The formulation and implementation of a sustainable, business friendly maquiladora tax regime will be a boon to Mexico over the long haul.
In order to continue attracting foreign direct investment from all over the world, especially from the US, it is imperative that Mexico provide a competitive, long-term maquiladora taxation regime for its unique export industry. To continue rising in prominence on the global scene as a production partner of choice, Mexico must provide solid incentives to investors, not only with regard to tax structure, but also must consider the overall climate for investment in manufacturing and import/export activities. Mexican law requires a clearly defined, long-term maquiladora tax regime. Recent reforms have enhanced the prospects for clarity and ongoing receipt of foreign direct investment.
The Past Maquiladora Tax Regime
The maquiladora industry was created in the 1960s, and with it, thousands of new manufacturing jobs. Tax laws did not require maquiladoras to pay corporate taxes for its first three decades, since, it was argued, the increase of formal jobs from increased manufacturing activity would bring about a net increase of revenues from the resulting Mexican Social Security contributions. However, the Mexico’s government began requiring recognition of taxable profits at fair-market value in the mid 1990s, and corporate taxes ensued. Eventually, Maquiladoras came to pay a maximum of 17.5%, resulting from special tax incentives that exempted them from the full burden of combining the 30% income tax with the 17.5% business flat tax (IETU).
2014 saw sweeping reforms in many sectors and industries, and the Maquiladora industry was no exception. Among the laws repealed relating to the maquiladora tax regime were:
- The Business Flat Tax law (IETU); receivables from activities performed after December 31, 2013 are no longer subject to IETU.
- The Cash Deposits Tax Law
Additionally, the definition of a maquiladora was changed to reflect more modern understandings of the manufacturing-for-export situation in the country. Under the new definition.
The goods provided to a maquiladora by a non-Mexican resident must be:
- imported only temporarily to Mexico;
- subjected to transformation according to the legal definition;
- exported either physically or through a virtual export under the terms of customs laws and regulations.
Revenues from productive activities must derive solely from maquiladora activities, while ransformation must occur via machinery and equipment at least 30% of which belongs to the foreign investor related to the maquiladora operation.
Since the world economy is changing rapidly, in order for Mexico’s economic climate to remain competitive, frequent reviews and updates of the country’s maquiladora tax regime must be conducted. Additionally, care should be taken to ensure a steady stream of raw materials and equipment flows in and out of Mexico unhindered by economic activity adverse taxation. It is vital to ensure these needs are met on a long-term basis for the continued development and progress of the maquiladora industry in Mexico.