Tips for U.S. Manufacturers on Mexico’s IMMEX Program
07.17.19
The IMMEX program, formerly known as the maquiladora program, offers tax benefits to foreign companies that are manufacturing in Mexico. It allows these companies to take advantage of the skilled workforce, technology, and knowledge available south of the U.S. border. In order to get businesses started in the quickest, most efficient, and cost-effective way possible, a shelter company can guide the ins and outs of what’s required. This includes everything from choosing the factory site to submitting the proper permits to helping source local labor.
A U.S. manufacturer that decides to expand operations to Mexico must operate under a maquiladora. A shelter company already has maquiladora licenses in place, which saves on time, expenses, and taxes that are otherwise costly if a company decides to create a standalone entity instead. For companies considering manufacturing in Mexico as an option, there are a few tips to keep in mind to better understand how a maquiladora in Mexico works and what’s required under the IMMEX program.
Tip #1: Know the Difference Between VAT and Duties
One of the main benefits for foreign companies working under the IMMEX program with a VAT Certification is that they don’t pay VAT (value-added tax). VAT for imports is 16% of the commercial costs of the goods. You can only obtain these fiscal benefits for your operation under a VAT Certified IMMEX program because the materials imported are temporary goods that eventually will be finished products and exported. Keep in mind, though, there is a difference between VAT and duties.
Duties are based on product description and origin. An experienced Mexico shelter company can help you minimize duties or find a local supplier, but the IMMEX program isn’t a “duty-free program.” By working under a shelter, a foreign manufacturer automatically applies for the IMMEX program. Going this route is the fastest way to get up and running because the permits already exist. The shelter also takes care of securing permits and licenses, identifying site locations, in addition to helping with human resources, accounting, and compliance.
Tip #2: Minimize Exposure to Risk
Choosing to operate a maquiladora without the aid of a shelter exposes businesses to all fiscal, labor, and trade authorities. It also poses a greater risk of non-compliance, which could delay operations. Typically, working with a shelter takes 6-8 weeks to start production, while setting up a standalone entity takes closer to 24 weeks. Under the shelter, the risk is minimal because you don’t need to incorporate a new entity in Mexico and therefore, the responsibility falls to the shelter. Also, under the shelter’s business license, companies don’t have to pay income tax for the first four years. This is not the case when obtaining your own maquiladora permit under a standalone. The time it takes to acquire this also affects a company’s costs and production timeline.
Tip #3: Bypass the Certification Waiting Period
During the time it takes to wait for VAT Certification as a standalone entity, companies must pay 16% of the commercial value of their imports until it’s approved. The certification takes at least 3-4 months, which could mean a more expensive route for businesses who don’t choose to work with a shelter. Additionally, if you are planning to import any textiles, metal products, steel, aluminum, or other similar goods, you could fall under an IMMEX certification known as “Sensitive Company IMMEX.” Companies under this category must operate at least for 12 months before they can apply for their VAT Certification.
For example, any automotive or aerospace company importing metal is considered sensitive. Below are examples of different industries that fall into this category and how they’ve worked under the IVEMSA shelter specifically.
Medical Devices
There is a U.S. company that makes filtration devices for the medical industry. Inside the filtration cartridges, there is a specific fabric that’s considered a textile (sensitive material) import. Fortunately, the company chose to work under the shelter and have been VAT certified since day one. Otherwise, the manufacturer would’ve had to work a full year with a non-VAT certified IMMEX program. This means they’d pay 16% VAT for all their raw materials and machinery imports for 12 months and only on month 13 could they apply for their VAT Certification.
Aerospace Manufacturing
Another example of how companies can be categorized as sensitive even if they aren’t identified as a textile company is in the aerospace industry. One company that works with composites and carbon fiber materials to manufacture aerospace equipment must apply for VAT Certification to avoid the 16% VAT payment on their temporary imports. Because they are importing different fabrics which are considered textiles, they will fall under the “Sensitive Company IMMEX” classification and as a result of this, they have two options.
Under the shelter route, they’ll be able to use the shelter’s IMMEX that will be VAT certified. If they decide to establish as a standalone operation, they will need to operate for 12 months before being able to apply for their VAT Certification. This means 12 months paying 16% VAT over the commercial value of their raw materials.
Companies that fall into the medical device, aerospace, automotive, and electronics categories may not immediately realize that some of the materials that they plan to import to Mexico will be considered as “sensitive materials” since their finished products will be completely different. There are instances when foreign companies can graduate the IMMEX program and eventually operate as their own entity. However, the reason many manufacturers decide to start (and stay) with a shelter company is because of the time it takes to be eligible for VAT Certification and the taxes that accrue during the waiting period.
Why Choose a Shelter Company?
At the same time of applying for the IMMEX program and securing the right certifications, U.S. manufacturers must maintain compliance. As a standalone, they are required to report on goods temporarily imported and follow all updated regulations to the program and pay the accompanying taxes. The majority of companies take advantage of the benefits and peace of mind of working with a shelter company to ensure all administrative processes are handled correctly.
When a foreign company starts the process of manufacturing in Mexico under the IMMEX program, it’s almost impossible for them to go through the various steps alone. For starters, they need an accounting firm, attorney, and a trade compliance expert to set up operations. This carries the probability of miscommunication between parties, which could result in missed deadlines, unnecessary costs, and other delays.
Including all this by working under a shelter helps to achieve more effective communication, fewer expenses, and better security for a manufacturer. Lastly, working with a Mexico business shelter services partner doesn’t have to be permanent. For businesses that have operated under a shelter for years, there’s a “graduation” process or a hybrid situation available. This ensures companies have as much assistance as they need to the level they are most comfortable with during any given time.