How Foreign Manufacturers Qualify for Tax Exemption in Mexico10.20.21
The manufacturing industry as a whole has largely focused more attention on Mexico in recent years. For good reason, as Mexico has been a popular manufacturing destination for decades due to its industrial workforce, cost-effective labor, and close proximity to the U.S. In addition to those advantages, manufacturing in Mexico also comes with an additional fiscal benefit: the IMMEX program.
Mexico’s IMMEX program, formerly referred to as the maquiladora program, was established over 50 years ago to encourage foreign investment throughout Mexico with the hope of creating jobs and contributing to the local economy. Although the IMMEX program has changed throughout the years, it still offers a key tax incentive to operate in Mexico.
Tax Exemption Through the IMMEX Program
The IMMEX program allows approved manufacturers tax exemption from Mexico’s 16 percent value-added tax (VAT). This is applied to goods, materials, and equipment temporarily imported for the manufacturing process as long as they are exported within the required timeframe. However, because of this fiscal advantage, approval for the program doesn’t come easy.
It can take months to be approved, during which time manufacturers are still subject to paying the VAT. Fortunately, those working with a shelter partner automatically “qualify” for the exemption from the initial setup. A shelter company already has the required permits and certifications in place to start production, including IMMEX certification. This reduces the time, cost, and hassle of manufacturing companies having to establish these on their own.
Duty-Free Clarification and Import Exceptions
Working under a shelter’s IMMEX certification is a significant advantage. Although it should be noted, it does not make the company duty-free. The IMMEX tax exemption only applies to temporarily imported goods that have been approved through the program and manufacturers are subject to the proper reporting requirements.
Fortunately, a shelter company handles all the responsibilities of ensuring compliance of an operation as part of the administrative services offered. This includes being knowledgeable about legislative changes and ensuring everything is up-to-date to continue operations smoothly.
Why Companies Are Manufacturing in Mexico vs. China
The tax advantage of the IMMEX program is one of the many reasons why companies favor manufacturing in Mexico versus China. In recent years, the trade war between the U.S. and China has affected manufacturers’ strategic decisions going forward. Also, in light of the industry post-pandemic, many manufacturers do not want to maintain a sole reliance on China. This provides yet another reason why they are ready to bring operations closer to home.
Lower labor costs, closer proximity, and USCMA protections and incentives are all additional benefits causing companies to consider their options. Working with a shelter company makes the transition of manufacturing in Mexico seamless and efficient. A shelter takes care of all administrative responsibilities, allowing companies to fully focus on the manufacturing processes. It is one of the most cost-effective and reliable ways of operating, which many global leaders have benefited from over the years.