The advent of Mexico's maquiladora industry in the 20th century signaled a seismic shift in how many U.S.-based companies manufactured product and provided an indirect benefit to Mexico's economy by way of boosting employment. Seeking lower cost manufacturing alternatives, U.S. 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 U.S. Though most profits generated by the finished products are realized in the U.S., the maquiladoras have provided employment to thousands. But many U.S.-based companies still ask how the maquiladora program in Mexico (IMMEX) can help improve their operations by reducing costs. The duty-free programs have changed over the years, so it's important to keep informed in order to be compliant with regulations.
Mexico's IMMEX program 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 programs in Mexico; Pitex for 'temporary' imports and exports, and the Maquila program for maquila-specific operations. The new IMMEX program consolidates the benefits of these legacy programs and facilitates interaction with government authorities to operate under the program.
There are four high-level trading activities the companies should consider in order to assess the appropriate usage of the maquila program:
- U.S. and/or Foreign Exports
- Mexico Imports
- Mexico Exports
- U.S. and/or Foreign Imports
As the Maquila program (IMMEX) is regulated in Mexico, "b" & "c" 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 program is to promote the export of goods so Mexican companies may access international markets. In addition, IMMEX should also stimulate modernization of the national manufacturing infrastructure by attracting specialized technology and transferring technical knowledge to the workforce in the region.
Benefits of IMMEX
The main benefit of the IMMEX program 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 program (Sectoral Promotional Program) 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 United States
- Avoid the payment of compensatory quotas which are duties applied to products protected by Mexico's government (i.e. anti-dumping)
- Reduce 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 to the goods exported)
- Ability to create virtual pedimentos (also known as import/export declarations) between companies registered in the IMMEX program
- Ability to create consolidated Import pedimentos
- Receive a VAT refund when a company has a positive balance in its declarations, typically within a term of 20 days according to the law
- Ability to use Sectorial Benefits Program (PROSEC) which allows the import of machinery, equipment and spare parts by services companies
- Automatic inscription in the National Importers registry without performing the petition
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 (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 good in the registered & approved addresses
- To inform in advance to the Economy Secretary (SE) previous to the petition to SHCP about the following:
- Changes on the legal name of the company, Tax ID (RFC) or address
- Changes of the addresses of the companies which provide sub-maquila services (3 days of advance). Notify the suspension of activities in a period no later than 10 days
- To have an inventory control according to what is stated in Customs Law (Article 59)
Depending on the goods imported the authorized timing for the goods to be in Mexico are:
- Six months: service companies which 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 program lasts: machinery and equipment, tooling, instruments, molds, spare parts, equipment to avoid pollution, research equipment, training and administrative support equipment
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 realize cost savings and comply with the regulations. The most important topics a U.S. firm should consider include:
Landed Cost Analysis (inbound and outbound)
Companies should create a business case that includes a landed cost analysis and considers all the variables in order to assure it will be a cost-saving operation. Some of the elements to consider are: duties and taxes, transportation costs, facilities, labor, transformation costs, administrative costs and legal advice cost between others might need to be considered depending on the type of operation.
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 the classification of the 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 U.S. export laws.
Accurate qualification and certificates of origin solicitation is important since they serve as the basis for the usage of many duty-free programs. There are specific rulings and formulas that allow companies to properly determine the origin of the goods.
Special Trade Program Utilization
Properly define which program(s) the company will be using and have the specific procedures for each program. Include the qualification process to help assess the regional content of the goods which helps determine the origin according to applicable rulings.
PROSEC Utilization Procedures
To define if the company goods may be under one of the PROSEC approved industries.
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.
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 programs. It is governed and referenced in a host of laws which add complexity to its utilization by U.S. 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 Promocin 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
- Cdigo Fiscal de la Federacin
- Tratado de Libre Comercio con Amrica del Norte
- Tratado de Libre Comercio con la Unin Europea
- Tratado de Libre Comercio con la Asociacin Europea de Libre Comercio
- Reglas de Carcter General en Materia de Comercio Exterior
- Reglas de Carcter Fiscale
- Reglas en materia aduanera del Tratado de Libre Comercio con Amrica del Norte
- Reglas en materia aduanera del Tratado de Libre Comercio entre los Estados Unidos Mexicanos y los Estados de la Asociacin Europea de Libre Comercio
The IMMEX program has many cost-saving benefits for U.S.-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.
Rene Cobos is a supply chain and international trade consultant for the Global Trade Services group at J.P. Morgan. http://www.jpmorgan.com/tss/General/Global_Trade_Services/1114735451785