Tax advantages and Government Incentives
Mexico maintains a corporate tax rate of approximately 30%. However, the country offers a tax advantage to foreign companies through the "IMMEX" program, also known as the Maquiladora Program. This program enables manufacturers to benefit from significantly lower tax rates compared to many other countries. Under the IMMEX program, imported raw materials and components are exempt from general import duties (16%), value-added taxes, and compensatory fees.
Furthermore, certain states within Mexico provide attractive tax incentives to encourage companies to establish their production facilities within their jurisdictions. These incentives serve as additional benefits for companies seeking to initiate manufacturing operations in specific cities or regions of Mexico.
Some Hard Facts
- 16% import taxes must not be paid under the “immex” program
- imported machinery and equipment are tax free
- Companies must export a minimum of at least $500k worth of finished products on an annual basis or must have exports that account for a minimum of 10% of yearly sales.
- Attractive tax incentives from various states
Tax advantage IMMEX program
In the late sixties, the Mexican Government’s Maquiladora Export Program (now known as the IMMEX Program) began laying the foundation for this industry. It is mostly responsible for expanding industrialization, employment opportunities and most importantly, allowing the importation of goods to be assembled and exported without import duties or taxes. TThe primary objective of the IMMEX program is to boost the Mexican economy by allowing foreign companies to import raw materials and components into Mexico for manufacturing products destined for export.
In other words, international companies are allowed to import raw materials and components with a zero free tax – as long as it is processed there and the final good exported to other countries. Additionally, imported machinery and equipment also enjoy tax exemptions. Given the various global crises, such as the COVID-19 pandemic, the Ukraine conflict, and the strained relations between the United States and China, many foreign companies are leveraging the advantages offered by the IMMEX program by expanding their operations in Mexico and engaging in nearshoring activities.
Other advantages of the IMMEX Program
The program also aims to modernize the globalization of Mexico’s manufacturing infrastructure by bringing new, specialized technologies and knowledge to the region and creating jobs as well as to attract foreign direct investment. This also provides companies to be cost-efficient while still focusing on the quality of the goods produced and manufactured.
From the following advantages will a company benefit:
- Exemption from import/export tax:
- Deferred payment of import duties on processed goods, as long as they comply with the legal stay duration in Mexico.
- Reduced or no corporate tax:
- Foreign-owned IMMEX companies can benefit from a special tax regime, provided they meet the "maquiladora" definition for tax law purposes.
- Exemption from VAT:
- Eligibility to apply for a VAT/IEPS Certification granted by SAT.
- VAT/IEPS Certification allows IMMEX companies to receive a "tax credit" equivalent to the applicable VAT and/or IEPS tax on temporary imports.
Who is IMMEX in Mexico aimed at
Today, IMMEX is applied to most industries in which foreign companies manufacture in Mexico to export products from the country to global markets. Among the most important users of the IMMEX program in Mexico are companies that produce parts for the country’s automotive, medical device and aerospace industries as well as textiles, and electronics. Today, 89 of the top 100 automotive parts manufacturers have an established presence in Mexico. IMMEX is also utilized by many other industries such as assembly, food or general manufacturing.
The types of legal entities that can access the IMMEX program in Mexico are several. Among them are the following:
- Industrial type:
- This category encompasses foreign manufacturers operating in Mexico.
- National factory:
- Refers to Mexican factories involved in the production chain of a company manufacturing goods in Mexico for export.
- Providers of services:
- This category includes companies that offer services to other businesses, such as cleaning, machinery, and equipment maintenance. If a foreign company operates under the IMMEX program in Mexico, service providers serving that company can also benefit from the program's advantages.
- Tertiary entity:
- This mode applies to companies that don't possess their own production facilities in Mexico but carry out manufacturing operations through third-party entities registered under the IMMEX program.
Requirements to enter to the IMMEX program
The IMMEX program in Mexico is aimed exclusively at legal persons, which is an individual with rights and obligations that exists, not as a natural person, but as an institution that has been created by one or more natural persons. To participate in the IMMEX program, manufacturers must meet certain requirements:
- Temporary stay: Raw materials, components, and products imported by foreign companies into Mexico are allowed to remain in the country for a limited period. They must be incorporated into an end product and exported from Mexican national territory.
- Export requirements: Companies must meet certain export criteria, such as exporting a minimum of $500k worth of finished products annually or having exports accounting for at least 10% of yearly sales.
- Specification and incorporation: Companies must clearly state the items they will receive from abroad and how they will be incorporated into the end product intended for overseas shipment.
- Inventory control: Companies operating under the IMMEX program in Mexico must adhere to an inventory control system specified in ANNEX 24 of the foreign trade rules.
Other tax incentives
Beside the immex program, Mexico offers various tax incentives at federal and state levels to attract investment, support specific industries and promote economic development. Though its important to note that the availability and specific details of tax incentives can vary by location and industry.
Some federal and/or state incentives may include:
- tax reductons over several years
- Payroll tax reductions
- Training and workforce development grants.
- Infrastructure and facility development assistance.
- Deduction of Investments: Allows businesses to deduct the full cost of certain investments in fixed assets in the year they are acquired.
- Energy Incentives: Offers tax benefits to companies engaged in renewable energy projects