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Among the most significant amendments is the Maquila Decree change of name to Decree for the Promotion of the Manufacturing, Maquila and Exportation Services Industry (the “IMMEX DECREE”).

Another major amendment is that the IMMEX Decree repeals the Decree that Establishes Temporary Import Programs for the Manufacture of Export Goods (the “PITEX DECREE”), and consolidates the Maquila and PITEX DECREE into a single document.

So, programs authorized to companies in the past under the Maquila and PITEX DECREE will now be known as IMMEX Programs.

According to the Mexican Government, the combination of the Maquila and PITEX DECREE stems from the fact that although each decree had a different purpose and was intended to promote a different industrial sector, from a foreign trade and regulatory perspective they are now almost identical and this makes unnecessary to have two different decrees in place.

Below is an analysis of the most important changes to the legal framework of the maquila industry that are introduced by the IMMEX Decree.

Eligibility

In addition to all requirements that a Mexico-resident entity must satisfy to be eligible to have a program authorized under the IMMEX Decree, such entity must be taxed pursuant to Title II of the Mexican Income Tax Law, this is, under the general taxation regime.

Modalities of the IMMEX Program

The modalities under which a company could have a program authorized under the Maquila Decree are maintained. Such modalities are (i) holding company; (ii) industrial; (iii) services; and (iv) shelter. Now, the outsourcing (terciarización) modality is added under the IMMEX Decree.

Outsourcing is a new modality under which a Certified Company1, regardless as to whether it has industrial facilities or not, may carry out manufacturing processes through third parties (entities taxed pursuant to Title II of the Mexican Income Tax Law) by registering such third parties in the Certified Company’s IMMEX Program.

Sub-Manufacturing or Submaquila

A company having an authorized IMMEX Program still has the right to temporarily transfer goods and fixed assets to a third party (an entity taxed pursuant to Title II of the Mexican Income Tax Law, or an individual taxed pursuant to Title IV, Chapter II, Sections I or II, of the Mexican Income Tax Law) for such third party to carry out industrial processes directly related to the company’s manufacturing activity.

Additionally, the third party may also provide services2 directly related to the manufacturing activity.

Approval Requirements

For authorization of an IMMEX Program, the applicant company must satisfy the following requirements:

I. To:

• have an Advanced Electronic Signature;
• be recorded in the Federal Taxpayer Registry; and
• have a tax domicile and facilities where activities under the Program are to be conducted, active and registered in the Federal Taxpayer Registry.

II. To file an application in the form approved by the Ministry of Economy (“SECON”)3, duly completed and containing the following information:

• General data of the applicant company;
• In case raw materials and parts are involved, a detailed description of the manufacturing processes or services, including: (i) installed capacity of the facilities to process the materials or to provide the services, and (ii) capacity, as a percentage, actually used;
• Tariff classification of the goods to be temporarily imported and of the finished product to be exported;
• Commercial description of all containers, trailers, machinery, tools and other equipment (fixed assets) to be used in the maquila activities; and
• The applicant’s commitment to realize annual sales in foreign markets above $500,000 dollars, or bill abroad at least 10% of its aggregate export sales; this percentage formerly was 30%. However, the wording of this requirement is still unclear, as many maquila companies do not bill their export sales; and
• any other information required by SECON under the form.

III. To submit the following documents:

• A true copy of the applicant’s articles of incorporation, as amendments, duly filed with the Public Registry of Property and Commerce;
• Copies of documents proving the applicant’s legal ownership of the facilities and describing the location thereof, and photographs of the facilities. In case of leased facilities, the lease agreement must be for a compulsory one year-term and the unexpired term of the lease must be of at least 11 months from the date the application is filed.
• Maquila agreements, purchase and sale agreements, purchase orders or firm orders evidencing the existence of an export project. The requirement to have the maquila agreement formalized by a notary public has been deleted; and
• All other information as determined by SECON.

The applicant must have provided to the Tax Administration Service (“SAT”), before filing the application, the geographical coordinates of the applicant’s tax domicile and facilities, if any, where it intends to perform industrial processes under the Program.

Formerly, the applicant had to satisfy this requirement only after authorization of its Program.

Prior Inspection

The performance by SECON of an inspection visit to the applicant’s facilities where industrial processes are to be carried out as a pre-requisite for authorization of an IMMEX Program, is maintained. Additionally, the inspection will be conducted jointly with SAT in case the application involves the temporary importation of textiles and apparel.

Authorization of Holding Company Modality

Any company that applies for the authorization of a program under the holding company modality must satisfy any additional requirements set by SECON under a Ruling.

Authorization of IMMEX Programs

SECON will issue a Program authorization within 15 business days following the filing of the application; if no authorization is issued within this period of time, the subject Program will be presumed authorized. In case of extension or amendment of a Program, the term for issuance of an authorization is of ten days.

Electronic Filings

All filings related to the Program must be made by electronic means.

All electronic information related to an IMMEX Program will be shared by SECON and SAT for joint cooperation purposes.

Sectorial Promotion Program (PROSEC)

In the authorization of an IMMEX Program, SECON may simultaneously authorize a Sectoral Promotion Program according to the type of products manufactured or export services provided by the applicant.

Formerly, a PROSEC was approved only after authorization of a Maquila or a PITEX Program.

Automatic Listing in the General Importers’ Register

Upon authorization of a Program, SECON will electronically transmit SAT all data needed for the automatic listing of the party in interest in the General Importers’ Register.

Obligations of Companies having and IMMEX Program

Every company having an authorized IMMEX Program is required to:

• Realize annual foreign sales above $500,000 dollars, or invoice abroad at least 10% of its total export sales.
• Temporarily import under the Program only those goods whose importation is approved in the Program.
• Give all goods imported on a temporary basis under its IMMEX Program, only the uses authorized thereunder.
• Return all goods within the periods of time set therefore.
• Maintain the goods only at the authorized premises.
• Give SECON notice of: (i) all changes in any data previously provided, such as a change in its federal taxpayer ID number, tax domicile or name, (ii) a change of address of any facilities registered in the Program for the conduction of industrial and export sub-manufacture activities, at least three days prior to the movement of the goods; and (iii) its cessation of business.
• Provide to SAT in the form determined by SAT, the geographical coordinates of its new tax domicile or authorized facilities.
• Keep an automated inventory control system showing the minimum information referred to by Annex IV to the IMMEX Decree.
• In case of fuels and oils imported on a temporary basis, keep volumetric records and prove their usage.

Annual Report

Additionally, every company having an authorized IMMEX Program must now file an electronic Annual Report with SECON with respect to the total amount of its sales and exports for the immediately preceding fiscal year, no later than the last business day of May.

Suspension of an IMMEX Program

The following are events for suspension of a company’s IMMEX Program: (i) failure to timely submit an Annual Report, (ii) lack of Advanced Electronic Signature, or (iii) lack of an active taxpayer identification number or tax domicile. In any of these events, the company will have the right to temporarily import goods only until the event for suspension is cured, and if not cured by the last business day of August, the IMMEX Program will be cancelled effective September 1.

Cancellation o fan IMMEX Program

The events for cancellation of a company’s IMMEX Program are:

• Not performing any of the obligations set forth in the IMMEX Decree or in the corresponding authorization issued by SECON. In this case, SECON will begin the cancellation process.

Also, if the cancellation is requested by SAT when:

• The company files a request for suspension or cancellation of its taxpayer identification number, or fails to file a return for federal taxes, or files a tax return showing that no amount is due, without considering the period preceding the commencement of the company’s operations.
• The company did not perform foreign trade operations during the preceding twelve months.
• The company does not keep accounting books and records, updated inventory lists or any other records that it is required to keep under the tax and customs regulations in effect, or conceals, alters or destroys all or any portion of such records.
• The company does not keep all documents supporting its foreign trade operations, or its accounting books and records are inconsistent with its domestic taxes returns; or submits false or altered documents or documents containing false data; or it is evidenced that the goods did not enter the country of destination.
• The SAT will, in exercise of its auditing authority, find that any goods temporarily imported under an IMMEX Program are not kept at the registered facility.
• The legal importation or possession of any goods is not evidenced and as a result SAT will assess a tax liability above $400,000 pesos; or the value of the subject goods exceeds 5% of the total value of the goods temporarily imported during the immediately preceding six months.
• The company becomes subject to an administrative-law enforcement action due to its not complying with its tax and/or customs obligations.
• When SAT will determine that the name or tax domicile of the foreign supplier or manufacturer, consignee or purchaser entered in a declaration or invoice is false, non-existent or not found.

In case of occurrence of an event of cancellation, SECON will commence the cancellation process within ten business days following receipt of SAT’s request, and will give the company notice of the commencement of such process.

The right to temporarily import goods under the Program is suspended during the cancellation process and is reactivated until the event for cancellation is cured, or until a final resolution is entered by SAT in the last three events.

The above is a serious violation of the constitutional right to due process of law and of the legal certainty principle, in that the commencement of a cancellation process entails the automatic suspension of the right to temporarily import goods under the Program, which significantly adversely affects the company.

Although in some cases a ten-day term is granted for the affected company to challenge the alleged event of cancellation, a term of up to four months from the commencement of the cancellation process is set for SECON to either revoke the suspension or finally cancel the authorization of the IMMEX Program. This means that the company’s Program would be suspended during four months, even if the company’s challenge was successful.

Certified Companies

The IMMEX Decree reproduces all benefits granted to companies registered as Certified Companies.

One of the benefits granted to Certified Companies is the right to expedited value added tax refunds (within five business days) if they are exporters of finished goods and their tax returns show a tax refund.

Companies having a Maquila or a PITEX Program

Companies having a PITEX Program or a Maquila Program authorization under the respective decrees will now have a Program authorization under the IMMEX Decree, as follows:

SECON will assign an IMMEX Program number to the Maquila or PITEX Program, without need of any further procedure, provided the company has an Advance Electronic Signature; otherwise, the company must necessarily satisfy this requirement for SECON to assign the IMMEX Program number4.

Customs Duties

Companies that will import goods on a temporary basis under an IMMEX Program will be subject to payment of customs duties in accordance with any treaties signed by Mexico, with article 63-A of the Law and as provided by SAT under general rules.

Any of the following rates will be used for computation of the customs duties payable:

• The rate set in the General Import and Export Duty Tariff Law.
• The preferential rate set forth in foreign trade agreements and commercial agreements signed by Mexico; or
• The rate set forth in a Sectoral Promotion Program (PROSEC) if the party in interest obtained the proper authorization.

Tax Issues

The IMMEX Decree preserves the existing tax framework applicable to maquila companies.
Notwithstanding the above, companies that used to operate under a PITEX program may now benefit from the tax rules applicable to maquila companies, provided they have the structure required to operate as such.
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1 A company listed in the Certified Companies registry kept by the Tax Administration Service.
2 The activities that can be authorized under the services modality are listed in Annex I to the Second Amendment to the Executive Order Whereby the Ministry of Economy Introduces Foreign Trade General Rules, which was published in the Federal Official Gazette on January 4, 2007.
3 As published in the Federal Official Gazette on January 4, 2007.
4 The first series of Immex Program numbers was published in the Federal Official Gazette on January 3, 2007.