Analysis of the amendments to
the IMMEX Decree
Tax considerations
Tax and Legal Services / January, 2011
©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
General aspects
The current Decree for the Development of the Manufacturing, Maquiladora and Services
Industry («IMMEX Decree») was published in the Daily Gazette on November 1, 2006 and
amended on May 16, 2008.
On December 24, 2010 a new amendment to the Decree is published.
It enters into effect 90 days after its publication = March 24, 2011.
Articles that entered into effect on January 1, 2011:
Article 33 (amended)
Article 34 (created)
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
General aspects
Main reasons for the amendment of the Decree
• Avoid abuse by the taxpayer that did not have the wright of the preferential tax regime of
a typical maquiladora.
• Establish «locks» to access tax benefits.
• Establihs new customs rules.
• Define new products as «sensible» for customs purposes.
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Background
PE derives from a maquila operation
(two taxpayers in Mexico, the maquiladora and the parent company with a PE)
Parent company
US
PE
PE
MEX
M&E
Administration
and control
1
3
Inventory
2
4
Maquila
(IMMEX)
©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Background
Maquiladoras vs. Pitex – Main Differences
MAQUILA
100% - Foreign ownership
PITEX
51% - Mexican ownership
M&E - Provided by contractor
M&E - Owned
Inventory – Provided by contractor
Inventory – Provided by contractor
or owned
Control – Provided by contractor
Control – Not necessary provided
by contractor
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Background
Maquiladoras vs. Pitex – Tax Benefits
MAQUILADORA
PITEX
VAT
Yes
Yes
Customs
Yes
Yes
Asset tax waiver
Yes
No
Income tax reduction
Yes
No
Flat Tax credit
Yes
No
Safe Harbor option
Yes
No
Transfer pricing
preferential regime option
Yes
No
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Background November, 2006
Pitex
Maquila
IMMEX
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax benefits for IMMEX companies
1. Exemption of Permanent Establishment
2. Partial or total exemption of Mexican Income Tax in accordance with the
October 30, 2003 Decree («Fox Decree»)
3. Tax incentive to reduce the paymet of Flat tax IETU («Calderon Decree»)
4. Preferential tax regime in transfer pricing (article 216-BIS)
5. VAT 0% rate.
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Tax amendments
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©2009 Galaz, Yamazaki, Ruiz Urquiza, S.C. Todos los derechos reservados.
Legal reasons (within the Decree)
•
Strengthen the compliance with the obligations set forth in the IMMEX Decree. It is necessary to
restrict the authorization of new development programs for companies that have not complied with
them.
•
The ITL establishes for companies that perform maquila operations a tax regime that facilitates its
compliance to the maquiladora and the foreign resident.
•
The ITL establishes that in order to apply the tax regime to maquiladoras, the definition established
in the IMMEX Decree must be followed.
•
It was considered urgent and necessary to adjust the maquila operation definition, in order to
include virtual operations, as wells as the requirement that the operation is done with machinery
and equipment of a foreign resident.
•
The maquila operation does not restrict the incorporation of other national or foreign merchandise.
•
Establish a grammatical precision of the transformation of goods and not its manufacturing by part
of a maquiladora company, since the raw materials delivered are not manufactured by the
company, but so transformed to a different product with a value added.
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Article 2 MITL (last paragraph)
• It is not considered that a foreign resident has a permanent establishment in the country
Derived from the juridical or economic relationships that it maintains with companies that
perform maquila operations, that regularily are processed in the country, goods or
merchandise maintained in the country by the foreign resident, utilizing assets provided
directly or indirectly by the foreign residen or any related company.
As long as Mexico has celebrated with the host country a treaty to avoid double taxation
and the requirements of the treaty are complied with, including friendly agreements
negotiated in accordance with the treaty in the manner implemented by the parties
involved.
In order to be considered that a foreign resident does not have a permanent establishement
in the country. The set forth in this paragraph, will only be applicable when the companies
have maquila operations and comply with article 216-Bis of the Law.
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Article 33
Maquila operation
In accordance with the last paragraph of art 2 of the MITL maquila
operation is the one that complies with the following conditions.
Raw material
•
•
•
•
•
•
Provided by a foreign resident
Derived from a maquila agreement
Subject to a transformation or repair process
Temporary imported
Return abroad, even with virtual operations
It can be property of a foregin resident third party when there exists a commercial
relationship with the company with the maquila agreement
• Dilution in water or other substances
• Washing and cleaning, removal of oxide, oil, paint or other finishes
• Application of preservatives, including lubricants, protective encapsulation or
paint for conservation
• Adjustment, sanding or cutting
Transformation • Preparation of doses, packing, re-packing, packaging, re-packaging
• Tests, marking, labeling or classifications
• Product development or quality improvement
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Service activities that were excluded of the transformation
definition
Provide, warehouse or distribute merchandise
Preparation of kits or material with advertising purposes that accompany the
exported products
Washing and ironing of clothes
Broidery or printing of apparel
Armoring, modifications or adaptations of vehicles
Recycling and collection of waste
Software engineering and design
Services that support information technology
Subcontracting services of business processes based in information technology
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Article 33 Maquila operation
In accordance with the last paragraph of art 2 of the MITL maquila
operation is the one that complies with the following conditions.
• When national or foreign merchandise not temporary imported is
incorporated, its must be exported or returned with the
National
merchandise temporarily imported.
merchandise or
definitive imports
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Article 33
Maquila operation
In accordance with the last paragraph of art 2 of the MITL maquila
operation is the one that complies with the following conditions.
•
•
•
•
Property of the foreign resident with the maquila agreement
Has not been property of the company that performs the maquila operation
Or of another Mexican related party.
It can be completed with equipment property of a non-related foreing resident
with a commercial relationship
Machinery and • Can be leased with a non-related party
• It cannot been property of another Mexican company that is a related party
equipment
with the company doing the maquila operation.
Exceptions
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• If the foreign resident is owner of at least 30% of the machinery and equipment
used in the maquila operation.
• It is not applicable to companies that up to December 31, 2009 operated under a
Program and have complied with their Income Tax and Transfer pricing
obligations.
©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Article 33
Maquila Operation
It is not considered maquila operation:
The transformation or repair of merchandise sold in Mexico and do not have an export
pedimento,
Therefore article 216-Bis of the MITL will not be applicable for said operations.
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Article 33 Maquila operation
Calculation of the 30% for machinery and equipment (3rd amendment 12/28/2010)
Amount to be depreciated by the foreingner / [amount pending to depreciate (1 property of
the foreigner + 2 property of third parties with commercial relationships + 3 property of the
maquiladora company + 4 leased to non-related parties)]
• Amount to depreciate = MOI – depreciation on tax rates
• The MOI is determined with the customs value; or the MOI of the maquiladora company; or with the
appraisal for leased goods of Mexican residents.
• The amount pending depreciation cannot be lower than 10% of the MOI.
• The balances have to be updated with the INPC (last month of the first half of the fiscal year / month
of purchase)
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Article 34 Maquila operation VAT
New article
• For purposes of the VATL it is consideted maquila operation
- The manufacturing operation of companies with a Program made under the Decree
• It is considered submaquila
― The submanufacturing operation made in terms of the Decree.
• It is indicated that the return will not exceed 20 working days, except for Certified
companies that will be in 5 days.
• It is not clarified the possible double taxation of the VAT, when a Certified maquiladora
delivers in Mexico on behalf of the foreign resident.
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©2011 Galaz, Yamazaki, Ruiz Urquiza, S.C.
CONTACT INFORMATION
Héctor Silva
Tax partner
Phone: 011 52 (664) 622-7840
Email: hsilva@deloittemx.com
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