Understanding the Basics of Mexico’s IMMEX Program and How Foreign Manufacturers Benefit10.26.22
Mexico’s IMMEX program serves as the foundation for foreign manufacturing in Mexico. Established in the early 1960s and initially known as the maquiladora program, it was implemented to boost foreign direct investment and strengthen the economy.
A maquiladora is any foreign-operated factory in Mexico, and IMMEX is the regulatory framework allowing U.S. and other foreign manufacturing companies to temporarily import raw materials, goods, and equipment. These materials must then be exported as finished products by the established timeframe.
Prior to applying for the IMMEX program, a foreign company must establish a legal entity. It must also commit to an export value totaling at least $500,000 USD annually, or 10% of the company sales. Foreign manufacturers can register either as a standalone entity or under a shelter company. And since its inception, global companies have taken advantage of the program and the benefits it provides.
How Mexico Manufacturing Benefits Business
Though several global manufacturing companies have been operating successfully in Mexico since the start of the IMMEX program, there was a growth spurt in the mid-90s due to the enactment of the North American Free Trade Agreement (NAFTA). Since then, it has been a key operational strategy due to benefits including reduced cost, quicker startup time, and an easier learning curve.
Global manufacturers have taken advantage of the IMMEX program due primarily to labor and transportation cost-saving advantages. Additionally, once approved for the IMMEX program, manufacturers may apply for value-added tax (VAT) certification, which exempts them from 16% VAT from all temporarily imported goods, machinery, and equipment. This savings is instantly enforced when working with a shelter company since they already have certification in place.
Quicker Startup Time
Permit and certification approval in Mexico can take weeks, if not months, as a standalone entity, which significantly slows down the process. Additionally, assembling the necessary personnel to handle all administrative responsibilities, including HR, taxes, accounting, and trade operations takes time to coordinate. Because of this, It can take six to seven months to start production. On the other hand, a shelter already has the necessary permits and certifications ready to go and a qualified team in place. Under a shelter, manufacturers can expect closer to three to four months to launch.
Easier Learning Curve
Operating in a foreign country requires navigating legal and cultural knowledge to ensure everything is compliant and runs effectively. Another advantage of working with a shelter is an easier learning curve and minimized risk and liability. Since the shelter serves as the official legal entity, manufacturers aren’t legally exposed. They transfer the burden of maintaining compliance and keeping current with local laws and regulations to shelter experts.
Get the Manufacturing Support You Need
The majority of U.S. and other foreign manufacturers seek the shelter option. It’s the most cost-effective, efficient way to proceed and allows manufacturers to focus on everyday production needs and business growth.