Maquiladoras and NAFTA Beyond Y2K
Mexico's Tax Rules
Effective January 1, 1999 tax has been
imposed on imported equipment and components. As of January 2, 2000, profit taxes
of approximately 40% have taken effect.
Under the maquila program, U.S. assembly
plants were not considered permanent. Under new rules, U.S. companies determined
as "permanent" will pay taxes on fixed assets and inventory. There is a possibility
of a 75% double taxation.
The changes in Mexico's tax laws are only part of
a general trend occurring since the mid-90's. Before 1995, the maquila program
paid little or no taxes in Mexico. Consideration was given to the fixed assets
and technological know-now that the companies provided to the development of
Mexico's border manufacturing. After 1995, there have been a steady series of
constraints placed on the maquila program beginning with the "gringo tax,"
which required U.S. citizens to pay Mexico an income tax. Americans were given
a credit for any portion of paid Mexican income tax.
In 1996, Mexico adopted transfer-pricing rules, which provided a special set of
considerations for the maquila. U.S. companies were offered two methods to pay
taxes. (1) cost plus 4.7%; and (2) cost plus 10 - 15% (safe labor).
If the second option was not followed, the corporation would fall under
Mexico's asset tax law, which levies a 1.8% tax on U.S. assets in Mexico,
or a determination is made that the U.S. company is established as a temporary
Because of the transfer pricing rules introduced in 1995 and the current tax
changes, U.S. companies producing goods in Mexico would more than likely be
given permanent establishment status, which means U.S. companies will be required
to pay (1) profit tax at a 40 - 60% rate; (2) file Mexico tax return; and (3) will
result cost increases in administration.
Article 5, Clause 5 of the International
Treaty between Mexico and U.S. states that Mexico will have the prerogative to
tax those foreign companies that manufacture goods in Mexico and have their
headquarters located out of Mexico. (Hacienda at that time create a "transitory"
article in law, which protected Maquiladoras from paying taxes.) Effective
January 1, 2000, Maquiladoras will pay taxes as permanent establishments.
Article 5 also provides that a U.S. company will have a permanent establishment
in Mexico, if it owns goods in Mexico that are processed by a dependant agent
using assets supplied by the U.S. company. Most U.S. companies organized their
maquiladora or PITEX operation in that way.
Effective November 1, 2000 the maquiladora
industry will begin paying import duties in Mexico on both primary material and
machinery and equipment. This will apply to primary materials originating from
non-NAFTA countries and exported to a NAFTA country. For machinery and equipment,
the duty payment will apply to all imports depending on country of origin.
Payment of the Import Taxes
Payments are different for primary
material and machinery and equipment.
Primary Material: Import tax will be paid in accordance with the Duty Deferral
program established in Article 303 of the NAFTA Agreement:
- The primary materials will be temporarily imported to Mexico for
- The primary material will be transformed and sent to the destination
country (with NAFTA region); the import tax that corresponds in the
destination country will be paid in that destination country.
- Once the import tax has been paid in the destination country,
there will be a period of 60 days after the export date to calculate
that duty which will be paid in Mexico. For purposes of this calculation,
the amount of tax paid in the destination country can be subtracted form
the tax amount to be paid in Mexico.
Machinery and Equipment
Import tax will be paid at the time
of entering Mexico and is independent to the origin of the machinery and equipment.
The import tax will be paid as if the import were definitive regardless of
temporary or definitive status.