TACNA registers a union who we have historically found to take a reasonable business minded approach.
TACNA typically insures with large internationally recognized insurance companies. Typical risks insurable in the U.S. are insurable in Mexico. Rates for insurance in Mexico are similar to those of the United States. Some clients simply expand their existing insurance lines to cover operations in Mexico. We generally work with our clients to obtain quotes under both options. We require that our company to be named as an additional insured on your policy.
TACNA insures freight carried on its trucks to a maximum value of $50,000 for the entire load. If you require additional cargo insurance, TACNA can obtain quotes for you.
Mexico is an industrialized nation and produces many products. Further, there is a concentration of manufacturing along the U.S./Mexican Border. Given this concentration, there are many material and supply items available in Mexico. Pricing of such is generally competitive. TACNA can assist you in obtaining quotes for in Mexico for some items. At a minimum, most companies usually buy all packaging and miscellaneous supply items in Mexico. There is a value added tax of 16% on items purchased in Mexico.
With some limited restrictions, U.S. citizens can work in a Maquiladora manufacturing business as long as concentrations do not exceed certain percentages. FMN Visas are required and can be readily obtained with a passport and/or birth certificate at the border crossing for up to six month visits. It is also possible to obtain annual visas for longer-term workers or frequent visitors. Surprise inspections are done in plants by the authorities, during which inspections, visas are checked. Doing business in Mexico without a valid visa is not advised. Penalties for noncompliance can be significant and typically include deportation and significant fines. Many plants in Mexico have U.S. executives and technical personnel who live in the U.S. and commute to Tijuana Mexico daily. TACNA obtains and renews appropriate visas for our clients as part of our service.
Border crossing into Mexico is quick and simple for US citizens. Returning to the U.S. can take as little as ten minutes to more likely, an hour or more, because of much tighter controls for crossing back to the U.S. There is an option for shortening this crossing using an automated trusted traveler fast lane called “Sentri”. Issuance of permits to travel in this much faster (5-30 minute) crossing lane can be obtained for a small fee of about $100, following a background check and screening interview. This trusted traveler crossing card is good for five years. An alternative to Sentri is Global Entry, which grants identical privileges. Passengers riding in permitted, Sentri lane cars can walk the last few hundred yards avoiding long waits in a car and can be met on the U.S. side. Valid passports are now required for a U.S. citizens returning to the U.S. In short, executives crossing the border in either direction can do so relatively quickly and simply.
Not unlike the U.S., there are significant and intricate rules for what can be imported and exported and in some cases there are duty implications. Under the North American Free Trade Agreement, NAFTA, many items manufactured in Mexico, the U.S. or Canada can be imported and exported duty free. There is still however significant control and tracking necessary for such items. Further, items exported to Mexico whose countries of origin are other than the NAFTA countries can be subject to significant duties. There are methodologies for reducing such duties for maquiladoras. TACNA helps its clients minimize, and in many cases, eliminate all duties. This is an intricate and complex ongoing effort as companies and regulations continue to evolve. For further information see Our Shelter Services.
Freight crossings can be as short as an hour to as long as four to six hours. Typically commercial crossings are more time consuming near the end of a month and during holiday weeks. Morning crossings are less congested, so it would pay to arrange your shipping schedule for a morning crossing. Commercial crossings into Mexico are generally less time consuming than are crossings into the U.S. Government and business efforts are being made with technologies and other methodologies to reduce commercial freight crossing times while not compromising security in the U.S. There exists a trusted carrier program going both directions across the border such as CTPAT that allow for expedited crossings for those companies willing to apply for and obtain permission to be included in such programs. TACNA can explain those programs to you and help you minimize commercial transit times.
Like most large cities, Mexico’s larger cities have some element of crime. The same is true for the border cities in Mexico. In the U.S., crime seems to be somewhat concentrated in gangs and the drug culture. The same is true in Mexico. During late 2008 and early 2009 there were pockets of violence in Tijuana between warring drug gangs and the local police. This has since been brought under control through heavy military and federal police intervention. This violence never spilled over in any significant way to the Maquiladora industry. If you are wise with whom you associate and you do not frequent places where gangs and the drug culture congregate, you can be as safe in Mexico as in traveling in the U.S. Our clients have not had issues with crimes committed against them. Our advice is–recognize each time you cross the border that you are in a foreign country and be more cautious. Avoid predictable patterns, expensive cars or carrying large amounts of currency. Generally a modest, respectful approach in Mexico is best.
We strongly advise carrying a valid Mexican auto liability insurance policy with you while driving in Mexico. This is true, even if your U.S. Carrier provides you coverage in Mexico. In case of an accident, many claims are settled on the spot by the insurance company. In some cases where accidents have occurred and insurance could not be proven or there is significant personal injury, the driver was jailed and the cars impounded until the claim can be settled. It is wise to only drive in Mexico with a valid Mexican policy. One of our services includes obtaining such a policy for you. The annual cost of a liability policy meeting local requirements is less than $200 per year. The policy insures the driver, whatever car he/she may be driving.
Many plants in Mexico have ISO, QS, or other certifications. Employees and managers have often had detailed training in quality processes, lean manufacturing training and training in compliance with tight certification programs. With the right management, supervision and training, certifications that are obtained and elsewhere in the world can also be obtained and maintained in Mexico.
TACNA can source these and other manufacturing services. Service companies are readily available from multiple sources in metro regions such as Tijuana. Not only are service support companies available, but providers of MRO supplies, packaging, machine shops etc.
TACNA’s freight and traffic department can help you with these issues. UPS picks up and delivers in Mexico, but at an extra cost. Many companies who ship with UPS and FedEx or LTL carriers complete final packaging and labeling in Mexico, which includes all shipping documentation. They then ship on a consolidated basis across the border to save time and cost in shipping and a freight forwarder handles the freight on the U.S. side. TACNA can help you with truckload and LTL quantities in terms of transit across the border and freight forwarding. We do not charge extra for our freight forwarding service.
Mexico has favorable trade agreements with some other foreign countries. By shipping in bond through the U.S. to such foreign countries, substantial duties can be saved. TACNA can help you in minimizing duties inbound and outbound.
TACNA operates on a contractual basis. The contract has an initial fixed period, after which it becomes evergreen with a notice period for termination by either party. It is rare that clients choose to take on the administrative burden of going it alone, but if client wants to, we work closely with them to accommodate their desires. TACNA can also perform contract manufacturing services or administrative and consulting services for those companies, who do not, for whatever reason, want to take advantage of our full service offering.
For Southbound shipments, most customers choose to consolidate their merchandise in our U.S. warehouse to minimize brokerage or freight forwarder fees. This is true for either Southbound or Northbound shipments, TACNA’s U.S. and Mexican freight and customs teams prepare import/export entries from packing lists provided by you and your vendors. This documentation is submitted to U.S. and Mexican brokers, as necessary, and we coordinate with freight carriers to arrange freight as appropriate.
While some significant inert waste streams may be disposed of in Mexico with appropriate testing and monitoring, Mexico does not want to become the land fill for U.S. consumption and manufacturing. Most of the raw materials are imported from the U.S. and the scrap must be returned. This is simply one more reason to generate as little scrap as possible in the manufacturing process. Many manufactures are finding ways to reprocess their waste streams and there are authorized recyclers for many manufacturing waste streams who will pick up your scrap in Mexico and pay something for it. This would include plastics and metals. TACNA will help you manage this issue and minimize its impact. TACNA sources appropriate recyclers.
Products qualified under NAFTA are subject to preferential treatment and in most cases are not dutiable. With limited exceptions, products made in Mexico must be so marked as such. Marking requirements can be complicated. Our customs experts can help you with marking requirements and minimize sensitivity to these important issues as well as help you comply with the requirements of NAFTA.
Mexico has environmental regulations which are in many cases modeled after those in the United States. In Baja California Mexico, they are modeled after California regulations. Not unlike the U.S. there are severe consequences and financial penalties for polluting the environment. Companies should not move to Mexico with the intent of finding a more relaxed regulatory requirements with respect to environmental matters. Each company coming to Mexico is required to complete an environmental impact study. TACNA’s job is to help its clients understand and live within the laws of Mexico. In the event a fine were to be assessed, it would be a pass through cost. Not unlike the U.S. many citizens and companies in Mexico are increasingly looking for and interested in green methodologies. TACNA will only work with companies that plan to be environmentally responsible.
Ownership must be by at least two shareholders who are either individuals or corporations. Maquiladoras can be 100% owned by foreigners. In fact TACNA’s owner personally owns multiple Mexican entities.
Individuals can own land and buildings anywhere in Mexico, except within the “Prohibited Zone” 100km from the border and 60km from the coast. Within that zone, land for individuals is held in a 99 year trust, giving the individual effective ownership. Corporations do not have any restrictions on ownership.
The wage rate you will pay to lower level employees is approximately twice the minimum wage in Mexico. This wage rate would allow a worker to provide food and housing for themselves and their families at a reasonable standard of living customary in Mexico and a standard higher than the living standard in many third world countries. Your workers will be entitled to state provided medical care that is funded by the taxes the employer and employee pay on earnings. Additionally, most of our factories have visits from a doctor weekly who will see employees and consult with them on medical issues at a modest cost to the Company. There is an opportunity for the employee to purchase a small government subsidized home through a program called Infonovit following his or her demonstrated stability in the workforce. This home is subsidized by a small employer tax. All this is included in the low fully burdened hourly rate of a little over two dollars per hour.
The Maquiladora industry is one of Mexico’s larger sources of foreign currency and investment and has added significant strength to the Mexican economy.
While the work week at 48 hours per week is twenty percent longer than that of the U.S. standard work week, it is significantly less than the Chinese work weeks and sweat shop conditions the news media frequently reports about in various Asian work environments. In contrast, Mexico’s Maquiladora employees are healthy and happy and are earning a relatively high wage as compared to the standard of the third world.
There exist significant regulations which are monitored for health and safety of the workers. There is and experience based tax that ties to accident rates in the plants. There are evacuation procedures and approved fire regulations for each plant. Regulatory bodies enforce these regulations. TACNA helps its clients monitor these changing regulations and helps clients stay in compliance.
See separate topic on environmental issues.
The U.S. is by far Mexico’s largest trading partner and a significant source of hard currency. That is not lost on the Mexican government and accordingly, Mexico has respected U.S. intellectual property rights and enforced such rights through its courts. Some companies who once operated in Asia have not found the same to be true and have left Asia for Mexico citing exactly that reason.
Inventory and equipment continue to be owned by you. It is imported into Mexico on a temporary status basis. An import/export inventory record must be maintained for all equipment and inventory in the country under this temporary import status. This inventory tracking is one of the services provided by TACNA. Companies who are using their equipment or inventory as collateral on loans should review their loan documents for any restrictions before exporting the equipment or inventory to Mexico. Raw or semi-finished inventories may only stay in Mexico for 18 consecutive months.
Import and export is a complicated area with many technical requirements for permitting, documentation and compliance. Some products such as fabrics have even tighter controls. TACNA’s job is to simplify and insulate you from those complications. Generally speaking, most items of U.S. or Canadian origin can be imported without significant restriction or duty. There are duty implications, which TACNA can help you minimize, for non NAFTA items.
Some other restrictions include restrictions regarding hazardous materials, which must be imported into Mexico with a specially qualified carrier and such movements are by appointment only. There are major restrictions on items, such as, firearms and radioactive materials. Because of a desire to promote Mexican business, there are also certain restrictions on some items that can be easily purchased in Mexico. For example, mechanical scales, refrigerators, microwaves, shelving and office supplies. If a particular model of these products is critical to a production process, waivers can be obtained. Currently all large trucks driven in Mexico must be owned by a Mexican company or individual. This is an area currently in a state of flux on both sides of the border.
All items crossing the border in either direction are subject to inspection by both U.S. and Mexican authorities. These inspections can result in delays and fines, if goods are not properly declared. It is critical that companies exporting from either country be very accurate as to quantity, country of origin, part number, serial number and description.
5.8 Special Packaging Requirements for Import/Export
Most wood packaging such as pallets must be heat or chemically treated to protect against transfer of living organisms across borders inside the wood. These packaging materials must be marked as treated. Liquid items must be packaged in a manner so as to prevent leakage in transit. TACNA can help you address specific questions related to your items to be imported or exported. There are also important marking regulations as to country of manufacturing origin on those items returning to the U.S. In most cases, the product and individual items need to me marked with labels such as “Made in Mexico” and are periodically checked upon entry to the U.S. TACNA can in certain cases obtain marking waivers in cases such as bulk packed component items.
Maquiladora entities can sell to other Maquiladora entities with a documented transfer of the items sold for purposes of tracking the import/export inventory. This documentation is sometimes called an “inter-maquila transfer” or “virtual transfer”. If the Maquiladora entity sells directly within Mexico on a commercial basis, it risks losing its favorable tax status as a Maquiladora. Most companies who sell commercially in Mexico return the product to the U.S., then ship from the U.S. to their Mexican customers. This saves considerable income tax reporting complication and cost in Mexico. Mexico does have certain favorable trade treaties with nations other than the U.S. or Canada. TACNA can work with you in evaluating methods for minimizing global duties for products made in your Mexican manufacturing location.
There are various license fees required, none of which are particularly significant. In some cases, studies and lab tests are required before a permit is granted. As an employer, you will be subject to employer payroll taxes which are included in the fully burdened labor rate mentioned previously. There is a value added tax called “IVA” which is 16 percent of value and is added on to the purchase price of items purchased in Mexico. You should think of this as a sales tax. Under certain circumstances some IVA may be credited back in the income tax calculation. There is also a corporate level tax which is calculated on the higher of asset values in the country multiplied by a tax rate or costs incurred in the country multiplied by a tax rate. This tax boils down to between one and two percent of asset values or cost, whichever yields the greater tax. There are some potential credits against this tax. Tax law changes typically are implemented at the beginning of each calendar year. TACNA’s service includes dealing with this complex area, so you do not have to.
We expect our clients to be good corporate citizens wherever they operate. We follow the law and expect the same of our clients. Depending upon how the entity is set up, both the U.S. entity and its owners can largely limit themselves from significant liabilities in Mexico. Generally speaking, the Mexican entity bears the liability risks for actions taken or not taken in Mexico. Any fines or penalties incurred are billed as pass through costs.
Disclaimer: the information in this and all other pages of this website is based on information at the time of its writing, it does not constitute legal advice, but, rather information gained from business experience. While efforts are made to do so, the site owner has no obligation to keep this site current for changes in laws or business practices and the circumstances of each client are somewhat unique.
Begin Enjoying the Benefits–Contact Us
Contact us for a confidential discussion or a free pro forma analysis of your specific operation in Mexico at 619-661-1261 or e-mail us at firstname.lastname@example.org Your e-mail address will not be sold or misused in any way. Discussions are confidential.