The Mexican government created the IMMEX program to attract foreign investors through a range of incentives. Under the program, a foreign company can set up a legal entity in Mexico (either through ownership or outsourcing), import raw materials to Mexico duty free, produce goods from those materials in Mexico, and then export those goods within a specified timeframe.
The program applies not just to manufacturers but to foreign organizations such as legal firms and software developers that provide services in Mexico to companies that produce goods destined for export.
Thousands of businesses manufacture a variety of products under the IMMEX program. The majority of companies are in the automotive, aerospace and medical device industries. This article provides an overview of the program for non-Mexico-based organizations interested in taking advantage of IMMEX benefits.
IMMEX background
Mexico introduced the Decree for the Promotion of the Manufacturing, Maquila and Export Service Industry (IMMEX Decree) in 2006, although the original Maquiladora Program dates to the 1960s. A “maquiladora,” or “maquila,” is defined as a foreign-owned factory, typically staffed by low-wage workers.
Maquiladoras have also become known as “border factories,” since most of them are located near the US-Mexico border. They have proliferated since the introduction of the North American Free Trade Agreement (NAFTA) in 1994, replaced by the United-States-Mexico-Canada Agreement (USCMA) in 2020.
The IMMEX program was created with the goal of “increasing the competitiveness of the Mexican export sector, and bringing certainty, transparency and continuity to companies’ operations,” according to Mexico’s Secretariat of Economy. The program is widely viewed as a response to China’s growing dominance in global manufacturing.
IMMEX benefits for foreign investors
IMMEX offers several tax benefits to program participants. These benefits include:
- Duty-free imports. Companies don’t incur duties levied on temporarily imported raw materials or imported machinery.
- VAT exemption. Temporarily imported raw materials and fixed assets are not subject to value-added tax (16 percent at the time of writing) when the Mexican entity importing the goods obtains the correct VAT certification and meets other program requirements.
- Lower corporate tax rates. Under certain conditions, a company that qualifies for the program can benefit from a special tax regime offering preferential rates.
In addition to the tax advantages of the program, Mexico is an attractive manufacturing centre. The country is home to a large pool of skilled, relatively low-wage workers and has competitive shipping and a streamlined customs process.
US-based businesses in particular can take advantage Mexico’s proximity, allowing business operations within the same time zone and convenient travel between the two countries.
To varying degrees this holds true for Canada, Brazil and other prominent economies in the region. As supply chain crises proliferated due to the pandemic, the concept of “nearshoring” has gained appeal as more companies have begun seeking ways to set up manufacturing or outsourced operations closer to their destination markets.
Registering for IMMEX: Five categories
There are five categories, or programs, under which companies can register for IMMEX authorisation, as specified by Mexico’s Secretariat of Economy. Following are descriptions of each:
- Holding company program. A certified holding company can register its manufacturing operations and one or more subsidiaries under one application.
- Industrial program. A manufacturer that uses temporarily imported goods to make or transform the raw materials into a final good that will then be exported within a specified timeframe.
- Services program. Service companies, such as legal firms and tech companies that support IMMEX-registered importers and exporters. Companies registering under this category must be reviewed by the Ministry of Finance and Public Credit.
- Shelter program. A non-resident manufacturer that can benefit from operations in Mexico without having to set up a legal presence in the country. The shelter company assumes all risks and liability and acts as the legal representative of the business.
- Outsourcing program. An IMMEX-certified company that manufactures products through a third party but does not own the facilities that handle the production process itself.
Eligibility and reporting requirements
It’s important for first-time investors to know that manufacturers in Mexico don’t automatically become maquiladoras when they’re established. Companies must meet certain requirements and comply with several regulations to maintain their IMMEX status.
Companies registering for the IMMEX program must:
- Export at least US$500,000 of finished products annually or have exported finished products that account for a minimum of 10 percent of annual sales.
- Specify what raw materials will be received from abroad and how they will be integrated into a product for export.
- Use an inventory control system under Annex 24 (Anexo 24), in full compliance with the foreign trade rules set by the Mexican Customs and Tax Authority. Annex 24 specifies the time requirements under which materials imported on a temporary basis must be incorporated into products for export. This timeframe is generally six to 18 months, but it may be longer for some products.
IMMEX program holders must also fulfil regular reporting requirements. Reporting obligations include:
- Submitting an annual report of total sales and exports for the prior tax year.
- Submitting certain statistical information as determined by the Secretariat of Economy.
Companies that fail to comply with IMMEX reporting requirements may face penalties and sanctions, such as a suspension of benefits or losing IMMEX status.
John Greaves, Manager, US tax at PDI, contributed to this article.
