More and more manufacturers are asking, just what is Mexico’s IMMEX program, and how can it help my business? To better understand how this trade instrument significantly cuts import/export costs for foreign companies, we will break down its various components, benefits, and regulations.
For those interested in establishing a manufacturing operation, we will also discuss how to go about it. What are the important considerations when exploiting the Maquila program or IMMEX? How can it cut your costs? These and other questions will be addressed below as we explore the history, impact, and requirements of this increasingly popular outsourcing option.
The Background
Labor sharing between the US and Mexico goes back many decades. In the 19th and early 20th centuries, this primarily took the shape of migrant workers crossing the Rio Bravo to work in US farm fields. Cheap, unskilled labor helped get harvests in and planting done on time. This was largely due to the Bracero Program, which ended in the 1960s.
The glut of labor left on the Mexican market led to advent of a more proactive cooperation between the North American countries. Eventually, this interest in skill sharing and cooperative production led to the modern institution of the maquiladora or assembly factory for US companies. The Maquila Program (IMMEX) has become a pilar of the Mexican economy and a vital element of US competitive manufacturing.
How Mexico’s IMMEX Program Works
The Maquila program established in the 1960s was later codified in 2006 according to the IMMEX Decree. This federal decree affords US companies the unique opportunity to temporarily export equipment and materials into Mexico duty-free on a temporary basis. Maquiladora factories in Mexico use these imports to produce goods that are then exported back to the States duty-free. While in Mexico, the inputs and equipment are considered for tariff purposes still in the US, since they will soon be shipped back.
The IMMEX Decree aims to:
Increase strength and competitiveness for Mexico’s exports
Add certainty, transparency, and continuity to manufacturing by organizing and simplifying compliance
Allow manufacturing companies to find and implement new methods of doing business
Reduce logistics and administrative costs
Enhance production procedures through modernization and streamlining
Increase oversight and facilitate the capture and retention of FDI (foreign direct investment)
Holding Company: allows one entity to register under IMMEX and pass along the benefits to one or more subsidiaries with strict reporting requirements.
Industrial: this basic form of maquila allows a company to import raw materials and equipment to manufacture or transform products for export.
Services: covers companies that support maquila manufacturing with necessary for exporting relevant goods through IMMEX.
Shelter: allows US companies to partner with a Mexican business or shelter operation. This Mexican company is responsible for all legal requirements, liability, and compliance issues for the US company’s manufacturing operations performed under the IMMEX registration of the Mexican company.
Outsourcing or Third-Party: allows a company without adequate facilities to partner in joint-liability with another IMMEX registrant.
The Benefits of Maquiladoras
Mexico’s IMMEX program provides an immense benefit to US companies wishing to take advantage of the highly skilled but very low cost of labor in Mexico. Depending on the nature of the finished product, the company may entirely sidestep value added tax (VAT) and general import tax on goods that enter Mexico for a specified period of time (usually 6-12 months) and for the express purpose of being later exported. This temporary assignment presents foreign manufacturers the equivalent of a significant tax incentive for doing business in Mexico.
Reduced shipping times vis-à-vis other popular outsourcing destinations like China
Fast startup times, due to the well-established procedures and protocols established in the IMMEX Decree
Low labor costs for both simple assembly and high-skill manufacturing
Further tax savings on domestic purchases on items to be used in the finished product
Reduced customs fees for machinery and goods
IMMEX Requirements
Obtaining registration under Mexico’s IMMEX Program is actually not difficult. But companies must meet certain requirements:
Export $500,000 USD annually or 10% of company sales in Mexico
Import only goods approved according to the HTS classifications
Use goods only for their approved purposes
Abide by all terms of Article 108 Mexico Customs Law and Article 4 IMMEX Decree
Have a legal entity in Mexico subject to Mexican income tax
Have goods in the approved location
Inform the Economic Secretary of any changes regarding legal name, address, tax ID, suspension of activities, etc.
Implement inventory control according to Customs Law
Export or transfer to another IMMEX company within six moths for textiles, 12 months for some food and textiles products, 18 months for combustibles and lubricants and packing products, and 24 months for equipment and spare parts
How to Establish a Maquiladora Operation
If you are considering Mexico’s IMMEX Program as a potential solution for your manufacturing needs, there are some things you will need. Opening a factory in a foreign country can be a daunting process. To simply things somewhat, below is a list of requirements in addition to your IMMEX application for registration:
Advanced electronic signature certificate (SAT)
Federal taxpayer registration
Active tax domicile in the federal taxpayer registry
Certified copy of your articles of incorporations along with any modifications
Copy of a document certifying possession of the property on which your maquiladora will operate (leases must show a minimum of one year) with photographs
Contract of maquila, showing the orders of purchase your operation will fulfill
Copy of your Power of Attorney or Unique Registry of Accredited Persons (RUPA)
Document detailing which IMMEX guidelines the maquila processes fall under
Document detailing production processes and plant capacity
Letter of conformity from the company or companies manufacturing or sub-manufacturing, declaring the specific liability on temporarily imported goods
If you’d like to eliminate the complexity and get right to leveraging IMMEX’s benefits, contact us now to discuss our simplified shelter services!
