Overview of the IMMEX Program and Maquiladoras in Mexico
March 22, 2022
IMMEX has boosted foreign investment in and exports out of Mexico for more than a decade. Learn how to reap more benefits from this nuanced program.
What is IMMEX and what does it stand for?
In Mexico, IMMEX is an incentive program that allows foreign companies to easily and cost-effectively operate in Mexico. Formerly known as a maquiladora, IMMEX registration in Mexico establishes a method of operating under which a foreign company that owns and runs a factory is exempt from paying the 16% value added tax (VAT) on temporarily imported goods. To qualify for this exemption, the goods must be used in the manufacture or repair of products that will then be exported or transferred to another IMMEX company within six to twelve months, depending on the nature of the finished product.
IMMEX is a stand in for the Spanish translation of Maquiladora, Manufacturing and Export Services Industry.
Below, we’ll explain the history behind the maquiladora program, how it can help foreign companies reduce costs, and ways to operate a maquiladora including with a Mexican partner.
Why do maquiladoras exist?
A maquiladora is a factory run by a foreign company. In Mexico, the maquiladora program was developed in the 1960s as a way to encourage investment from foreign companies to build up the border economy between the United States and Mexico.
IMMEX builds upon the benefits first laid out under the maquiladora program. In 2006, the IMMEX Decree simplified compliance requirements for export trade. The new rules aimed to increase the competitiveness of the Mexican export sector by reducing costs, creating new ways for companies to operate, and overall modernizing procedures.
By all accounts, the IMMEX program has met its goal of strengthening national exports. By incentivizing manufacturers to export goods, the IMMEX program led to a 99% increase in export trade in just over a decade, from $210 billion in 2005 to $419 billion in 2017. As of 2019, Mexico had exported $480 billion in goods.
Looking for a directory of all the IMMEX Registered companies in Mexico? Click here to download an excel file that was updated on February, 28, 2022 and contains over 6,000 maquiladoras.
Do you need a Mexican partner to operate a maquiladora?
A foreign company does not need a Mexican partner to operate a maquiladora under the IMMEX program. To operate as a maquiladora in Mexico, a company simply needs IMMEX registration through Mexico’s Department of Economy. This is a status granted to companies with annual sales abroad of at least USD $500,000, or invoice exports accounting for at least 10% of the total company invoices.
However, the federal government has put programs in place that make it significantly easier for many companies to operate with a Mexican partner that serves as the legal entity of record.
There are five distinct types of IMMEX registrations:
- Holding Company IMMEX: A legal entity holds IMMEX registration that encompasses a manufacturing operation and one or more of its subsidiaries. Holding companies are required to submit detailed records, including minutes from shareholder meetings, and contracts between the subsidiaries and parent companies that detail contracted obligations.
- Industrial IMMEX: Registration is provided for a manufacturer that is using imported goods in an industrial process to produce or transform a product that it will then export.
- Services IMMEX: Registration is provided for a company that performs services that supports the export of relevant goods under IMMEX registration. Legal entities, recyclers, software developers and certain other service companies might be registered in Mexico under the IMMEX Services Program.
- Shelter IMMEX: A registered Mexican company serves as a legal entity that assumes all legal risk and liability for manufacturers operating beneath its IMMEX registration. Foreign entities gain the advantage of an experienced partner’s knowledge of the local requirements and can thus focus on the manufacturing work they do best.
- IMMEX Outsourcing Program or Third-Party: If a certified company doesn’t own the facilities necessary to perform its production processes, it can manufacture through a third party that it registers in its program. The companies performing the outsourcing accept joint liability for the temporarily imported goods.
What is the maquiladora process?
The process of applying for a maquiladora status or IMMEX registration will vary depending upon which of the models above you choose. When working under the umbrella of a shelter service provider, the maquiladora process is effortless, as it is up to the Mexican entity to handle regulatory requirements. Some shelter service providers can give you immediate access to their IMMEX certifications; others must apply for an Ampliación or Extension of their IMMEX, which can take anywhere between 2-10 weeks.
However, there is ongoing maintenance to comply with the maquiladora process. IMMEX companies are required to report annually on their total sales and exports to ensure they continue to meet this minimum requirement. When choosing to operate outside of a shelter program, companies should expect the application process for an IMMEX registration to take between 6-10 months.
Are maquiladoras bad for Mexico?
There have been some negative impacts as a result of maquiladoras in Mexico. Some foreign companies have seen operating in a lower cost manufacturing environment a go-ahead to ignore environmental regulations or labor laws. The truth is, these types of companies exist in every country—and Mexico takes its environmental and labor protections very seriously.
For added protection, responsible shelter service providers can offer assistance with environmental and occupational health and safety compliance from the very beginning of your operation in Mexico.
In addition, the USMCA agreement has recently added another layer of protection for laborers in Mexico. While it may require higher wages than have been typical in the past, they remain extremely cost-effective compared to the manufacturing wages of many developed countries, particularly when viewed as part of a complete cost analysis.
Access the benefits of the IMMEX program in Mexico
Because there are numerous reporting requirements that companies must fulfill in order to gain IMMEX registration, many entities new to Mexico opt to work with a shelter company. These experienced partners can help navigate the red tape to get manufacturers quickly up and running. Better still, companies have many options in the level of control they receive from their shelter provider. Options range from full-service shelter companies that manage everything from registration to real estate to hiring, to pick-and-choose shelter companies that allow foreign entities to select exactly the areas where they need assistance.
If you’re ready to dive deeper into the benefits of the IMMEX program, Tetakawi can help. Reach out to discuss your options today.
Also, by watching the webinar below you can learn more about Maquiladoras and how to manufacture in Mexico.