Exploring the History and Benefits of Mexico Maquiladoras07.18.22
Mexico’s maquiladoras originated in the 1960s as a way to advance the growth of foreign direct investment in the country. A maquiladora is a factory operated in Mexico by a foreign manufacturer exporting goods. Through the IMMEX maquiladora program, foreign operators are allowed to temporarily import materials, equipment, and components needed for the manufacturing process and benefit from a 16% value-added tax (VAT) exemption on all temporarily imported goods such as equipment and direct raw materials.
U.S. and other foreign manufacturers must obtain IMMEX registration through Mexico’s Secretariat of Economy or operate under a shelter services company that already has the necessary registration and permits in place. There are several eligibility requirements to apply as a maquiladora in Mexico including $500,000 USD of annual sales or exports totaling at least 10% of annual invoices.
Thousands of manufacturing companies have taken advantage of the benefits the IMMEX maquiladora program provides and thousands more continue to show interest in Mexico manufacturing solutions. All types of manufacturers can benefit from the cost efficiency, though automotive is Mexico’s largest manufacturing sector. The country’s automotive production is estimated at more than three million vehicles annually, with 89% of vehicles produced in Mexico exported and 80% of those destined for the U.S.
Other manufacturing industries with a large presence in Mexico include aerospace, electronics, and medical device production; though there are maquiladoras set up to produce consumer goods, appliances, and textiles as well. As long as the entity meets eligibility and is approved for IMMEX maquiladora registration, they can benefit.
Benefits of the IMMEX Maquiladora Program
In addition to the 16% VAT savings, other advantages of the maquiladora program include:
- Cost of labor. With the cost of living in Mexico considerably lower than in the U.S., Mexico labor rates reflect this accordingly. Most companies can expect to save 60-70% on the cost of production labor Mexico manufacturing provides. Additionally, by partnering with a shelter, foreign companies can save on other administrative costs, consulting fees, and software expenses as well.
- Industrial labor availability. The U.S. is facing labor shortages, particularly for manufacturing positions, as the older generation of workers reaches retirement and the younger generation seeks other employment opportunities. Conversely, Mexico continues to invest in technical education and manufacturing training to generate a steady supply of highly skilled labor.
- Resilient supply chains. Mexico supply chains have demonstrated their resiliency through the pandemic and have allowed U.S. manufacturers to maintain a steady production flow. Furthermore, the proximity of Mexico to the U.S. helps to reduce transportation costs and delivery times to key target audiences, especially compared with manufacturing in China.
- Worldwide access. Mexico is part of 13 free trade agreements with 50 countries, including the USMCA. The USMCA provides special provisions for North American trade regarding original automotive content, providing yet another incentive for U.S. manufacturers to work with Mexico as a partner.
Partnering with a Shelter Company
Foreign manufacturers that want to register for the IMMEX maquiladora program may do so as a standalone entity. However, operating under a shelter company like IVEMSA provides greater cost savings and efficiencies.
IVEMSA handles all administrative tasks, including HR, recruiting, tax, accounting, and customs compliance, and navigates the regulatory requirements involved with setting up an operation in a new country. This allows manufacturers to focus on day-to-day production while also maintaining control over all processes and procedures.
The IMMEX maquiladora program changed the viability of Mexico manufacturing solutions for U.S. and other foreign companies. Want to determine how these solutions can work for you? Contact IVEMSA today.