Mexican Tax Reform Passed: VAT Impact on Maquiladoras Appears Minimal

On October 31, 2014, the Mexican Senate passed a modified version of the Tax Reform bill proposed by President Pena. While there are a number of implementation details still being worked out, the law, scheduled to go into effect January 1, 2014, appears at this time to have a minimal impact on the maquiladora industry.

Approved was a VAT to be imposed upon temporary imports, however also included is a tax credit designed to eliminate the cash flow impact on companies who become “certified” under new rules still to be published. As well, the 90% export threshold was eliminated and virtual exports are allowed. In its place is a requirement that the total revenues of maquiladora’s productive activity should be related to the company’s operations; or that at least 30% of the machinery & equipment used in the maquiladora operation be owned by the foreign principal.

Less clear is the impact the new law will have on employee benefits. At this point, the non-deductible amount of exempt wages and benefits payments made ​​to employees, has been reduced to 47%. There is a least one major exemption to this provision however and the final implementation is yet to be determined.

With many details still to be clarified and resolved, groups representing the business community including the National Maquiladora Industry Association, are working closely with regulators to assure that the final implementation of the law allows for a continued successful, profitable working environment for foreign national companies. As further details emerge, they will be reported upon in this blog.