What are Mexican Maquiladoras?

April 26, 2019

What is a Maquiladora?

Maquiladora companies offer tax incentives to foreign manufacturers who invest in Mexico production and labor. These companies are situated to export outside of Mexico but must follow NAFTA and other industry regulations. The Mexican government recognizes the benefits derived from foreign companies establishing manufacturing operations in the country and extends certain tax and trade benefits to maquila operations. 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. 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.

The Maquiladora Program

The Maquiladora Program was established in 1964 to enhance employment and the economy along the border of Mexico and the U.S. The program is also meant to continue to attract foreign markets in conjunction with the National Border Industrialization Program - a program that encouraged foreign investment that helped stimulate Mexico's domestic market. In 1994, the Maquiladora Program was altered to fit the North American Free Trade Agreement (NAFTA) and began to work with companies investing in Mexico for its highly skilled labor, proximity, and low costs.


Mexico's Maquiladora Industry

Maquiladora facilities can be established virtually anywhere in Mexico and the products manufactured must be sold outside of the country. Foreign companies must pay a customs tax if they wish to sell products inside Mexico - a relatively minor inconvenience when juxtaposed against the many other significant benefits that come with manufacturing in Mexico. Mexico also holds 13 Free Trade agreements that allow manufacturing items and finished goods to move in and out of the country without obtaining tariffs.

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