Maquiladoras: An Insider’s View on What to Expect

10.26.21

The maquiladora program, now known as the IMMEX program, was established in the mid-1960s. Since then, it’s provided significant cost-saving opportunities for companies manufacturing in Mexico. These foreign-run factories are referred to as maquiladoras. And the IMMEX maquiladora program allows manufacturers exemption from the 16 percent value-added tax when temporarily importing goods, materials, and equipment.

 

However, with this great advantage comes great responsibility. U.S. and other foreign manufacturers navigating an unfamiliar landscape should have a general baseline of what to expect and what is expected of them. Even companies that have been manufacturing for years or those who have done business in Mexico in the past should know the way the maquiladora program works today differs from how it did even a few years ago.

 

For those exploring the option of manufacturing in Mexico and want to learn more about how maquiladoras operate and recent updates in the hiring landscape, here are a few things to expect.

#1: Change Is the Only Constant

As with anything in life, the only constant is change. The same goes for maquiladoras, the IMMEX program, and essentially, anything to do with regulatory compliance. One of the most recent changes in legislation is the modifications to outsourcing. In April 2021, the Mexican Senate instituted Labor Law that prohibits outsourcing, unless it’s “part of specialized services or needed for the execution for special projects with specifications.”

 

These changes went into effect August 1, 2021, and those found in non-compliance are subject to penalties including potential characterization as tax fraud. This is one of the many examples of regulatory updates that can affect the way your operation does business. This constant change puts foreign manufacturers operating without the protection of a shelter at risk.

 

Keeping track of new legislation and how it affects your company is a full-time responsibility and information easily can be missed if there’s not a designated person handling it. A shelter company remains up-to-speed with Mexico’s ever-changing regulations to minimize risk and legal exposure for foreign manufacturers.

#2: Be Ready to Put Together a Team

Due to the nature of the IMMEX program, you’ll also need to be ready to put together a team. This includes U.S. and Mexico customs brokers, an accounting team, attorney, and HR to be fully aligned and in compliance at all times. Piecemealing these roles together is costly and time-consuming. Plus, hiring individuals working separately can lead to miscommunication and challenges when assigning tasks and responsibilities.

 

Hiring for these roles and obtaining the required manufacturing software outside of a shelter could cost as much as $15,000 USD or more per month. Whereas, by partnering with a shelter company, there’s an experienced team of experts already in place with these salaries and fees included.

#3: Strict Labor Laws Protect Employees

A third area to prepare for as a maquiladora is labor laws. Mexico’s labor laws are strict and designed to protect employees. For example, letting go of one employee could cost a manufacturer 90 days’ worth of salary.

 

Employers must provide written notice with the cause of termination and date of action when terminating an employee. An employee can refuse receipt of this notice, which puts the burden on the employer to file the document with the labor board within five day of the termination. If there’s a failure to deliver a file in the allotted time span, the termination is deemed unjustified.

 

The employer must then either reinstate the employee’s position or be held liable for severance pay, which is at least three months’ worth of wages for full-time employees. When manufacturing in Mexico, it’s best to designate HR services to the expertise of a shelter company to avoid costly mistakes.

#4: Import/Export Compliance Is Complex

Lastly, import/export compliance is where foreign manufacturers often struggle most, if they don’t have the guidance of a shelter company. The smallest administrative mistake can turn into a huge operational disruption. A common example is when there is a discrepancy on the type or amount of products being imported/exported physically on the truck compared to what’s declared on the paperwork.

 

Any error is going to result in the fine, which is typically associated with a percentage of the cost of the whole volume of the truck. Plus, there’s paperwork to be filled out before the cargo is released and shipment(s) may be placed on an indefinite hold until the issue is resolved. This is one of the many scenarios that may occur when manufacturing in Mexico. Entering the space unprepared and without the proper guidance can delay or derail an entire operation.

Partnering with IVEMSA

A shelter company like IVEMSA is well-equipped and well-versed in guiding U.S. and other foreign manufacturers through the process of setting up a maquiladora and operating in compliance. Additionally, manufacturers working with a shelter receive IMMEX program tax benefits from day one.

 

This insider knowledge, cost benefits, reduced risk and liability, and adaptability to maintain compliance are all reasons why it’s advantageous to partner with a shelter operation. It gives manufacturers a solid idea of what to expect, which helps protect their investment and keeps their operation moving forward.

 

For more information about the IMMEX program and benefits of working with a shelter, contact IVEMSA today.

 

Source:

https://www.pwc.com/us/en/services/tax/library/mexico-approves-significant-changes-for-subcontracted-services.html

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