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Continued Investment in Mexico expected after extension of IETU benefits for IMMEX (Maquiladora) Operations

Admin | 27.10.2011

The Mexican Government Has Extended the Flat Tax Incentive for Maquiladoras until December 31, 2013 .

The Mexican Government Has Extended the Flat Tax Incentive for Maquiladoras until December 31, 2013 .

The Mexican government has extended the Flat Tax incentive for Maquiladora  operations in an effort to mitigate the adverse impact caused by the introduction of the Flat Tax (IETU) on the Maquiladora Industry.  The presidential decree, issued on November 5, 2007, granted various tax benefits to Maquiladoras and the incentive was expected to expire on December 31, 2011.  However this extension means the incentive will now be available through December 31, 2013.

Mexican President Felipe Calderon signed a decree on October 11th extending benefits of the Single Rate Business Tax (IETU) from January 1, 2012 through December 31, 2013 which was originally granted to IMMEX companies (also known as Maquiladoras) in November of 2007.  The benefit is designed to minimize the negative effects of the IETU by allowing a special credit resulting in a combined rate of income tax and flat tax of no more than 17.5% of the tax base. The IETU will be calculated using the same taxable base as the income tax (ISR).

In general terms, the taxpayer (the Maquiladora) can credit an amount determined via the following formula against their Flat Tax liability as shown:

Flat tax liability + income tax liability – (taxable profit x 17.5%) 

A similar credit is calculated to reduce the corresponding provisional advanced tax payments made during each tax period.

In order to apply the decree, taxpayers must comply with the following necessary tax, customs and Maquiladora (IMMEX) filings obligations during 2012 and 2013:

1. File all annual or monthly federal tax returns.

2. The taxpayers must not have outstanding definitive tax credits or must not be registered with the tax authorities.

  3. File the annual tax report or the simplified information submission where applicable.

  4. Tile the informative tax return for operations with third parties.

  5. File the informative return for Manufacturers, Maquiladoras and Export Service Business.

  6. Maintain an active tax registration with the authorities (no suspended activities, liquidation proceedings or cancelation of register).

  7. Provide true and current information for tax registration.

  8. Comply with the IMMEX program conditions (article 24 of the IMMEX Decree)

  9. Maintain the required export and import documentation.

10. Comply with all tax and customs fillings related to Maquila Operations.

11. Provide no false names or addresses of foreign suppliers or recipients in invoices or customs declarations.

 The announcement came after extensive testimony from the National Council of Maquiladoras and Export Manufacturing (CNIMME), which monitors employment in the maquila sector.  Many states in Mexico rely heavily on the IMMEX industry for jobs.  Examples from statistical data for July 2011 show that 20.64% of the population was employed by IMMEX companies in Chihuahua; 14.6% in Baja California and 16.76% in Coahuila.

This new executive order recognizes the importance of the Maquiladora industry in generating jobs in Mexico.  It covers regulatory reform, simplifies the tariff system and promotes use of virtual filing to reduce paperwork.  By issuing the decree, President Calderon hopes to promote further investment and job creation from the 6,400 Maquiladoras already operating in Mexico and from companies looking to set up operations in the near future.

Specialists in the Maquiladora industry welcomed this news but expressed concern that the incentives are not in place for a longer period of time, or indefinitely.  Those who believe in the Maquiladora industry will need to continue to advocate for more permanent reforms.

Taxpayers should review the application of the decree in 2013 as changes to Flat Tax may be introduced with the next elected administration.