The Mexican tax law amendments that entered into effect on January 1 pose various challenges for the maquila sector and related foreign trade participants, with significant value-added tax ("VAT") and income tax implications. Maquilas or maquiladoras are assembly plants located in Mexico, and authorized to operate by the Mexican government, to which imported materials and parts are shipped and from which the finished product is then returned abroad.
Former Value-Added Tax Exemption for Temporary Maquiladora Imports Replaced by Tax Credit, Subject to Certification Requirements
The VAT law was amended to eliminate the VAT exemption for temporary imports of raw materials and machinery by maquila companies. As a result, in principle all temporary imports made by maquiladoras will now be subject to VAT upon their entry into Mexican territory. However, the maquiladora can obtain a certification from the Mexican Tax Administration Service ("SAT") authorizing it to take a tax credit equal to the amount of the entry VAT, thereby offsetting the tax.
Maquiladoras may also obtain this benefit if they guaranty the VAT payable with a bond issued by an authorized bonding company.
The SAT's requirements for accreditation follow the existing trend of relying heavily on formalities (timely and correct filings, maintain accounting records, etc.) rather than on true compliance with the maquiladora's substantive obligations, namely (i) the use of the temporarily imported assets in an industrial transformation process, and (ii) their return abroad after their legal term of stay.
Some of the new certification requirements are cause for concern. For example, a certified maquiladora will be required to:
Prove that the value of the merchandise transformed and returned during a given year represents at least 60 percent of the value of the temporarily imported materials during the same period. File the response to an electronic verification via the SAT's electronic system attestingthat not only it, but also its members, shareholders, legal representatives, and sole director or board members, are in compliance with their respective tax obligations. Have the infrastructural capacity necessary to operate under its specifically approved maquila program. (It is unclear whether the SAT presently has the capacity to verify this. If the SAT denies a certification for this reason, the company may not reapply for certification for six months.) Engage SAT-authorized...