Mexico: Essential Guide to the IMMEX Regime and Other Complementary Programs for Boosting Export Manufacturing

For several decades, Mexico has taken advantage of its geographic proximity to the United States by implementing various programs aimed at promoting manufacturing activities, often with the goal of exporting finished products.

Through initiatives such as the Maquiladora Export Industry Program (Maquila) and the Temporary Importation Program for the Production of Export Items (PITEX), the Mexican government sought to position the country as an export manufacturing center.

Today, "maquila" or similar operations refer to the activities carried out by a company operating under the Decree for the Promotion of the Manufacturing, Maquiladora and Export Services Industry (IMMEX Decree), which allows the temporary importation into Mexico of materials, parts and components, among other items necessary for the manufacture of finished products and their subsequent export, including machinery and equipment required for said production processes.

Temporary importation under the IMMEX decree generally allows for the deferral of import taxes and duties payment. However, the Value Added Tax (VAT) must be paid on imported products even under a temporary regime, unless the importer also obtains registration in the Business Certification Scheme, VAT and IEPS (RECE or CIVA) modality, which permits obtaining a tax credit for an amount corresponding to the payment of said tax upon importation.

The IMMEX industry is governed by the IMMEX Decree, published in the Official Gazette of the Federation on November 1, 2006, and formerly known as the Decree for the Promotion and Operation of the Maquiladora Export Industry (1998). It repealed the Decree Establishing Temporary Import Programs for the Production of Export Items, also known as the PITEX Decree (published in the DOF on May 3, 1990).

In addition to the IMMEX Decree, companies that carry out these types of activities are governed by special provisions in Customs Law, the Customs Law Regulations, the General Rules on Foreign Trade (RGCE) issued by the Tax Administration Service (SAT), as well as various rules and criteria issued by the Ministry of Economy (SE).

Key features of an IMMEX program

• Types of merchandise to be imported under an IMMEX program

As indicated above, a company operating under an IMMEX Program is authorized for the temporary importation of machinery and equipment (M&E), materials, parts and components necessary for the manufacture of export goods such as:

1. Lubricants and other materials that will be consumed during the production process of goods bound for export except petroleum-based products; raw materials, parts, and components that will be used entirely to integrate export merchandise; containers and packaging; and labels and brochures.
2. Shipping containers and trailer boxes.
3. Machinery, equipment, tools, instruments, molds, and spare parts for the production process; equipment and devices for pollution control; for research or training, industrial safety, telecommunications and computing, laboratory, measurement, product testing, and quality control; as well as those involved in the handling of materials directly related to export goods and others linked to the production process; and equipment for administrative development.

• Term of temporary imports

Merchandise temporarily imported under the IMMEX program may remain in Mexico for specific periods established by the Customs Law, the IMMEX Decree, and the RGCE, which generally vary between six and eighteen months, with the exception of M&E, which may remain under the temporary regime provided a company's operating authorization under the IMMEX program is valid.

• Sales in the domestic market

Traditionally, the purpose of the IMMEX program has been to encourage the production of export goods. However, companies that previously engaged in these activities are allowed to sell a part of their production in the Mexican domestic market, subject to certain control measures, payment of taxes (tariffs, countervailing duties, Value Added Tax (VAT), or Customs Processing Fee (DTA)), and compliance with applicable non-tariff regulations and restrictions.

• Transfers between IMMEX

The transfer of goods, including materials, parts and components, M&E, and finished products, is also possible between companies operating under an IMMEX program. When certain requirements are met, such transfers can be treated as exports by the transfer company (in which case, generally, the sale is not treated as a domestic sale but as an export sale).

The transferring company is jointly liable for applicable taxes if the merchandise in question is subsequently imported into Mexico on a permanent basis, without complying with the applicable obligations and control measures, instead of being exported.

IMMEX Program and Free Trade Agreements

The United States-Mexico-Canada Agreement (USMCA) establishes specific rules for companies operating under the IMMEX program, especially when they use inputs that do not originate in Mexico, the United States, or Canada, but from other countries.

Under IMMEX, companies can temporarily import goods by deferring the payment of tariffs, provided the final products in which the originating goods were incorporated are eventually exported. However, the USMCA establishes that if these non-originating materials are used to manufacture products to be exported to another USMCA country, tariffs must be paid as if they had been permanently imported.

The main reason for this rule is to prevent producers from a double benefit: first, by not paying tariffs for using non-originating inputs, and second, by exporting the final product with preferential treatment under the USMCA.

To address this situation, Mexico created the PROSEC program, which allows for reduced tariffs or even exemptions for certain key inputs, even if these are not originating from Mexico, thus helping to keep production costs competitive in industries such as electronics, automotive, and textiles, among others.

• IMMEX and European trade agreements

The provisions of the USMCA only apply to the reimbursement or exemption of import duties on materials used in the production of finished products for export to the United States or Canada.

If the finished goods are bound for a country outside of North America, there are no such restrictions under the USMCA on tariff refunds or exemptions, although similar restrictions exist in free trade agreements to which Mexico is a party, such as the free trade agreement with the European Union (FTAA) and the European Free Trade Association (EFTA).

Benefits and obligations for operating an IMMEX program

• Main benefits:
  • The temporary importation of goods under an IMMEX program is exempt from most non-tariff regulations and restrictions, such as some prior import permits, dumping and countervailing duties, and Mexican Official Standards (NOM), among others. Such goods may be transferred to other companies operating under this program.
  • Temporary imports of goods (other than M&E) are carried out by deferring applicable import duties and, if the importer also has CIVA authorization, can avoid paying the corresponding VAT.
  • Materials that are already manufactured in the country and rejected by quality control, as well as those that are considered obsolete due to technological advances, are allowed to be considered as waste.
  • Use of consolidated customs import manifests for efficient operations.
• Main obligations
  • Make annual sales abroad in an amount greater than USD$ 500,000.00 or its equivalent in local currency, or invoice exports for at least 10% of its total turnover.
  • Have an automated inventory control system, applying the First In, First Out (FIFO) accounting method to record the temporary import and export of materials incorporated into finished products, as well as M&E imported under the IMMEX Program.
  • Link imported goods to the processes carried out under the IMMEX Program, maintaining them at the addresses specifically authorized by the SE.
  • Temporarily imported goods must remain under temporary importation for the prescribed periods. To comply with this obligation, companies operating under this program must return the goods abroad, transfer them to other companies that carry out maquiladora activities, or assign them to a definitive customs regime (change from temporary to permanent importation, destruction, and donation, among others) within the aforementioned timeframes.
  • For goods considered sensitive, listed by tariff item in Annex II of the IMMEX decree published by the SE, authorization to extend the program must be obtained prior to import.
  • Submit a monthly report to the National Institute of Geography and Statistics (INEGI) containing statistical information on the company's employees involved in operations under the IMMEX Program operations.
  • Submit to the SE an annual report on its foreign trade operations called the Annual Report on Foreign Trade Operations (RAOCE).
  • Submit to the SE and SAT notices related to changes to corporate name, Federal Taxpayer Registry (RFC), partners or shareholders changes, legal representatives, or addresses where operations under the IMMEX program are carried out.

Additional programs available for IMMEX

Companies operating under an IMMEX program can access various import programs that allow them to apply additional benefits, such as the following:

1. CIVA: This authorization allows the application of a tax credit of 100% of the VAT applicable to temporary importation.
2. PROSEC Program: This program grants benefits to companies that carry out a production process related to various sectors selected by the SE, related to the application of a tariff-exempt or preferential rate for the import of raw materials and components, as well as machinery and equipment, regardless of their country of origin.
3. Rule 8: Companies authorized under the PROSEC program may obtain a prior import permit for the tax-exempt importation of certain inputs used in the manufacture of finished products authorized under their PROSEC program, when their importation is necessary to diversify sources of supply, due to the lack or insufficiency of national production, or to comply with international trade obligations, among other criteria.

Other considerations

Finally, in addition to evaluating the benefits and obligations associated with the IMMEX program and other export promotion programs, it is essential to analyze the company's operating structure from a comprehensive perspective.

In particular, it is key to define the most appropriate operating model from a fiscal perspective, considering the effects on Income Tax (ISR) and the applicable tax regime.

Strategic elements related to the supply chain must be taken into consideration, such as the location of suppliers and customers, the flow of goods, logistics costs, delivery times, and the operational characteristics of the specific industry. These factors, along with corporate, regulatory, and customs considerations, directly influence operational efficiency and optimal utilization of foreign trade programs.