Mexico’s VAT Tax Benefits: Understanding the Basics03.11.21
Manufacturing in Mexico offers several advantages for U.S. and other foreign companies. One of the most significant benefits is the value-added tax (VAT) savings implemented when working under a shelter operation. To better understand how this can benefit you, we’re defining Mexico’s VAT rate and how it’s calculated, who’s exempt from the VAT in Mexico, and recent changes manufacturers need to know.
Defining Mexico’s VAT Tax
As a foreign manufacturer operating in Mexico, a 16% Mexico VAT is applied to all goods, equipment, and machinery temporarily imported into the country. Though, it’s important to note that Mexico’s VAT rate is lower (8%) along the northern border region but this only applies to domestic purchases.
Locally known as the impuesto al valor agregado tax or IVA en Mexico, the Mexico IVA is universally applied across the supply chain and exists in addition to other manufacturing fees. And it’s the end consumer who is ultimately responsible for payment.
How Is the VAT Tax Calculated for Import and Mexico’s Customs Purposes?
Many mistakenly believe exemption from Mexico’s VAT rate under the IMMEX program makes goods and equipment duty-free. However, the 16% VAT is calculated based on their commercial value. This means any company that is importing goods, materials, or equipment to Mexico is subject to a VAT payment based on the commercial value of the imported good(s). If the company operates under the IMMEX program and maintains VAT certification, the company will be able to avoid this payment.
Who’s Exempt from VAT Tax in Mexico?
Being exempt from VAT in Mexico can significantly impact the cost-effectiveness of manufacturing in Mexico. Under Mexico’s maquiladora program, shelter service operators are exempt from paying VAT as long as they have a valid IMMEX program that is paired with a VAT certification. The VAT certification is categorized into different tiers, each with specific requirements applicants must meet with regard to inventory and compliance measures. It’s also important to mention that all goods imported VAT-free must be eventually exported as finished goods.
Since shelter companies have already been approved for and maintain the proper certifications necessary for VAT tax exemption, it serves as a great cost- and time-saving benefit for U.S. manufacturers wanting to operate in Mexico. Without the aid of a shelter, the application time can take months before there’s a chance for approval. And all materials imported into Mexico during this waiting period are subject to the full 16% tax rate.
Maximize Cost Savings by Working with a Shelter Company
Extensive VAT tax requirements can present hurdles for foreign manufacturers that wish to expand their operations. When manufacturing in Mexico, it’s most cost-effective to work with a shelter company. It helps expedite setup time, due to the fact shelters already have the proper certifications and compliance measures in place.
It also allows U.S. manufacturers to benefit from Mexico’s VAT exemption from day one, rather than calculating additional costs during the months an application is under review. Furthermore, as a U.S. manufacturer operating in Mexico, partnering with a shelter provider mitigates the risk of non-compliance and lowers the learning curve necessary to keep up with important changes.
To learn more about Mexico’s VAT benefits and other cost-saving opportunities, contact IVEMSA today.