Under the IMMEX program, manufacturers in Mexico are allowed to carry out “temporary” importations of production materials—those materials used to produce goods that will then be exported—without having to pay taxes and duties. However, the resulting goods must be moved out of Mexico within a certain timeframe, or transferred to another IMMEX company, lest they lose their temporary status.
But how are the comings and goings of those temporary goods tracked?
That was a question asked during the 2014 Mexican Tax Reform. The answer? Annex 24.
Annex 24, or Anexo 24, as it is referred to by the Mexican Customs and Tax Authority, lays out requirements for securely tracking temporarily imported goods. It requires that industrial taxpayers use an automatized inventory control system that monitors all temporary goods imported into Mexico.
The system monitors the course of temporary goods as they are transferred to other companies, sent to a production line, donated, or altered in any way through a manufacturing process. Registration within the system is required for all businesses that wish to obtain and maintain IMMEX Certification. By understanding the requirements of Annex 24, companies manufacturing in Mexico can ensure their regulatory compliance.
Timing is everything
Compliance with Annex 24 hinges upon meeting timing requirements. The goods imported on a temporary basis must be either exported or changed from a temporary to permanent status within the legally required timeframe. That timeframe varies among product types. It includes:
- Up to 18 months for raw materials, parts, components, auxiliary materials, packaging material, fuel and lubricants, and labels imported by an IMMEX company.
- Up to six months for virtual temporary imports of raw materials, parts, and components.
- Up to 36 months for goods imported by an IMMEX company that is also authorized under the VAT/IEPS Certification Framework.
- Up to four years for an importer authorized under the Electronic System for Temporary Inventory Control (SECIIT).
- Up to two years for trailer containers and other containers.
Manufacturers must demonstrate that they are returning abroad a minimum of 60% of the value of temporary imports in the required timeframe.
How to report
So how do companies report the movement of their goods? This must be done through an automated system for inventory control that can provide the required auditing and reports as needed. A range of software and Import & Export service providers are available to meet this requirement.
The system you use for tracking must include certain required catalogs and modules. Catalogs contain general taxpayer data, such as company name and location, as well as a list of each material being tracked and suppliers, sub-manufacturers, and customs representatives interacting with the product.
Customs modules contain information tailored to meet Mexican Customs requirements for tracking temporary imports. This includes customs declarations, timing on when materials entered Mexico, and more detailed descriptions of materials and how the good was used during its temporary entry into Mexico.
Reporting modules will pull from these catalogs and custom modules to generate the necessary reports on temporary goods.
Those reports include:
- Entry report of temporary import goods
- Exit report of temporary import goods
- Balances report for temporary import goods
- Material discharge report
- Adjustment report
Consequences of noncompliance
Compliance with temporary goods tracking and reporting requirements is mandatory. Noncompliance carries steep penalties. Not using an appropriate inventory control system can lead to tax penalties of up to $20,000, while not paying the full amount of import duties on temporary goods can cost up to 150% of the value of the goods.
However, failure to comply with Annex 24 requirements can also have more permanent consequences, as it can lead to the cancellation of your company’s IMMEX certification. This typically occurs when temporary goods outstay their limitations, or those goods are changed or transferred without appropriate notification to Customs authorities.
Gain instant experience
The tax benefits of temporarily importing goods to manufacture are just one of the many ways that Mexico works to incentivize foreign direct investment. However, operating within the rules is non-negotiable for companies that wish to maximize this benefit.
As with anything, compliance becomes simpler as you become more familiar with the rules and systems. Manufacturers that already have a full plate in launching a new operation may find that they’re better served by outsourcing this expertise to a shelter service provider who is an expert in Mexican regulatory compliance practices.
If you’re ready to start maximizing the benefits of manufacturing in Mexico, contact Tetakawi today.
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