Pursuant to the recent tax Reform in Mexico (in effect as of January 2014), there are certain milestones that all IMMEX companies (commonly known as “maquiladoras”) must be aware of to avoid certain tax obligations and liabilities that will certainly impact their cash flow. As part of the tax reform, specifically in regards to Value Added Tax (“VAT”) and Income Tax regulations, new requirements are in place and will affect the operation of an IMMEX company if not addressed in due time, as follows:
- Value Added Tax (“VAT”) on all Temporary Imports. As of January 1, 2015, all IMMEX companies will be required to pay VAT (16%) on all goods imported into Mexico on a temporary basis, except for those that obtain a certification from the Mexican IRS (Servicio de Administracion Tributaria) for such purposes. To obtain said certification, the Mexican government has established a calendar pursuant to which the entities that desire to obtain same must file their application; the dates in which IMMEX companies can file their applications are based on their location and the Foreign Trade Audit Regional Office (Administracion Regional de Auditoria de Comercio Exterior (ARACE for its acronym in Spanish)) and are the following:
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- Segregation of income arising from maquila operations and domestics sales. Should IMMEX companies have maquila and domestic sales, the law requires them to segregate the income arising from those two operations since both cannot be subject to the same tax benefits. The due date to segregate the income from those two activities is June 30, 2014; otherwise, the Mexican entity will expose the foreign entity that owns the assets to a permanent establishment in Mexico.
- 70-30 Asset Rule. As of January 2016, IMMEX companies that do not comply with the rule that at least 30% of the assets used for their manufacturing process are owned by a foreigner will create a Permanent Establishment in Mexico to the latter.
- Transfer Pricing Rules. June 30, 2014 is the due date for IMMEX companies to have their Advance Pricing Agreement filed with the Mexican IRS (Servicio de Administracion Tributaria).
It is very important to keep in mind the aforementioned dates and take the time to have all information and documents prepared and ready to be filed as stated above; otherwise Maquiladoras may lose the tax benefits that were included in the last Tax Reform and can create a risk and exposure to their related parties abroad.