What Is a Maquiladora and Why Consider it?
03.28.19
The IMMEX/maquiladora program in Mexico is used primarily by foreign companies that are looking to take advantage of Mexico’s lower labor rates and other operating costs. A maquiladora is a factory in Mexico to manufactures products for export. Most maquiladoras manufacture products for the US market, but thanks to Mexico’s many free trade agreements, they can export products all over the world.
The maquiladora program has been in place since the 1960s and is designed to attract foreign business to Mexico. It has many benefits for US companies, including:
Lower Labor Costs
In Mexico’s manufacturing industry, wages are approximately $15-16/day for basic operators, $42/day for technicians, and $100/day for engineers. That varies across different regions, but the low labor costs are one of the biggest draws for foreign companies.
However, Mexico is also known for its highly skilled workforce. Industries like aerospace, medical device manufacturing, electronics, and automotive thrive in Mexico because of this—over 100,000 engineering students graduate from Mexico’s universities each year.
Geography
Nearshoring, as opposed to offshoring, is a huge benefit for US companies. It’s relatively easy for a US company to set up their facility in Mexico in the same time zone, or at most three hours behind or ahead. This makes communication easier, compared to coordinating facilities overseas. It’s also much more convenient and less expensive for employees to visit the Mexican facilities for inspections or other meetings.
Mexico’s proximity to the US also makes shipping easier. Shipments from Baja California can reach the US within a day, and shipping from the northern states to the Midwest, for example, usually take about four days.
Tax Benefits
Mexico exempts maquiladoras from the 16% value-added tax (VAT) on imports of equipment, machinery, and raw goods and materials when the maquiladoras are VAT-certified. Companies can also apply for the PROSEC (Sector Promotion Program) or Rule 8th authorization to reduce or eliminate required duties when importing raw materials. They require separate applications with specific information on the production processes and finished goods.
Shelter Program
Many maquiladoras in Mexico operate under the shelter program, which provides additional benefits. Operating under a shelter means the foreign company doesn’t have to set up its own entity in Mexico and is therefore protected from legal exposure and liability. All the permits they need to operate in Mexico are secured and held by a shelter provider.
Working with a shelter provider is usually the fastest and easiest way to establish manufacturing operations in Mexico—companies can be up and running in 3-6 months. Shelter providers also provide administrative support (HR, accounting, trade compliance, etc.) and guidance.
Overall, operating a maquiladora—especially with a shelter provider—makes manufacturing in Mexico straightforward and relatively stress-free. Between the cost savings and convenience, the maquiladora program makes the most sense for many companies.