The IMMEX (formerly Maquiladora) program in Mexico offers favorable tax benefits to companies manufacturing in Mexico—especially for companies that primarily manufacture products that will be exported out of Mexico.
A maquiladora is a factory in Mexico that’s owned and run by a foreign company. That company manufactures products in Mexico and exports them to other countries.
IMMEX is the acronym for Industria Manufacturera, Maquiladora y de Servicios de Exportación, and is exclusive to Mexico.
Registering for the IMMEX program as a maquiladora with Value Added Tax (VAT) certification offers a cost-saving exemption from the 16% VAT when importing raw goods, materials, and equipment for manufacturing processes.
Maquiladoras also do not pay duties when exporting finished goods to the U.S. and Canadian markets if the finished goods are classified as “Made in Mexico.”
There are several areas where U.S companies benefit from the IMMEX program. These advantages include sales and profits, tax savings, low cost of labor, and an infrastructure that has proven successful for over six decades since the IMMEX program originally began.
Regardless of whether a foreign manufacturer sets up operations as a standalone entity or under a shelter company when manufacturing in Mexico, all sales remain with the country of origin. In this way, U.S. and other foreign manufacturers benefit from the advantages of lower labor costs and shelter service availability without relinquishing profits to Mexico.
Additionally, when operating under a shelter services company, manufacturers maintain control over production and processes, as well as ownership over all tools, equipment, raw materials, and goods. These materials are often purchased in the U.S. and moved to Mexico. Whereas, any expenses local to Mexico are pre-approved by the client and taken care of by the shelter company.
As mentioned, U.S. companies using the IMMEX program also benefit from tax savings and advantages. Under the IMMEX program and VAT certification, approved U.S. and other foreign manufacturers are exempt from the 16% value-added tax on temporary imports. What’s more these tax savings are automatically applied on the first day when manufacturing under a shelter company.
There are also Safe Harbor rules applied for foreign manufacturers approved by the IMMEX program. These determine the tax profit base at the greater amount after applying 6.9% assets (includes fixed assets and inventory used in the operation) and 6.5% costs and expenses (includes manufacturer’s costs and expenses and non-resident party expenses used in the operation).
Additionally, manufacturers within the trading bloc of the USMCA do not have to pay duties on temporary imports with a confirmed certificate of origin from the U.S., Mexico, or Canada.
The difference in labor costs between the U.S. and Mexico results in significant savings when part of the IMMEX program. For instance, a fully burdened employee salary is $5.90/hour for a non-skilled worker and $7.60/hour for a skilled worker compared to $23/hour in the U.S., plus calculating benefits.
Furthermore, Mexico continues to develop industrial talent with the skills and experience needed to fulfill all production roles and technical skills. This has been a relief for U.S. manufacturers as eligible talent in the U.S. has declined over recent years due to a generation of industrial retirees and a lack of candidates who want to take on manufacturing roles.
Global manufacturers across all industries, with specific emphasis on aerospace, automotive, and medical device manufacturing, have experienced continuous growth over the years. Many of today’s top competitors in these sectors reinvest in Mexico to build upon the production they already have.
It’s been an attribute for manufacturers that want to save costs on production in Mexico while keeping research and development in the U.S. Also, with the rapid rise in technology, it helps companies keep pace with market demand.
Originating in the mid-1960s, today’s IMMEX program was developed to boost the growth of foreign direct investment into Mexico among manufacturing sectors including aerospace, automotive, electronics, medical devices, and information technology. Since then it has grown exponentially with many of today’s global manufacturing leaders incorporating access to Mexico’s IMMEX program as part of their key growth strategies.
To benefit from the 16% VAT exemption, foreign manufacturers must obtain the proper registration and permits. This includes applying for IMMEX registration through the Secretariat of Economy in Mexico or operating under a shelter company that already has the necessary approval.
While there are numerous benefits to participating, the IMMEX program comes with many strict regulations and requirements that change occasionally. It’s important for companies operating under the program to maintain detailed records and meticulously track inventory. To apply as a maquiladora as a standalone entity, foreign manufacturers must generate $500,000 USD of annual sales or exports totaling at least 10% of annual invoices.
Under the IMMEX program, a foreign manufacturer can temporarily import goods, raw materials, and equipment to either export the goods (as a finished product) within a certain time frame, transfer them to another IMMEX company, or change their status from “temporary” to “definitive.” It’s challenging for many businesses to keep up with these requirements on their own which is why the majority turn to the expertise of a shelter services partner.
A VAT of 16% is applied to temporarily imported goods, equipment, and machinery for foreign manufacturers operating in Mexico. VAT exemption is applied when manufacturers are approved for the IMMEX program and VAT certification is maintained as long as the finished goods are exported within the required timeframe. When operating under a shelter, these tax savings are applied on day one.
One of the main reasons why U.S. and other foreign manufacturers choose manufacturing in Mexico is the lower labor rates and higher availability of technically skilled talent. Since the cost of living is significantly less than in the U.S., labor rates reflect this accordingly and are highly cost-competitive.
Additionally, Mexico invests in higher education programs to graduate tens of thousands of technically skilled laborers every year to fulfill the spectrum of production needs by manufacturers. Plus, the proximity convenience between the U.S. and Mexico makes employee and production oversight easier.
Over the years, trade conflict between the U.S. and China and logistical strains as a result of the pandemic highlighted the resiliency of supply chains in Mexico. By keeping a steady production flow and being close to the U.S. market, Mexico saves manufacturers transportation costs and delivery times, especially compared to supply and demand with other countries.
Since the IMMEX program has been in effect for decades, it facilitates more efficient customs procedures which helps to reduce delays and costs. It also allows manufacturers to maintain larger inventory amounts without incurring additional taxes.
Though there may be new rules and updates to the IMMEX program in the future, any reformatting will help streamline the process and make it faster. However, applying for IMMEX is not something to be done alone. It’s best to work with a team of experts from a shelter services company that knows the ins and outs of approval including helping with pre-auditing to increase approval odds.
A shelter company also has local contacts in case there are hold-ups when registering. It’s a complex process with several compliance measures in place. If something is missing, it can be added but sometimes it requires starting the process over which can severely delay production. That’s why it typically takes several weeks, if not months, to get approval as a standalone entity.
However, IVEMSA can provide administrative support either way – both for manufacturers who want to operate under the shelter and those who want to maintain their own standalone entity.
Regardless of which type of setup a manufacturer chooses, the value is worth it. The IMMEX program continues to offer valuable tax savings, manufacturing diversity, and an ability to start small among its many advantages.
The availability of the IMMEX program and the implementation of shelter services allow U.S. and other foreign manufacturers to diversify their portfolios. Rather than relying on outsourcing to one country, it gives business owners an incentive to expand their production internationally.
Many have taken on a China Plus One mentality which is to keep production in China while also setting up new production in Mexico. Other companies are expanding for the first time or have decided nearshoring to Mexico is a key strategy.
The IMMEX program provides options for manufacturers. Plus, local support and expertise from a shelter services company streamlines the setup process and can get operations up and running in as little as three to four months.
Foreign manufacturers aren’t required to have a huge presence in Mexico to be accepted into the IMMEX program. Maquiladoras can start as small as 50 people and 15,000 square feet to establish a presence and grow from there.
For industrial sectors including aerospace, automotive, and medical device engineering, there are already well-established hubs throughout Mexico with the facilities, supply chains, and workforce necessary to start production and be successful. Also, by working with a shelter, it allows for scalability to stay profitable and expand in a cost-conscious way.
Even with the fluctuations bound to happen in the market, it’s still business as usual when it comes to the IMMEX program and its advantages. Once a manufacturer maintains IMMEX program registration either as a standalone entity or as part of a shelter company, it maintains validity as long as the manufacturer maintains compliance. When paired with the VAT certification, which is renewed every year, manufacturers continue to reap the benefits of the VAT exemption for significant cost savings.
A shelter services company is unique to manufacturing in Mexico. It allows U.S. and other foreign operators to focus on production while delegating all administrative responsibilities necessary for production setup and ongoing operational duties to a shelter company. It also minimizes legal exposure and risk for manufacturers nearshoring to Mexico and allows them to prevent the hassle of setting up their own entity.
By working with IVEMSA and using our shelter services, you can use the maquiladora licenses that we already have in place, or we can create and manage a new license for you. Our team will handle all the logistics so you can manufacture in Mexico with all of the advantages and none of the hassle. We’ll take care of:
IMMEX stands for the Maquiladora, Manufacturing, and Export Services Industry. It’s a program that first started in the mid-1960s (then known as the maquiladora program) to attract foreign direct investment into Mexico. The IMMEX program allows for temporary importation of goods, machinery, and materials as part of the manufacturing process without accruing the value-added tax (VAT) of 16%, so long as they’re exported within the set timeframe.
The terms “IMMEX” and “maquiladora” are often used interchangeably. However, a maquiladora is defined as a factory in Mexico run by a foreign operator exporting its products back to its home country. Whereas, IMMEX refers to the program which maquiladoras operate under.
Compliance under the IMMEX program requires an established length of stay, certain sales commitments, and annual reports. Temporarily imported raw materials may remain up to sixteen (16) months before needing to be exported. Manufacturers must also commit to annual sales abroad totaling at least $500,000 USD, or the peso equivalent, or 10% of total invoices. Those holding IMMEX certification are also responsible for submitting an annual electronic report of total sales and exports from the immediately preceding tax year.
For foreign operators setting up a new IMMEX program, there’s a lengthy application process. Certified copies of the appropriate documents must also be registered with the proper organizations. This includes an active federal taxpayer registration, a maquiladora contract and purchase orders, a letter detailing the production process and services referenced in the program application, and more.
Registering with the IMMEX program is advantageous due to the tax benefits. All temporarily imported goods, materials, and equipment are exempt from the 16% VAT. However, manufacturers awaiting IMMEX approval are subject to these taxes until officially certified. The application process can take weeks, if not months, before approval is granted, which adds significant costs to the manufacturing process.
Operating under the IMMEX program can be especially challenging for those manufacturing in Mexico for the first time. It’s time-consuming, plus there's a learning curve to understanding the full scope of documentation and compliance required. The paperwork is extensive and the smallest mistake can cause the process to start over.
Rather than enrolling as a standalone entity unfamiliar with Mexico’s IMMEX requirements, it’s easiest to work with a shelter company. A shelter is already part of the IMMEX program (and has all other permits and certifications necessary to operate), so there’s no delay, miscommunication, or potential for incomplete applications to be concerned about.
Working with a shelter partner like IVEMSA is beneficial for several reasons. With a team of experts well-experienced in handling the startup process and administrative functions, as well as what’s needed for compliance, it speeds up the production timeline. IVEMSA has IMMEX certification, and all other permits needed to operate in place, which means tax savings are implemented from day one.
Additionally, IVEMSA has the software in place to track imports and put together the reporting as required by the IMMEX program. When manufacturing in Mexico, it’s smart to have a local shelter to guide the process and take on all the administrative tasks needed to get production up and running quickly and efficiently.
When manufacturing in Mexico, you can choose to operate under IVEMSA's shelter to reduce risk, or we can create a new legal entity for you and obtain your IMMEX license. If you select the latter option, you will be operating as a standalone entity.
You’ll be running your manufacturing operations under a “shelter,” an entity technically owned by IVEMSA where we are responsible for compliance and administrative functions. Although you’ll have full control over your manufacturing processes, you’ll operate under our business license, and IVEMSA will handle all the set-up and administrative processes.
If you prefer to set up your own Mexican corporation, IVEMSA can create this new entity for your business and help you obtain the IMMEX / Maquiladora permits and other required permits and registration you will need to operate. We can also provide ongoing management services (HR, accounting, etc.) to help your operations run smoothly.
Download our free guide for U.S. and foreign manufacturers interested in nearshoring to Mexico. Learn:
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