Revisting maquiladora operating models: Strategic alternatives.
Background.
The maquiladora regime has been a central component of Mexico’s manufacturing growth since the 1990s, driving foreign direct investment, particularly in sectors such as automotive, electronics, and medical devices. This regime allows multinational corporations to establish manufacturing operations in Mexico under the IMMEX program, which grants fiscal and tariff exemptions when importing machinery, equipment, and raw materials to produce goods for export.
A key feature of the maquiladora regime is the exemption from permanent establishment (PE) classification for the foreign principal company, as long as transfer pricing (TP) rules are met. Historically, companies could choose between two options to comply with TP requirements: the Safe Harbor or an Advance Pricing Agreement (APA). The latter allowed maquiladoras to obtain agreements with the Mexican and U.S. tax authorities, ensuring certainty regarding the transfer pricing applied to their operations. APAs were especially attractive for companies with significant asset investments, as they offered more favorable tax treatment than the Safe Harbor, which requires a 6.9% return on assets.
However, starting in 2014, some of the tax benefits of the maquiladora regime began to be reduced, increasing the tax rate and eliminating key exemptions. By 2022, the tax reform completely eliminated the APA option, leaving Safe Harbor as the only available option for complying with fiscal requirements.
Impact of the 2022 reforms.
The 2022 tax reform significantly altered the transfer pricing and permanent establishment compliance framework for maquiladoras, as outlined in Article 182 of the Mexican Income Tax Law (MITL). The elimination of APAs and exclusive reliance on Safe Harbor has created greater uncertainty for multinational companies. Safe Harbor can result in a substantial increase in the taxable base, particularly for capital-intensive companies that depend on large investments in machinery, equipment, and raw materials.
Under the new framework, companies must guarantee a minimum return of 6.9% on the assets used in the operation, which could potentially triple the tax liabilities for some maquiladoras compared to the previous APA regime. This situation is prompting companies to reconsider whether it remains viable to continue operating under the maquiladora regime.
Benefits and challenges for maquiladoras after 2024.
The IMMEX program remains a key component of the maquiladora regime, allowing companies to temporarily import goods without paying duties or VAT. There are three main types of authorizations under IMMEX:
Industrial authorization: for industrial processes involving the manufacture or transformation of products intended for export.
Services authorization: for services associated with exported goods.
Shelter program authorization: applicable to foreign companies that provide technology and materials without directly operating under the IMMEX program.
Additionally, IMMEX companies can obtain certification that allows them to apply a tax credit corresponding to the VAT that would otherwise be payable for temporarily imported goods, reducing the impact on cash flow. This certification can be renewed for periods of one, two, or three years, as long as companies continue to comply with internal VAT controls.
Alternatives in operating models.
Given the current uncertainty and changes in transfer pricing compliance, multinational companies are evaluating alternative operating models to optimize their structures under the new fiscal framework. The main alternatives include:
Fully developed manufacturer: assumes all business and operational functions, as well as inherent risks (e.g., inventory devaluation or market risk). This model allows the company to benefit from developed intangibles, such as trademarks.
Contract manufacturer: performs manufacturing functions according to the client’s specifications and is compensated either by a fixed price per unit produced or a margin on direct manufacturing costs. This model offers greater control over operational costs.
Toll Manufacturer (Consignment Maquiladora): In this model, the company does not own the materials or products, and its compensation is based on a value-added formula (e.g., a service fee). While this model reduces operational risks, it also limits control over the operation.
Conclusion.
The elimination of APAs and the mandatory Safe Harbor from the 2022 tax reform has forced multinational companies to reconsider their operational structures under the maquiladora regime in Mexico. Multinational companies are exploring alternatives such as business restructuring and transitioning to contract manufacturing or consignment models, with the goal of minimizing the tax impact and improving operational efficiency. Comparative evaluations of different operating models are helping companies identify the best option for their operations starting in 2025, considering fiscal, customs, and operational factors.
Contact Information:
For further guidance, reach out to:
Jair Bravo Gutiérrez
Managing Partner
jbravo@j-bravo.com
52-81-24748538
www.j-bravo.com
Blvd. Antonio L. Rodríguez 3000, Colonia Santa María, 5to piso, Interior 501 Torre Albia, C.P. 64650 Mty, N.L., México T.
