Mexico has overhauled its e-invoicing requirements in recent years, and while businesses of all kinds have had to adapt, keeping up with changes is particularly important for maquiladoras.
Maquiladoras are manufacturers, often with factories near the border with the US, which have a special designation from the Mexican government that allows them to import materials and equipment tariff-free for assembly, processing and/or manufacturing, and then export the finished product.
Maquiladora status, known in Mexico as Industria Manufacturera, Maquiladora y de Servicios de Exportación, or Immex, includes VAT incentives, namely the ability to credit VAT paid on imports against VAT obligations, which eliminates the need to claim a refund and improves cash flow.
Simply put, maquiladoras are exempt from paying VAT on temporary imports. Losing Immex status, then, could cause major cash flow issues because manufacturers would have to pay more in VAT without Immex status than they would with it. Obtaining and keeping Immex credentials is paramount.
Gaining and keeping Immex status
But Immex status does not come easily, and acquiring and maintaining it requires companies with the designation to stay in compliance with shifting tax regulations. Mexico’s tax authority, the SAT, will only grant Immex status to manufacturers if they have cleared all tax liabilities and have their compliance initiatives in order.
Immex status it not permanent, either. The SAT awards three certifications—A, AA and AAA—with each “A” representing the number of years the status is valid. The SAT can audit maquiladoras at any time and downgrade or revoke their status. Losing Immex status would not only cut into cash flow but would also increase operating costs and disrupt supply chain management for manufacturers.
Requirements for the three certifications differ, but all require manufacturers to work closely with the SAT to ensure that details on imports, manufacturing and exports, along with inventory management and accounting records, are in compliance. Maquiladoras do not sell anything in Mexico but instead procure raw materials to make goods and ship them to the US. (About 80 percent of all Mexican exports go to the US.) Accounts payable (AP) processes, therefore, are at the core of gaining and keeping Immex status.
Compliance at the heart of maintaining Immex status
That brings to the forefront Mexican mandates such as the new contabilidad electronica, or the electronic accounting system in Mexico that stores information showing how much a company owes the SAT or how much the government owes the company. Without a properly functioning contabilidad electronica tied to AP processes, maintaining Immex status is basically impossible.
But requirements don’t stop with contabilidad electronica. Compemento de pagos, e-cancellations and e-invoicing are also components of the Mexican system manufacturers must master. Failing to comply with any core requirement could expose manufacturers to fines and penalties, as well as to disputes with business partners. And failure to comply will also lead to loss of Immex status and the VAT relief that comes with it.
Paper-based storage processes are no longer allowed, and maquiladoras have to have records in place in preparation to be audited at any time. That’s why it’s so critical for maquiladoras to have AP processes and systems that ensure compliance with Mexican regulations. But building compliant systems in-house is costly and risky, especially for multinationals facing similar challenges in other countries around the world.
Advantages of outsourcing compliance in Mexico
Outsourcing compliance to a third party puts the burden of keeping systems up to date on a technology partner rather than on the company itself. It also means somebody else is responsible for maintaining compliant systems and processes as regulations evolve and change as they have in recent years.
For maquiladoras, the consequences involved with falling out of compliance in Mexico are even greater than they are for most companies. In order to maintain their Immex status, maquiladoras need to know and be able to prove that they’re in compliance. Turning compliance over to an expert partner is an important step in making sure manufacturers in Mexico maintain their maquiladora status.
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