Extension of IETU Benefits for IMMEX (Maquiladora) Companies Should Continue to Attract Investment in Mexico
The Mexican Government Extends the Flat Tax Incentive for Maquiladoras until December 31, 2013
The Mexican government has extended the Flat Tax incentive for Maquila operation. In an effort to mitigate the adverse impact caused by the introduction of the Flat Tax (IETU) on the Maquiladora Industry, a presidential decree, issued November 5, 2007, granted various tax benefits to Maquiladoras. The incentive was previously available through December 31, 2011. However the incentive will now be available until December 31, 2013.
Mexican President Felipe Calderon signed a decree on October 11 extending from January 1, 2012 through December 31, 2013 the benefit of the Single Rate Business Tax (IETU), originally granted to IMMEX companies (also known as Maquiladoras) in November of 2007. The benefit is designed to minimize the negative effects of the IETU by allowing a special credit resulting in a combined rate of income tax and flat tax of no more than 17.5% of the tax base. The IETU will be calculated using the same taxable base as the income tax (ISR).
In general terms, the taxpayer (the Maquiladora) can credit against their Flat Tax liability an amount determined as follows:
Flat tax liability + income tax liability – (taxable profit x 17.5%)
A similar credit is calculated to reduce the corresponding provisional advanced tax payments made during each tax period.
In order to apply the decree, taxpayers must comply with the following necessary tax, customs and Maquiladora (IMMEX) filings obligations during 2012 and 2013:
1. File all annual or monthly federal tax returns:
2. The taxpayers must not have outstanding definitive tax credits or must not be registered with the tax authorities.
3. File the annual tax report or the simplified information submission where applicable.
4. Tile the informative tax return for operations with third parties.
5. File the informative return for Manufacturers, Maquiladoras and Export Service Business.
6. Maintain an active tax registration with the authorities (no suspended activities, liquidation proceedings or cancelation of register).
7. Provide true and current information for tax registration.
8. Comply with the IMMEX program conditions (article 24 of the IMMEX Decree)
9. Maintain the required export and import documentation.
10. Comply with all tax and customs fillings related to Maquila Operations.
11. Provide no false names or addresses of foreign suppliers or recipients in invoices or customs declarations.
The announcement came after extensive testimony from the National Council of the Maquiladora and Export Manufacturing (CNIMME), which monitors employment in the sector. Many states in Mexico rely heavily on the IMMEX industry for jobs. Statistics for July 2011 show that 20.64% of the population was employed by IMMEX companies in Chihuahua; 14.6% in Baja California and 16.76% in Coahuila, to mention a few.
This executive order recognizes the importance of the Maquiladora industry in generating jobs in Mexico. The executive order covers regulatory reform, simplifies the tariff system and promotes use of virtual filing to reduce paperwork. By this measure President Calderon hopes to promote further investment and job creation from the 6,400 Maquiladoras already operating in Mexico and from companies looking to set up operations in the near future.
Specialists in the Maquiladora industry welcomed this news but expressed concern that the incentives are not in place for a longer period of time, or indefinitely. Those who believe in the Maquiladora industry will need to continue to advocate for more permanent reforms.
Taxpayers should review the application of the decree in 2013 as changes to Flat Tax may be introduced with the next elected administration.
North American Production Sharing NAPS is a leading shelter company in the northwest region of Mexico. NAPS provides the administrative and compliance functions that free our clients to focus on the manufacture and quality of their products. To ensure you are benefiting from the tax incentives offered by the government of Mexico, contact NAPS or vist our website.
Industry Liaison & Marketing Analyst
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NAPS is a premier shelter company in Mexico providing start-up and ongoing administration for companies manufacturing in Mexico. NAPS facilitates the relocation and expansion of labor intensive processes mainly along the border region of Mexico. Since 1991, NAPS has played a key role in ensuring the success of 70 Mexico manufacturing operations including: Esterline, Hewlett Packard, Intuitive Surgical, JAE, Monster Cable, Parker Hannifin, Speck Products, Toyota & Qualcomm. For more info about NAPS and the shelter services in Mexico we offer please visit www.napsmexico.com