What is the main purpose of maquiladoras entities? The answer is simple; to not pay taxes. While that does sound appealing, bear in mind that it is necessary to have the right plan and strategy in place in order to obtain this fiscal “paradise”. The government allows for maquiladoras as long as they accomplish everything within the legal guidelines stated for such purposes. Therefore, in this article we briefly provide general considerations and ideas in the utilization of maquiladoras as a great opportunity to create profitable businesses in Mexico.
Maquiladoras have existed in Mexico since 1965. They have become one of the most important manufacturing businesses to hundreds of companies in the United States, and are recognized for the quality of their products and services around the world. In addition, Mexican laws relative to maquiladoras provide “tax mechanisms and schemes” making it more profitable to investors. Such “tax mechanisms and schemes” can be summarized as a benefit to bypass the payment of the Value Added Tax (VAT) and the General Import Duty (GID) for all temporary importations performed by the maquila.
Preferential Tariff Systems for GID
The GID is the Customs tax caused by the temporary importation of goods into Mexico pursuant to the General Import and Export Duty Law. The GID is determined by tariffs which are calculated by percentage, specific or joint dues. In all cases and/or tariffs, it’s feasible to apply a preferential tariff system with the objective of bypassing payment of the GID. Such preferential tariff systems are located within the Foreign Trade Agreements (FTA), Sectorial Relief Programs (PROSEC), and/or the Rule 8th (REGLA OCTAVA) among others. The use of any of preferential tariff systems will allow for maquiladoras to bypass payment of the GID in every temporary importation. Keep in mind, all preferential tariff systems to be considered have specific rules and obligations that need to be met at all times for the purpose of keeping it beneficial.
Prior to 2015, all importations were exempt from payment of VAT. Since 2015, legislation reforms to the Value Added Tax law were passed making all temporary importations taxable with VAT. However, a new process was established that bypasses the payment of the VAT for temporary importations. This process is known as “Certification for VAT purposes”. VAT certification is a permit that is granted by the Federal Tax Authorities of Mexico and allows for maquiladora entities to perform temporary imports without paying VAT. Requesting a VAT certification is easy and free.
Customs Processing Fee
The Customs Processing Fee (CPF) applies to every foreign trade operation (i.e. import/export pedimentos) performed by maquiladoras and regular Mexican entities. The Federal Tax Law states that all temporary importations utilized by maquiladoras for manufacturing processes will be charged with the lowest CPF. This means special treatment for maquiladoras resulting in savings on each import and/or export operation.
As you can see, there are substantial tax saving opportunities for maquiladoras in Mexico. The idea of investing in Mexico-based maquilas is profitable, inexpensive, and attainable.
Christian Haro is an attorney with the law offices of Toulet, Gottfried, Davila Y Martinez, S.C. in Mexico. TGDM is a part of a strategic alliance with the Braumiller Law Group.