Using the Certified Company Registry to
Add Benefits to the Maquiladora Industry
By Marcos Guerra (GlobalTrade Integral Solutions) and Marc Schwartz (Barnwell & Company LLC) Many U.S. companies manufacture using a Mexican Maquiladora. This article provides a very high level overview of the Maquiladora system and highlights specific systems that provide additional advantages.

General Maquiladora Regime
Maquiladoras are Mexican companies that often produce goods or provide services for Mexican and non-Mexican companies under a toll manufacturing agreement. While the non-Mexican party often owns
the Maquiladora, that is not always the case. Very generally, a U.S. company ensures the Maquiladora receives the raw materials necessary for production, and the Maquiladora would export
the finished product to the U.S. company. The raw materials typically enter Mexico with no import duties
and no value added tax (“VAT”) and customs duties might only apply to the extent the raw materials did not
qualify for NAFTA benefits. Other benefits are that the U.S. company hiring the Maquiladora is typically protected from Mexican income tax and asset tax risk because the law provides that operating via a Maquiladora will not create a Permanent Establishment, providing the Maquiladora generates at
least a specified minimum profit level. The key issue is that these benefits typically apply
when the Maquiladora exports 100 percent of its production and the end-user is not in Mexico.

Practical Difficulties
Often the U.S. company using the Maquiladora will have customers in Mexico. When this happens, the
general rules are modified in a few areas. (See diagram) The general VAT exemption above applies to
temporary imports (i.e., the import is temporary because the imported raw materials comprise a finished product consumed outside Mexico). When the end user is in Mexico, the importation is not “temporary,” and the general 10% or 15% VAT rate applies to the raw materials comprising the finished product. Second, customs duties will apply on the importation of the raw materials. Suppose a U.S. company produces via a Maquiladora and has customers in both the U.S. and Mexico. The U.S. company could have the Maquiladora send 100 percent of the final product to the U.S., and then the U.S. company would sell/export the appropriate portion of the production to its Mexican customers. In such a case, VAT would apply on the importation of the finished goods into Mexico by the Mexican customers; however, that cost should be recoverable. (A detailed analysis of VAT is beyond the scope of this article.) However, the big cost here to the U.S. company is the cost of transferring the finished product from Mexico to the U.S. before
exporting the items back to Mexico. Such costs include shipping, insurance, storage, customs brokers and the time invested in this relatively inefficient process. Additionally, depending on the product and the related raw materials, there may be U.S. customs duties on the import from the Maquiladora, as well as potential Mexican customs duties on the import by the Mexican customer. Despite the inefficiencies, there are companies that operate under this structure and the benefits of the Maquiladora can still outweigh the extra costs on this “indirect” delivery method.

Potential Solutions
The Certified Company Registry and/or the Industrial Relief Program (to reduce or eliminate import duties)
can add benefits to the above structure. The Maquiladora must apply/register for these benefits. Therefore, the process may be more straightforward for U.S. companies owning the Maquiladora since they will not have to convince the Maquiladora to register. That said, obtaining the registry would typically be advantageous to any Maquiladora since it should allow it to attract new customers.

Certified Company Registry
The Mexican government created the Certified Company Registry to assist the Maquiladora industry, and it
is particularly useful in the situation above where due to the increased costs of exporting to the U.S. and then immediately exporting back to Mexico, a U.S. company might decide not to use the Maquiladora. To the extent the Maquiladora qualifies, this export from Mexico/ import into Mexico inefficiency can be avoided without giving up any of the general Maquiladora benefits.

A Maquiladora must typically have imported approximately U.S.$20 million worth of items in the six months
preceding application for the Registry in order to obtain these benefits. If the Maquiladora has affiliates that are also Maquiladoras, the aggregate imports could be used; however, the threshold increased to approximately U.S.$40 million. In the alternative, it may be possible to negotiate benefits with the Mexican tax authorities if the Maquiladora has complied with existing customs and tax rules.

Industrial Relief Program
The Industrial Relief Program is an additional support program implemented by the Mexican Government
in 2002 to support the Maquiladora industry. This program could be used simultaneously with
the Maquiladora program to reduce or eliminate import duties on the non-NAFTA originating raw materials
used in production. The reduced customs duties, generally result in zero to 5 percent duties.
As with the Certified Company Registry, the Maquiladora would have to apply for the program.

PRINCIPAL
would typically need to negotiate for benefits with the Mexican tax authorities.
Therefore, the Maquiladora could continue to import the raw materials from any source, manufacture the
finished product, and then export the items that will not be consumed in Mexico. For Mexican customers, it can then deliver the finished product or have the U.S. company’s customers pick it up at the Maquiladora. See above for a diagram.

Conclusion
As high costs are driving production away from the U.S. and even from Mexico, U.S. companies face both
opportunities and hurdles (e.g., logistical, tax and legal) as they determine the most efficient operational strategy. The Certified Company Registry is one way Mexico is trying to make the choice easier.