Mexico: New miscellaneous rules introduce additional flexibility on the Mexican maquila regime

David Cuellar		Cesar Salagaray

The 2014 tax reform introduced significant changes and restrictions on the Mexican maquila income tax regime, one of which is the requirement that the income from operating activities must derive exclusively from maquila operations.

Under the former rules, many multinational entities (MNEs) opted to structure their operations in a way that the maquila entity carried out certain activities that could be considered as auxiliary to the production activity itself, such as the lease of space (real estate) or assets to other group entities, rendering employee services, disposal of scrap or limited distribution of certain goods.

Considering the new rules in force since January 1 2014, many multinationals operating under these type of combined structures could have lost the benefits set forth by article 181 of the Mexican Income Tax Law as a consequence of the income derived from non-maquila auxiliary activities.

However, on July 1 2014, the Mexican tax authorities published a new amendment to the Mexican miscellaneous rules in force for 2014 and among other changes, introduced certain clarifications and changes to the current maquila regime through rule I.3.19.1.

In general terms, the new miscellaneous rules provide additional flexibility allowing Mexican Maquiladora companies to carry out certain "complementary" activities as part of their "productive income" without jeopardising their maquila status. The complementary activities allowed for maquila companies could be summarised as follows:

• Employee services (lease of personnel);
• Leasing/sale of movable and real estate property;
• Disposal of scrap produced by maquila operations;
• Interest income; and
• Other income related to the maquila operations, except for sales of finished goods.

These new rules and the permitted complementary activities may avoid the need for certain multinationals that were carrying out combined maquila activities to restructure their operations or even losing the maquila regime, within the rules, the Maquiladora company must comply with the following requirements:

• The total of this other income should not exceed 10% of the total income from the maquila operations;
• In the case of personnel leasing, the employees should be provided only to related parties;
• Additional information filing requirements (consisting basically in providing segmented information regarding the complementary activities);
• To file a notification in case of the sale of movable and real estate property.

These regulations will become effective on October 1 2014. Meanwhile, Maquiladoras can continue to consider that their total income qualifies as derived from their maquila activity, if and only if they maintain accounting records that allow differentiation between each type of income and associated costs and expenses.

David Cuellar (david.cuellar@mx.pwc.com) and Cesar Salagaray (cesar.salagaray@mx.pwc.com)
PwC
Tel: +52 55 5263 5816
Fax: +52 55 5263 6010
Website: www.pwc.com

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