Most organizations and individuals with an interest in the topic of manufacturing in Mexico are aware of the country’s recently passed Tax Reform of 2014, and of the inherent provisions that will impact foreign-owned companies located in the country that export the majority of their production to non-Mexican markets. The foremost Mexico maquiladora association, INDEX, is working hand in hand with tax authorities to craft practical and fair governing rules.
Of significant concern, are reform provisions that govern the levy of the Mexican value-added-tax, or IVA, as it is applied to companies manufacturing in Mexico under the maquiladora or, IMMEX, program.
Although the collection of a sixteen percent levy on temporarily imported items used in the production of good for export will not kick in until 2015, legislatively passed Mexican Tax Reform law includes a provision that will exempt “certified” maquiladora and IMMEX program manufacturers from the payment of the VAT. The rules that define the certification process, however, have not yet been fully crafted by Mexican taxation authorities.
With the aforementioned being the case, the leadership of the most authorataive Mexico maquiladora association, INDEX, has been working in close cooperation with Mexican taxation authorities for the purposes of crafting certification rules that will minimize the negative impact of tax reform on the country’s manufactured export industry
Recently INDEX issued a communiqué to its membership, and other maquiladora industry, and IMMEX program stakeholders for the purpose of updating them on its progress in this area. What follows is a partial synopsis of the aforementioned communication.
Update of activities engaged in by INDEX’s fiscal issues committees, with respect to Customs and export regulations affecting the soon to be defined industry certification process related to the recent national tax reform:
1. Certification will be administered by Mexico’s Tax Administration Service, or the Servicio de Administracion Tributaria (SAT) in Spanish, although the process will be overseen by the General Administration for the Audit of Foreign Trade (AGACE) in collaboration with the Mexican Economics Secretariate (SE), as well as with relevant private sector parties.
2. On November 11, 2013, INDEX approached the leadership of the SAT with a proposal related to the conduct of the, yet to be defined certification process. INDEX’s recommendations will be analyzed and evalated by SAT authorities.
3. The certification process will be based upon a regime of tax and Customs compliance. The “trustworthiness’ of a company, as the term applies to its prior behavior as a taxpayer, as well as the activities in which it is engaged, will be taken into consideration.
4. Governmental authorities are taking input from the private sector into consideration in the crafting of the certification process. This includes direct input from private sector firms, as well as from the associations that they are represented by.
5. It is anticipated that the rules for certification will be published in Mexico’s federal Diario Official during the second half of the month of January 2014.
General aspects of the certification process will include to following parameters:
1. The certification process will be applicable to companies that:
- create jobs
- export the majority of their production
- invest in Mexico, as well as comply with Customs and tax obligations
2. The certification process will distinguish those exporters that meet criteria that identifies them as being “reliable” from those that do not. All companies that meet the criteria that confirms reliability will be eligible to be “certified,” and, “therefore,” exempt from paying value added tax on items imported temporarily to be subsequently incorporated into goods that are exported from Mexico. This includes maquiladora and IMMEX manufacturers, service maquiladoras and companies manufacturing in Mexico under the auspices of Mexican shelter service providers
3. The certification process will be forty business days in length, and will, in some cases, include a visit from representatives of Mexico’s Tax Administration Service, or SAT. Whether or not SAT representatives will conduct on premise inspections will be a function of the risk and relability level assigned to the manufacturer that is applying for SAT certification and the associated value-added-tax exemption.
4. There will potentially be three levels or types of certifications established, such as:
(1) Basic Certification;
(2) Double A Certifiction; and
(3) Triple A Certification.
5. The single benefit conferred upon holders of Basic Certification will be an exemption from payment of value-added-tax on goods imported temporarily under the maquiladora, or IMMEX, program.
6. Only businesses that have complied with additional requirements (yet to be established) will be able to obtain Double and Triple A Certification. The benefits of these additional certifications have yet to be defined, but may include considerations such as:
- expedited value-added-tax reimbursement on MRO and service purchases
- extension of the time period allowed to close consolidated pedimentos
- audit minimization or prevention through self-reporting of errors
- prior written notification of audit
- as well as other potential benefits to be determined at a later date.
The Tecma Group of Comanipanies will continue to provide information developments related to this important topic as we receive it.
The subject of the next Tecma Group of Companies blog post will be the preliminary requirements for certification for value-added-tax exemptions on temporary imports, Interested parties can have this and other Tecma published content delivered automatically to desktops, laptops and other electronic devices, by subscribing to our RSS feed.