Maquiladora Tax Certification Required to Avoid VAT Payments Under Mexican Tax Law Reform

Electronic certification applications may be submitted beginning April 15, 2014.

In late 2013, the Mexican legislature passed sweeping tax reforms that financially impact several Mexican industries, including the maquiladora industry.  One such reform was the elimination of the exemption on Value Added Tax (VAT) for temporary imports currently enjoyed by maquiladora companies.  A VAT of 16 percent was established for all imports, regardless of the location of the manufacturing facility within Mexico.  Starting January 1, 2015, companies that import products into Mexico on a temporary basis for manufacture, assembly, repair or otherwise, as part of a maquiladora operation will have to pay 16 percent VAT.

Following discussions with the Maquiladora Industry Association (INDEX), as well as Mexican Tax Authorities (SAT), President Enrique Peña Nieto issued a presidential decree granting maquiladora companies certain tax benefits in order to mitigate some of the effects of the 2013 tax reform.  Accordingly, the SAT has issued regulatory guidance on exactly how these benefits will be enacted, including a certification framework that would provide an immediate VAT credit, offsetting the 16 percent VAT levy to be due on all imports.  However, only those companies that can demonstrate a requisite level of compliance in tax and trade compliance matters will be eligible to receive this certification by the SAT.

While SAT has issued guidance, and continues issuing clarifications and changes in real time, certain requirements for SAT certification are clear.  The SAT certification will be available in three categories, “A,” “AA,” and “AAA,” each providing a higher level of benefits, while at the same time an increased number of requirements. 

Certification Requirements

Companies that meet the following requirements will be eligible to obtain SAT certification:

“A” Certification Requirements

• Maintain adequate inventory controls to track imported goods and raw materials. 
• Obtain a positive tax compliance opinion issued by the Mexican tax authorities at least 30 days prior to application.
• Not be listed on the Mexican tax authorities’ (SAT) website as a “noncompliant taxpayer.”
• Have valid “digital seals.”
• Demonstrate that all personnel are registered with the Social Security Institute (IMSS) and provide documents showing payment of social security for at least 10 employees. 
• Produce evidence of financial investment in Mexico. 
• Submit the name and address of clients and suppliers abroad.
• Allow customs officials to carry out an initial inspection and any additional inspections, as needed.

“AA” Certification Requirements

All of the requirements for obtaining “A” certification, as well as the requirements below. 

• At least 40 percent of the maquiladoras operations in Mexico in the previous year are with suppliers that have a positive tax compliance opinion.
• The IMMEX maquiladora operations have been carried out for at least five years, or the company had more than 1,000 employees registered with IMSS in the previous year, or the value of Machinery and Equipment (M&E) at the company is greater than MXP 50 million.
• A tax liability determination had not been assessed in the 12 months prior to application.
• A VAT refund request was not denied within the previous 12 months.

“AAA” Certification Requirements

All of the requirements for obtaining “AA” certification, as well as the requirements below. 

• At least 70 percent of the maquiladoras operations in Mexico in the previous year are with suppliers that have a positive tax compliance opinion.
• The IMMEX maquiladora operations have been carried out for at least seven years, or the company had more than 2,500 employees registered with IMSS in the previous year, or the value of M&E at the company is greater than MXP 100 million.
• A tax liability determination had not been assessed in the 24 months prior to application.
• A VAT refund request was not denied for more than 20 percent of the total VAT solicited within the previous 12 months.

Certification Benefits

Certification with SAT will provide the following benefits:

“A” Certification Benefits

• Immediate credit for VAT on temporary imports.
• Expedited common VAT refunds within 20 business days from request date.
• Certification will be valid for one year.  Renewal possible with continued compliance and by filing notice of renewal prior to expiration of certification.   

“AA” Certification Benefits

• Immediate credit for VAT on temporary imports.
• Expedited common VAT refunds within 15 business days from request date.
• Thirty days for correction of any irregularities in tax or customs declarations.
• Certification will be valid for two years.  Renewal is automatic with continued compliance and by filing notice of renewal prior to expiration of certification.   

“AAA” Certification Benefits

• Immediate credit for VAT on temporary imports.
• Expedited common VAT refunds within 10 business days from request date.
• Sixty days for correction of any irregularities in tax or customs declarations. 
• If any tax and duty liability has been omitted from declarations, customs authorities will send the maquiladora notice in the form of an “invitation letter” for a voluntary correction, rather than initiate an automatic audit. 
• Allowed to file consolidated pedimentos (customs filings) on a monthly basis. 
• Customs clearance available from domicile.
• Certification will be valid for three years.  Renewal is automatic with continued compliance and by filing notice of renewal prior to expiration of certification.   

Please note that while this framework has been developed by SAT to address some maquiladora industry concerns regarding the applicability of VAT to temporary imports, the detailed requirements and benefits are subject to change.

Nevertheless, according to their timeline, SAT is scheduled to begin accepting electronic certification applications on April 15, 2014.  The availability of SAT certification applications will be based on the legal address of the importing business (maquiladora).  The following timeline applies: 

SAT has stated that certification determinations will be issued within 40 days from the submission of a complete application. If any information is missing from a submitted application, the applicant will be given electronic notice and 15 days to respond with the requested information, after which point the application will be refused.    

Drinker Biddle & Reath LLP, in conjunction with Basham, Ringe, y Correa, S.C., Mexican trade counsel, will host an informational webinar on May 5, 2014 to detail the possible impact on your maquiladora and trade compliance operations caused by the Mexican tax law changes and the recent tax authority guidance.  

In addition, we will discuss those steps companies will want to take in order to determine whether VAT certification is necessary, and how to obtain certification if needed.