A maquiladora is a manufacturing operation launched in Mexico by a foreign direct investor in order to benefit from tax incentives granted by the Mexican federal government for investments in Mexico production and labor. Although maquiladoras can be found in many nations today, the concept originated in Mexico in the 1960s to support the growth of foreign direct investment in Mexico, largely within the northern border towns.
These companies grew up along the Mexican border in order to provide easy transport of goods into the United States. Today, however, maquiladoras can be found throughout Mexico, from Saltillo through Querétaro and beyond. Mexico’s strong transportation network—combined with the reach of its extensive list of free trade agreements—easily moves goods from manufacturing factories across the country to destinations around the world.
To better determine how the maquiladora program might help your company, we’ll outline below the functions of a maquiladora and examples of Mexico’s maquiladora industry in action.
What is the function of a maquiladora?
The maquiladora program was established in 1964 to enhance employment and the economy along the border of Mexico and the United States. The program was meant to attract foreign markets in conjunction with the National Border Industrialization Program, a program that encouraged foreign direct investment in Mexico to stimulate the country’s domestic market.
In 1994, the Maquiladora Program was altered to fit the requirements of the North American Free Trade Agreement (NAFTA). Maquiladoras began to work with companies investing in Mexico for its highly skilled labor, proximity, and low costs.
The program was updated again in 2006 with the establishment of the IMMEX (Maquiladora, Manufacturing and Export Services Industry) Program. The IMMEX Program offered additional benefits, including reduced costs. For example, manufacturing materials and equipment can enter into Mexico duty-free, while Mexican-made products exported into the U.S. are at a lower tariff or free.
While companies operating under the IMMEX program are focused on exporting goods outside of Mexico, they must follow relevant industry regulations. To be eligible to capitalize on tax and trade benefits, Mexican legal entities must satisfy a number of conditions to be considered a maquila operation.
In addition, foreign companies that wish to sell products inside Mexico must pay a customs tax, a relatively minor inconvenience when considered against the many other significant benefits that come with manufacturing in Mexico.
As Mexico holds numerous free trade agreements with countries around the world, foreign investors find this location a strong place from which to move finished goods in and out of the country without being subject to tariffs.
Examples of Mexico’s maquiladora industry in action
Maquiladora facilities can be established anywhere in Mexico, but the products manufactured must be sold outside of the country to receive tax benefits. These maquiladora facilities can also be found across a tremendous range of industries, including automotive and aerospace manufacturing, as well as plastics and textile production.
These facilities may operate under one of several forms outlined by the IMMEX program in place today. Foreign direct investors in Mexico can operate under one of five distinct IMMEX registrations. These include:
- IMMEX Holding Company, which allows one entity to hold IMMEX registration that encompasses a manufacturing operation and one or more of its subsidiaries.
- Industrial IMMEX, the most straightforward approach, simply provides registration to a manufacturer that is using imported goods in an industrial process to produce or transform a product that it will subsequently export.
- Services IMMEX registration covers companies that provide services that support the export of goods. For example, software developers, legal organizations, recyclers, and certain other service providers might register in Mexico under the IMMEX Services Program.
- A Shelter IMMEX is a registered Mexican company that serves as a legal entity to assume all legal risk and liability for manufacturers operating beneath its IMMEX registration. Under this model, foreign entities gain the advantage of an experienced partner’s knowledge of local requirements, allowing them to focus on the manufacturing work they do best.
- IMMEX Outsourcing or Third-Party Program allows a certified company to manufacture goods through a third party that it registers within its IMMEX program. The companies performing the outsourced work accept joint liability for any temporarily imported goods. The Ministry of Finance and Public Credit must approve the outsourcing program as certified company.
These structures are designed to help companies rapidly launch operations in Mexico, navigate import rules and refunds, and easily export to target their markets.
Are maquiladoras good for Mexico?
While the tax incentives offered through the maquiladora program are a clear advantage to foreign manufacturers, maquiladoras also benefit Mexico because they encourage foreign direct investment in Mexico’s laborers and resources. As more maquiladoras launch in Mexico, they support the greater development of supporting infrastructure. Today, state and federal governments work together with industry associations and large manufacturing employers to provide tailored training that connects skilled workers with jobs. A program that encourages the development of local labor and connects Mexicans to jobs is a win for Mexico.
Although some names and terms have changed, maquiladoras have a long history in Mexico. Throughout this history, new protections have been put in place—the USMCA agreement most recently—and new benefits have been gained. Perhaps the change with the most value, however, has been the growing availability of support for foreign investors ready to launch an operation in Mexico.
With the support of an experienced shelter service provider, manufacturers can secure a highly-skilled, low-cost labor force, federal and local tax incentives, and rapid regulatory approval. In fact, some companies have found that under the umbrella of an IMMEX-registered shelter company, they can ramp up operations in Mexico in as little as 30 days.
If you’re ready to learn more about the support available for a manufacturing operation in Mexico, contact Tetakawi today.