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Amendments to maquila rules enter into force in Mexico

On June 30 2011, August 9 2011 and October 10 2011, modifications to the Miscellaneous Foreign Trade Rules were published in Mexico's official gazette.

David Cuellar Cesar Salagaray

The tax effects for foreign principals (acting under a maquila structure in Mexico) have been a recurrent matter of discussion and analysis since its publication.

In a nutshell, the main benefits offered by the maquila program could be summarised as follows:

  • VAT and custom duties exemption for temporary imported raw-materials, and VAT exemption on temporary imports of M&E;
  • The taxable income of the Mexican maquila may be determined according to specific safe-harbour provisions;
  • The maquila regime includes reductions in the effective income tax and flat tax rate; and
  • Statutory permanent establishment relief for the maquila-related activities carried out by a foreign principal in Mexico.

Although the basic maquila rules remain untouched, this could produce some significant effects in certain specific cases regarding the transfer of temporary imported goods to other Mexican resident entities, for their definitive importation. The amended rule does not include a reference to the VAT Law (Article 29, Section I). So, this amendment implies that virtual exports/imports of goods carried out under a virtual export declaration (V5) no longer qualify as exports of goods for VAT purposes, meaning that Mexican resident entities, acquiring temporarily imported goods in Mexico from a foreign resident, must now withhold and remit VAT. The amendment was supposed to enter into force on October 1, 2011, but it has been deferred to December 1 2011 through a notice posted in the Mexican tax authorities website and the modifications to the Miscellaneous Foreign Trade Rules published on October 10 2011. Perhaps this new rule may be in force by the end of this year or beginning of 2012.

According to the wording of this amendment, open questions that could have a major negative impact to the maquila regime arise. Some of these questions are:

  • Is above-mentioned VAT withheld by Mexican acquirers recoverable?
  • If the virtual export declaration (V5) is not fully equivalent to a definitive export of goods, should the sale of the goods to a Mexican entity be considered as a domestic delivery of goods?
  • If the answer to the above question is yes, could those domestic deliveries of goods trigger a Mexican permanent establishment for the foreign principal?

Considering that the maquila (IMMEX) program was originally intended to promote foreign investment and to offer an attractive tax regime for this industry, these open questions should be answered in the future. However, at this stage, it is advisable that taxpayers review their current maquila structure to have a better understanding of how the amendment could affect their activities and mitigate unfavourable tax effects.

David Cuellar ( & Cesar Salagaray (
Tel: + 52 55 5263 5816
Fax: +52 55 5263 6010

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