VAT Certification
& Key Issues
Héctor Silva
WMTA breakfast meeting
January 15, 2014
© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reform 2014
VAT Certification
VAT on temporary imports
 Elimination of exemption on VAT on the temporary importations of materials and M&E by
maquiladoras.
- This measure created a serious concern due to:
1. High volumes of temporary importation
2. Financial cost
3. Administrative burdens to recover the VAT with the tax authorities.
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reform 2014
VAT Certification
VAT on temporary imports (2)
 Applicable VAT credit to certified maquilas.
- The VAT credit will be equal to the VAT liability in importation that will reduce payment in such a
way that they don’t have a cash VAT liability.
 A maquiladora that does not obtain certification status may guarantee the contingency of
the tax liability via a bond with an authorized entity.
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reform 2014
VAT Certification
Maquiladora certification for VAT purposes
 A Maquiladora may obtain a certification status from the tax authorities that validates that
they are properly operating the maquila program in compliance with the purposes it was
designed for.
 The certification allows a maquiladora to credit in the month the VAT is paid.
 The payment of VAT, when applicable, will start one year from the date the tax authorities
published the requirements to obtain certification status in order to give proper time to
Maquiladoras to achieve certification.
 On January 1, 2014 the tax authorities published in the Miscellaneous Tax Rules for
Foreign Trade the requirements to obtain certification and benefits of such certification.
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reform 2014
VAT Certification
Maquiladora certification for VAT purposes (2)
 The certification is on a one-year basis and the maquiladora may renew certification up to
30 days prior to expiration.
 If a certification is suspended, the taxpayer will have 10 days to produce evidence to
clear the cause of the suspension. If a certification is cancelled, the taxpayer will not
be able to obtain another certification for 24 months.
 A certification request may be filed between April 15 and October 22, 2014 depending on
the taxpayer’s location. Certification will be renewed automatically provided the
maquiladora files a notice before the term expires and it continues to be in compliance.
 A three-tier rating system (AAA, AA and A) will be used to assess maquiladoras’ controls
and overall tax and customs compliance:
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reform 2014
VAT Certification
Maquiladora certification for VAT purposes (3) – "A" rating
"A" rating
Requirements
Benefits
Electronically file a certification request
Be able to credit VAT on temporary imports.
Have adequate inventory controls in place to track the Obtain a VAT refund within 20 business days after the request
imported goods and materials.
is filed .
Obtain a positive tax compliance opinion issued by the Certification will be valid for one year and will be renewed
Mexican tax authorities.
automatically if the maquiladora file a notice 30 days before
the expiration date and continues to be in compliance.
Never have been listed on the Mexican tax authorities’ website
as a ”noncompliant taxpayer.”
Have valid “digital seals” and no omissions in the previous 12
months.
Demonstrate that all personnel are registered with the Social
Security Institute and provide documents showing payment of
social security.
Produce evidence of investment in Mexico.
Submit the name and address of clients and vendors abroad
from the previous tax year.
Allow custom officials to carry out an initial inspection and
any additional inspections, as needed.
With respect to the IMMEX program: (1) have a valid
program; (2) have all addresses or establishments registered
with the Mexican tax authorities; (3) possess the necessary
infrastructure to carry out maquila operations; (4)
demonstrate that during the pr
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reform 2014
VAT Certification
Maquiladora certification for VAT purposes (4) – "AA" rating
"AA" rating
Requirements
Same as for an A rating, plus:
At least 40% of its operations performed in Mexico in the
previous year are with suppliers that had a positive tax
compliance opinion and are not listed on the SAT website as
noncompliant taxpayers.
Carried out maquila operations for at least five years, or had
more than 1,000 employees registered with the Social
Security Institute in the previous year, or the value of M&E
exceeds MXP 50 million .
A tax liability was not assessed in the month before the
certification application is filed, or if it was assessed it was
negotiated for monthly payments or was fully paid up .
A VAT refund request was not denied within the previous 12
months.
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Benefits
Be able to credit VAT on temporary imports.
Obtain a VAT refund within 15 business days after a request.
Have 30 days to self-amend any omission in advance of an
audit.
The customs authority may notify any omitted tax detected
through an invitation letter instead of initiating an automatic
examination.
Certification will be valid for two years and will be renewed
automatically if the maquiladora files a notice before the
expiration date and continues to be in compliance
© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reform 2014
VAT Certification
Maquiladora certification for VAT purposes (5) – "AAA" rating
"AAA" rating
Requirements
Same as for an A rating, plus:
At least 70% of its operations performed in Mexico in the
previous year were with suppliers that had a positive tax
compliance opinion and are not listed on the SAT website as
noncompliant taxpayers.
Carried out maquila operations for at least seven years, or
had more than 2,500 employees registered with the Social
Security Institute in the previous year, or the value of M&E
exceeds MXP 100 million.
A tax liability was not assessed in the month before the
certification application is filed, or if it was assessed it was
negotiated for monthly payments or was fully paid up .
A VAT refund request was not denied within the previous 12
months.
Benefits
Be able to credit VAT on temporary imports.
Obtain a VAT refund within 10 business days after a request
Have 60 days to self-amend any omission in advance of an
audit.
The customs authority may notify any omitted tax detected
through an invitation letter instead of initiating an automatic
examination. .
Certification will be valid for three years and will be renewed
automatically if the maquiladora files a notice before the
expiration date and continues to be in compliance.
Allowed to file monthly consolidated customs filings
(pedimentos).
In regards to customs inventory controls, the company would
be considered in compliance.
It will be possible not to show the serial number of
merchandise in customs procedure
It will be possible to perform exportation procedure from its tax
address.
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reforms Key Issues
Tax Reform 2014
Key Issues
Issue:
Maquiladora’s Income Tax
2014 Tax reform:
Revocation of the Income Tax Reduction Decree
Consequence:
Income Tax rate of 30% over the tax base
Suggestions:
- A more efficient management of the financial profit and taxable base
- Evaluate if the Maquiladora Regime is still beneficial to the company.
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reform 2014
Key Issues
Issue:
Permanent Establishment protection for its non resident related party
2014 Tax reform:
The Maquiladora will only have 2 options to determine its taxable base:
- Applying the Safe Harbor, requiring to report as the minimum taxable
profit, the higher between 6.5% over expenses and 6.9% over assets
- Obtaining an Advanced Price Agreement “APA” with Mexican tax
authorities
Consequence:
Most likely to have an important increase in the profit markup, which
will originate a larger taxable base
Suggestions:
- Evaluate if the operations in fact create a PE in Mexico
- Perform a feasibility analysis to define requesting an APA option
- Evaluate if the Maquiladora Regime is still beneficial to the company
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reform 2014
Key Issues
Issue:
Deduction of exempt wages
2014 Tax reform:
Limited to 47%-53%
Consequence:
- Increase of the taxable base (when applying APA)
- The deduction of maquiladora services for the foreign related party
will decrease, no matter that the taxable profit will be higher
Suggestions:
- Applying the fiscal benefit decreed on December 26th 2013 to deduct
exempt wages
- Separating at the accounting records, maquila operation revenues
from non maquila operation revenues
- Separating at the accounting records, exempt wages from taxable
wages
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax Reform 2014
Key Issues
Issue:
M&E property of the foreign related party
2014 Tax reform:
At least 30% of the M&E should be owned by the foreign related party
Consequence:
If the maquiladora doesn’t comply with this requirement, it would not be
considered as maquiladora for Income Tax purposes and would loose
the PE protection for its foreign related party.
Suggestions:
- If the company doesn’t comply with this requirement and has being
complying with article 216-bis as of 2009, will be able to apply the fiscal
benefit decreed on December 26th 2013, to have a 2 year period to
comply with the requirement
- Evaluate if the Maquiladora Regime is still beneficial to the company
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Contact information:
Héctor Silva
hsilva@deloittemx.com
+52 (664) 622 7840
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© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.