IMMEX Program FAQ for Companies Considering Moving Manufacturing
10.25.21
Key Takeaways:
- The maquiladora program, now known as the IMMEX program, has bolstered manufacturing in Mexico since its inception in 1964.
- When paired with VAT certification, manufacturers receive a 16% tax exemption on all temporarily imported goods, materials, and equipment required for production.
- Learn the basics of what the IMMEX program currently entails, how to qualify, plus the advantages of working with a shelter company, such as IVEMSA, when expanding manufacturing to Mexico.
The IMMEX program is a significant part of manufacturing in Mexico. It was established in the mid-1960s as a way to incentivize foreign investment, benefiting the local economy and helping manufacturers expand globally.
Learning about the benefits and challenges associated with it is valuable if you’re considering launching production in Mexico for the first time. There are specific requirements when applying for the IMMEX program, and the process can be delayed if there are any inaccuracies or incomplete information found. Additionally, with the influx of manufacturers setting up production in Mexico, the IMMEX program has grown, which has translated to longer wait times for approval.
Though each manufacturer has specific project requirements, here are few of the most frequently asked questions to help guide you through the IMMEX program and what it takes to operate in Mexico.
What is IMMEX and how does it work?
The current IMMEX program, formerly known as the maquiladora program, offers favorable tax benefits to foreign companies manufacturing in Mexico. A maquiladora refers to any factory in Mexico owned and run by a foreign company, although it does not automatically have IMMEX benefits.
A manufacturing company that’s part of the IMMEX program, specifically, is exempt from the 16 percent value-added tax (VAT) when temporarily importing raw goods, materials, and equipment as part of the manufacturing process. Additionally, they will not owe duties when exporting these finished goods to the U.S. and Canada if classified as “Made in Mexico.”
Should I relocate manufacturing from China to Mexico?
Possibly. First, ask yourself why you want to relocate. Moving operational facilities from China to Mexico has been a main topic of conversation among manufacturers for the past several years. With the trade war, intellectual property challenges, and supply chain disruptions, U.S./China relations have dwindled over time.
Currently, manufacturers are seeking to diversify their positioning and eliminate their sole reliance on China. Additionally, the USMCA has issued more stringent IP protection and other beneficial provisions to help encourage ongoing trade in North America. If these are some of the factors you’re considering as well, manufacturing in Mexico may be a good strategy.
How easy is it to get manufacturing up and running in Mexico?
Increased and ever-changing compliance regulations have made it much more difficult to be up and running in Mexico. IVEMSA’s shelter clients typically launch production in approximately three to four months, which is nearly half the time it takes a standalone entity.
Furthermore, when working outside of shelter, you’ll have to hire individuals well-versed with the changes in both the U.S. and Mexico. This requires hiring customs brokers, an attorney, accountant, and HR representative to fulfill the necessary administrative responsibilities. It is faster, more efficient, and more cost-effective to work with a shelter that has an experienced team already in place versus putting together one on your own.
Am I a duty-free company under the IMMEX program?
No. Being approved for the IMMEX program does not qualify your entire operation as duty-free. Duties on imported products apply based on the country of origin of each product that is imported. Only temporary imports are exempt from the 16 percent value-added tax because you’re manufacturing products that will be eventually exported out of the country.
Do I need to be operating from a specific business park or close to the border?
No. You can be set up anywhere in Mexico. However, keep in mind, one of the first things to consider when manufacturing in Mexico is what’s best for you on both a short-term and long-term basis. For example, are you going to be sending most of your products to the eastern or western side of the U.S.? Which sector are you categorized as? And what is your plan to scale?
Many factors play a part in deciding which region is best for your operation. Fortunately, Mexico’s industrial infrastructure is spread throughout the country with certain regions set up for specific sectors. At IVEMSA, we’ll create a site selection matrix comparing different viable regions, offering a side-by-side overview of the advantages based on the needs of your specific operation.
Is it easy to apply for the IMMEX program?
No. It’s not easy to be approved for the program. Due to the significant fiscal advantage, there is hefty compliance necessary to apply and be approved.
It’s not uncommon for manufacturers to be denied approval due to application mistakes. Additionally, if denied, manufacturers may not receive information about the reasons why.
However, companies operating under IVEMSA’s shelter program are added to IVEMSA’s existing IMMEX and VAT certifications from day one, eliminating the need to apply on their own.
Should I work with a shelter manufacturing partner?
Yes. In short, you can get your operations up and running in less time with minimal risk in a way that’s more cost-effective than doing it on your own. You have the benefits of the IMMEX program, a team of experts, and compliance all in place and ready to go.
Whenever you’re manufacturing in a foreign country, it’s best to work with a shelter that already has expertise in the space. IVEMSA has supported manufacturers in Mexico for 45+ years, handling IMMEX compliance, in addition to other administrative responsibilities necessary for production, including HR, accounting, and customs compliance. Delegating these tasks to a shelter company allows manufacturers to focus solely on production, streamline setup time, and save costs.
However, if you’re still not sure about which direction to go, we can walk you through all the operations and cost benefits to help validate your project and see if manufacturing in Mexico is right for you.