Traditional and Shelter Maquiladoras may be affected by proposed tax reforms
The successful and modern manufacturing company scours the global economy for best practices and financial advantages for raw materials sourcing, manufacturing and selling locations, workforce value, and more, thus leading to a global supply chain that enables companies to maximize profits and minimize transportation and logistics costs related to the importation and exportation of inputs and manufactured products. These goals can be accomplished in Mexico by establishing either traditional or shelter maquiladoras.
While traditional maquiladoras are incorporated in Mexico as wholly-owned subsidiaries of a foreign parent, shelter maquiladoras enable foreign manufacturers to operate manufacturing facilities in Mexico under a business license held by a Mexican company. While the foreign company controls its core manufacturing functions, the “shelter company,” typically provides services that could be generally classified as G&A functions, as well as the provision of the physical infrastructure required by manufacturing concerns.
On September 8th president Enrique Peña Nieto presented a proposed tax reform package to the Mexican Congress for review. This proposed set of measures have to potential to impact both traditional and shelter maquiladoras.
Some of the measures being contemplated include:
- Defining maquiladoras as entities for which ninety percent revenues are derived from exports. This proposal could have a significant affect upon maquiladoras that make a considerable volume of sales into the Mexican market, and could affect permanent establishment status as well as other favorable tax advantages
- Shelter maquiladoras will continue to be protected from permanent establishment rules for the next three years. After this period there will be a reassessment of this point.
- Maquiladoras would not withhold VAT tax from domestic suppliers. Cash flow of these manufacturers could possibly be affected by this measure.
However, while the proposed reforms, are just that “proposed,” companies contemplating manufacturing in Mexico, either through the establishment of a traditional maquiladoras or through shelter maquiladoras, should do their due diligence by informing themselves as to the fate of the proposed reform package submitted by the President of the Republic to the Mexican Congress on September 8, 2013.
By clicking on the link, readers can access a Price Waterhouse Cooper summary of the most noteworthy aspects of Mexico’s tax reform proposal for 2013.