International Tax Newsletter - Summer 2011 - MEXICO: Recent Tax Treaty Reforms

Exports account for a large portion of the manufacturing sector in Mexico and the vast majority of export manufacturing is conducted by Mexican companies known as maquiladoras or maquilas. These operate under temporary importation programs known as maquiladora programs, issued under Mexico's maquiladora decree (now also known as the Decree for the Development of the Manufacturing, Maquiladora and Export Services Industry, or IMMEX Decree).

In 2006, the Income Tax Law set out a mechanism for residents abroad enabling them to carry out maquila operations in Mexico through a legal or economic relationship with other companies without constituting a permanent establishment, provided that they comply with the following rules:

  • To have an authorized maquila operation in accordance with the IMMEX Decree, 1 November 2006.
  • To benefit from a treaty to avoid double taxation between Mexico and the country of residence.
  • To comply with transfer pricing in the determination of the taxable utility and income tax, through the simplified procedure that allows only taxing the utility generated in Mexico and to avoid any double taxation problems when related parties are involved. Additionally, maquila companies benefit from a partial exemption of Income Tax when complying with all the law requirements.

However, due to the wide definition contained in the Decree, many companies applied for the tax benefit which was, in essence, exclusively designed for maquila companies. So the Decree has been amended to incorporate a new article to define a maquila operation for Income Tax purposes as follows:

  1. The transformation and repair of raw materials are provided by a resident abroad
  2. Raw materials must be owned by the resident abroad or by a third party with which there is a commercial contract in place
  3. Raw materials must be temporarily imported
  4. Domestic products may be incorporated into the transformation process which will have to be exported and returned along with the temporarily imported raw materials
  5. No application for processing of products (100% domestic raw materials) or provision of services
  6. No application for sales within Mexico's national territory
  7. At least 30% of the machinery and equipment utilized in the operation must be owned by the resident abroad. (It may also be owned by a third party with which there is a commercial agreement with the maquila operation, provided that the machinery and equipment have not been owned by a resident in Mexico as its related party.)

Companies that had an authorized IMMEX program on 31 December 2009 are not required to comply with the requirements described above.


  • A new article is incorporated into the IMMEX Decree to establish what should be understood by "maquila" or "sub-maquila" for purposes of VAT.
  • The VAT return will take 20 working days to process for these companies, and five working days for certified companies (IMMEX companies with bi-annual imports of more than $ 200 billion pesos).

International Tax Newsletter - Summer 2011

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