IMMEX Program Q&A: What Manufacturers Need to Know

Article Summary: The IMMEX program is synonymous with manufacturing in Mexico. It is one of the most powerful incentives Mexico offers for U.S. and other foreign manufacturers, but it’s also one that’s often misunderstood. To help clear up misconceptions and clarify expectations, here are frequently asked questions manufacturers have about the application process, approval timelines, challenges, and benefits within the program.

What is the IMMEX program and how does it help manufacturers?

The IMMEX program — or Industria Manufacturera, Maquiladora y de Servicios de Exportación — is Mexico’s export program created to promote foreign direct investment.

Known formerly as the Maquiladora Program, it was originally implemented in 1965 and continues to be updated throughout the years.

IMMEX allows U.S. and other foreign manufacturers to:

• Import raw materials, machinery, and components into Mexico
• Use them for production when expanding manufacturing to Mexico
• Re-export finished goods with special incentives

Benefits of the program include:

• VAT (value-added tax) exemption on qualified imports
• Deferral or elimination of customs duties based on country of origin and applicable free trade agreements
• Temporary import permit approval
• Streamlined logistics and supply chain agility

Despite its benefits, it’s important to note the IMMEX program is not a tax loophole. Rather, it’s a legally sanctioned export incentive used by thousands of manufacturers in Mexico today.

How does IMMEX differ from a maquiladora?

A maquiladora refers to a foreign factory manufacturing in Mexico and was used in the naming of the program when it first began, but as it’s been modernized, it’s shifted to what IMMEX is known as today.

Who can use IMMEX?

• Approved Mexican entities operating under export programs
• Manufacturing operations producing goods for export
• Operations exporting from Mexico more than 10% of their production
• Operations working through a shelter partner with a valid IMMEX license

Both shelter and standalone entities can hold IMMEX status, provided they meet the requirements. It’s been a successful strategy for global manufacturers over the past several decades with regard to cost-effectiveness and competitiveness.

How long can goods stay in Mexico under the IMMEX program?

The typical term limit is 18 months for raw materials and components. For machinery, typically the equipment and assets can remain in Mexico for as long as the IMMEX program continues to operate.

Why does VAT exemption matter, and when does it apply?

One of the main benefits of the IMMEX program is VAT exemption, which improves cash flow for foreign manufacturers. VAT in Mexico is typically 16% on local purchases and nationalized imports.

Once a manufacturer is approved by the IMMEX program, they must also receive VAT certification (which can take several additional months) to qualify for the tax exemption on the temporarily imported goods that will be transformed in Mexico and eventually exported out of the country.

What are the qualifications for approval into the IMMEX program?

IMMEX ascertains that U.S. and other foreign manufacturers receive the temporary import benefit as long as they are used for production and are exported as finished goods within the given timeframe. Program qualifications include:

• Maintenance of detailed inventory control
• Tracking of imported materials becomes final exports
• Report to Mexican authorities

What type of requirements are involved in the IMMEX program?

IMMEX certification can be revoked at any time due to non-compliance with the program’s regulations. Manufacturers must:

• File monthly customs declarations
• Maintain precise inventory tracking
• Report import vs. export flow every month
• Respond to audits
• Maintain accounting and payroll compliance

What are the penalties for non-compliance with the IMMEX program?

Penalties for non-compliance can include fines, VAT and duty reassessment, and suspension of IMMEX status. Even the smallest administrative mistake can trigger non-compliance and cause significant production setbacks.

This is why most manufacturers choose to partner with a shelter company as a way to minimize legal exposure and compliance risk.

Does IMMEX exempt all taxes?

No. Only VAT related to the temporary importation of materials, components, and equipment is eligible for exemption through the program. Income tax still applies.

Are duties waived as part of the IMMEX program?

Duties will be exempted based on applying a free trade agreement benefit based on the classification of materials, country of origin, and potential customs benefits that Mexico could offer, but are not related to the IMMEX program.

How long does the approval process take?

A new IMMEX application for a recently created entity or corporation could take about 4 to 5 months for approval. When applying through an existing shelter IMMEX entity, you can reduce the time to 2 to 3 months since the shelter IMMEX license already exists and operates, making the process faster.

Does IMMEX certification automatically renew every year?

No. Not only can IMMEX privileges be revoked at any time for non-compliance, Mexican authorities also expect monthly documentation with an accurate inventory.

Am I automatically part of the IMMEX program when working with a shelter company?

As a shelter company partner, the manufacturer is added to an existing IMMEX program. This takes significantly less time than a U.S. or other foreign company applying as a standalone entity.

Should I work with a Mexico shelter company?

The majority of U.S. and other foreign manufacturers choose to work with a shelter partner when expanding manufacturing to Mexico. The convenience and cost savings alone are valuable enough to follow this business model. However, other benefits include:

• Minimized risk and liability
• Production flexibility and scalability
• Reduced learning curve when operating in a foreign country
• Accelerated startup timeline compared to establishing a standalone entity

What other benefits does a shelter company provide?

A shelter company handles all administrative responsibilities necessary to launch production in Mexico, including gathering all certifications and permits, such as IMMEX.

These various departments handle taxes, accounting, recruiting, HR, and more, leaving manufacturers to focus solely on production while also maintaining full ownership over their equipment and intellectual property.

Are there other business models to consider?

In addition to the shelter option, some manufacturers choose to operate as a standalone entity.

This requires a longer setup time, especially when applying for and awaiting approval for the IMMEX program and VAT certification.

However, certain shelter services can still apply if manufacturers seek help with site selection or hiring employees. Contract manufacturing is another option to consider for manufacturers that want to outsource production altogether.

Discussing Next Steps for Expanding Production

If you’re considering moving manufacturing to Mexico, let’s talk about whether working with a shelter company is the right choice for you.

Learn more about the IMMEX approval process and how our team can support you in getting your production up and running. Contact IVEMSA today.