Mark Earley, the executive vice president and chief financial officer of the Tecma Group of Companies gives a synopsis of things to take into account when calculating Mexico importation costs and Mexican duty rates.

Hello, my name is Mark Earley. I am the chief financial of the Tecma Group. Today I would like to talk to you about Mexcan importation costs and Mexican duty rates under the maquiladora, or IMMEX, program.

The first thing that is important to note is that importation costs fall under the jurisdiction of Mexican Customs, and the SAT, which is the equivalent of the Mexican Internal Revenue Service. As you know, anything that is associated with internal revenue services tends to be complicated. On the surface, importation costs will seem to be easy, but, as you start looking at the issue on a detailed level, you will find that they are quite complicated.   This  complexity leads most importers to utilize either internal or external experts to help them to determine what these costs are.

When dealing with importation costs, they are levied upon entrance into Mexico. They consist of three elements. The first one is that of Mexican duty rates, and that, by far, is the most complicated. There is the Mexican value-added tax or IVA, and in Mexico, on the border, it is eleven percent.   In the interior it is sixteen percent. Finally, there is a Mexican customs fee element. Those three elements make up what is importation costs.

Let’s take a look at the most difficult one first, and that is of Mexican duty rates. In order to determine duties to be paid,  we need valuation of the products being imported and a duty rate. The valuation is fairly simple, and is something that most importers and companies already know.  The value here is that of landed cost, consisting of the cost of the product at the point of landing in Mexico,  purchase price, freight, insurance, etc. Then we need to determine the Mexican duty rates. To determine the duty rate the first thing that we need is the harmonized universal tariff schedule number of the good or goods. Any good being moved to and from any country will have a harmonized tariff schedule. Utilizing the harmonized tariff schedule, we then determine the Mexican duty rates. There are three types of duty rates:

  • The general rate or the default rate that is used;
  • Additonal based rates. They are usually based on a country of origin basis;
  • Special program rates.

Additional base rates encompass Mexico’s free trade agreements, the most recognizable being the NAFTA. Under the NAFTA, product moves in and out, or within, North America at a zero percent duty rate.

Special progams are Mexico specific. There are two that are the most utilized ones. They are called Prosec, the sectorial program.  The other one is “Regla Octava,” or “Rule 8.” These are special programs set up by the Mexican government for cases in which product that is not from North America can recieve exemption from duties, or be assessed at Mexican duty rates that are less than the general rate.

Photo credit: Boston Public Library