Expanding operations to Mexico has become attractive for manufacturing companies seeking competitive advantages. While the country offers numerous benefits, including reduced labor costs and proximity to the U.S. market, understanding taxation in Mexico is essential to ensuring success and compliance. Below, we outline the key aspects of taxation that manufacturing companies must understand when establishing operations in Mexico.

Firstly, it is important to understand which are the main federal and local taxes:

Main federal taxes:

• Corporate Income tax (impuesto sobre la renta “IT”)
• Value added tax (impuesto al valor agregado “VAT”)
• Special Tax on Production and Services (“IEPS”)
• Import duties
• Social security contributions

Main local taxes:

• Payroll Tax
• Property Aquisition Tax

Now let`s take a closer look at the taxes that are most relevant for manufacturing companies:

Corporate Income Tax (CIT)

According to the Mexican Income Tax Law, residents in Mexico and foreigners with a Permanent Establishment (PE), are subject to income tax, and are taxed on their worldwide income at a rate of 30% on a net basis.

For manufacturing companies, understanding the scope of taxable income and deductions is vital, as this 30% rate is applicable to taxable profits.  Common deductible expenses include operating costs, depreciation, and certain employee benefits, including employees profit sharing.

Safe Harbour

Under the safe harbor regime, maquiladoras have the option of paying taxes according to the safe harbour method. In which tax profits equals to the greatest amount equivalent to one of the following percentages:

• 9% of the value of the assets
• 5% of the amount of ordinary costs and expenses of their operation.

A maquiladora is a manufacturing operation in Mexico which is run by a foreign company and exports goods to other countries.

Maquiladoras import raw materials, components and machinery to process or assemble them in Mexico and then export back the finished manufactured goods. The processing, transformation, or repair of goods must be carried out with temporarily imported machinery and equipment owned by the foreign principal.

Value Added Tax (VAT)

The Value Added Tax (VAT) in Mexico is 16%, applicable to:

• –  Sale and lease of goods.
• –  Rendering of services.
• –  Persons who grant the temporary use or enjoyment of assets within Mexican territory.
• –  Import of goods or services into Mexico.

Manufacturing companies, particularly those operating under Mexico’s IMMEX program and VAT and IEPS Certification, may benefit from exemptions or deferrals on VAT for temporary imports of raw materials and components.

Under these programs,  manufacturers can temporarily import materials without paying VAT as long as the finished goods are exported. Neverthelss, it is essential for manufacturers to maintain accurate records and ensure compliance with VAT reporting requirements to avoid fines or penalties.

Payroll Tax

A payroll Tax is applicable on wages and other expenditures derived from an employment relationship. This tax rate varies per State, but such tax normally amounts to 2% and 3% on the wage paid.

Property Acquisition Tax

The buyer of any type of real-estate property (house, land, building, apartment, among others) is responsible for paying taxes on real-state or land. The applicable tax may vary among the different States in Mexico, but the average is a 2% rate. Nevertheless, the Property Acquisition Tax may reach 6.5% on the sale price in some states.

In addition to the main applicable taxes, it is important to take into consideration the following topics related to taxation in Mexico:

Transfer Pricing Regulations

Mexico enforces stringent transfer pricing rules to prevent tax avoidance through under- or over-pricing transactions between related entities. Manufacturing companies with parent companies abroad must ensure that all cross-border transactions are conducted at arm’s length meaning prices must reflect market rates.

Companies should prepare detailed transfer pricing documentation annually to comply with these regulations, demonstrating that their transactions meet arm’s length standards.

Compliance with Mexican Financial Reporting Standards (MFRS)

Financial reporting in Mexico must adhere to Mexican Financial Reporting Standards (MFRS), which may differ from International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP). Manufacturing companies must ensure their accounting systems align with MFRS to avoid compliance issues.

Large companies are often required to undergo annual audits, and maintaining accurate financial records is critical for both tax reporting and audit purposes. Records must be preserved for at least five years and include invoices, receipts, and all financial statements. Digitalization of these records is recommended to streamline compliance processes.

Next step for understanding Taxation in Mexico: Partnering with Experts

The complexities of Mexico’s tax and accounting landscape make partnering with experienced service providers or shelter companies an invaluable strategy for manufacturers. These partners can handle administrative burdens such as tax compliance, tax recovery, among other administrative tasks,  allowing companies to focus on their core manufacturing operations.

Understanding taxation in Mexico is crucial for manufacturing companies aiming to establish or expand their operations in the country. Manufacturers can optimize their tax strategies by staying informed about corporate income tax, VAT, transfer pricing, and available incentives while ensuring full compliance. Partnering with local experts like Mexcentrix can further enhance the success of manufacturing ventures in Mexico.

With the right knowledge and support, companies can turn challenges into opportunities. Mexcentrix can help you by facilitating the whole process. Contact us! 

In recent years, nearshore manufacturing has emerged as a transformative strategy for businesses seeking cost efficiency, supply chain resilience, and proximity to key markets. Mexico, with its strategic location and robust manufacturing ecosystem, has played a central role in this shift.   So, what can we expect in 2025?

Mexico’s  Manufacturing Market

Mexico’s manufacturing market is expected to have a compound annual growth rate of 1.32% is (CAGR 2025–2029):

   Source: Statista, 2024. Manufacturing- Mexico. https://www.statista.com/outlook/io/manufacturing/mexico

As shown below, the manufacturing market is expected to grow at a moderate pace; nevertheless, it is expected to continue to solidify its position as an important destination for nearshoring.

Several companies are still shifting manufacturing operations from Asia to Mexico to simplify supply chains, reduce lead times, and mitigate risks associated with global disruptions.

Moreover, potential policy changes after the 2024 US and Mexico elections, may have impacts on trade policy and tariffs, supply chains, and in long-term investment in manufacturing.

Digital Transformation and AI

Digital transformation, automation and smart manufacturing will play a pivotal role in the nearshore strategy. Mexican manufacturers are expected to adopt advanced technologies like AI. Nowadays, AI is being applied worldwide in various areas, including smart production, intelligent robots that performs tasks effectively, workflow automation, improve quality control among others, which is a key efficiency driver.

Sustainability Practices

Sustainability will be a critical factor for manufacturers in 2025. U.S. clients increasingly demand environmentally responsible practices, influenced by consumer preferences. Mexico’s investment in renewable energy and green manufacturing initiatives provides a competitive edge.

Furthermore, companies are expected to invest in innovation and software development for eco-friendly practices.

Geopolitical and Economic Incentives

The reshoring trend is a response to supply chain disruptions and reflects broader geopolitical and economic shifts. The U.S. is still focusing on reducing dependency on China, creating opportunities for countries like Mexico. This movement aligns with ongoing efforts to foster regional economic stability and enhance supply chain resilience.

Evolving Workforce Dynamics

Mexico boasts a skilled and cost-competitive workforce, making it a top choice for nearshore manufacturing. It is expected that manufacturing companies will invest more in workforce training and development, to upskill workers in advanced manufacturing and innovative technologies. While automation and robotics will play a significant role in enhancing productivity, and might reduce workforce requirements, human capital will keep playing a crucial role for manufacturing companies. Being an important factor in Mexico’s nearshoring success.

Succeding with a Shelter Company

Despite its advantages, nearshore manufacturing in Mexico still presents some challenges. These include potential labor shortages in high-demand regions, regulatory hurdles, potential policy and trade changes from U.S and Mexican government and the need for continued investment in infrastructure.

Manufacturing in Mexico has long been a cost-effective strategy for international manufacturers looking to expand production. Collaborating with a shelter company in Mexico offers the safest and most efficient approach to doing business. It allows manufacturers to concentrate fully on production while retaining complete control over their manufacturing processes.

Furthermore, shelter companies also streamline the transition to manufacturing in Mexico by managing critical administrative tasks. These include site selection, employee recruitment and hiring, tax and accounting management, and ensuring compliance with trade regulations. Mexcentrix can help you by facilitating the process through a smooth start and running of operations. Contact us!

Mexico recently overtook China as the United States’ largest trading partner, marking a significant milestone in the North American trade relations. This shift reflects changes in global trade dynamics and reflects that many companies are taking the decision of manufacturing in Mexico and selling to the U.S.

The Numbers Behind the Trend

In 2024, Mexico accounted for approximately 15.3% of total U.S. trade, surpassing China’s share of 12% to 13%. This includes increased exports from Mexico to the U.S., particularly in automobiles, machinery, and electronics, and a rise in U.S. exports to Mexico.

Source: Statista, 2024. https://www.statista.com/chart/20366/trade-volume-top-us-trade-partners/

Factors such as rising labor costs in China, the U.S.-China trade war, supply chain disruptions, and the benefits of nearshoring have all contributed to this change.

But how does Mexico stack up against China in terms of selling products to the U.S.?  Let’s take a deep dive into the key differences and advantages of each.

1. Proximity and Logistics: A Key Competitive Advantage for Mexico

One of Mexico’s strongest advantages over China is its geographic proximity to the United States. The closer geographical distance between Mexico and the U.S. means that products can be transported land or sea much faster than goods shipped from China.

• Mexico to the U.S.: Transporting goods from Mexico to the U.S. is fast, with land shipments taking 3 to 7 days depending on the region. The established infrastructure along the U.S.-Mexico border allows for easy access to major U.S. markets such as California, Texas, and Arizona.
• China to the U.S.: Ocean freight from China to the U.S. can take 14 to 30 days, depending on the port and route.

Below you can find a cost and time comparison on ocean and air freight:

Sources: Container Shipping Cost Calculator [2024] – Freightos & International Container Shipping | Online Freight Marketplace

2.Tariffs and Trade Agreements: USMCA vs. Tariffs

The trade relationship between the U.S. and Mexico is governed by the United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA in 2020. The agreement provides duty-free access for most goods moving between the U.S. and Mexico, provided they meet certain rules of origin.

• Mexico (USMCA): Due to the USMCA, companies manufacturing in Mexico and selling to the U.S. can take advantage of the reduction or exemption of tariffs. Which is also a factor that provides an attractive option for businesses looking to avoid tariffs that might be imposed on goods from other regions.
• China (Tariffs): Trade tensions between the U.S. and China have led to the imposition of tariffs on several Chinese goods. These tariffs can make Chinese goods significantly more expensive, reducing their competitiveness in the U.S. market compared to products from Mexico, which generally enter tariff-free under USMCA.

3. Labor Costs and Manufacturing Efficiency

Labor costs play a pivotal role in determining the overall competitiveness of products sold to the U.S. In the past, China was seen as the go-to destination for low-cost manufacturing. However, wages in China have risen steadily over the years, narrowing the gap between Chinese labor costs and those in other countries, including Mexico.

The average manufacturing wage in Mexico is approximately $2.60 to $4.80 per hour, depending on the role and sector. In contrast, labor costs in China have increased steadily, with hourly wages exceeding $6.50 per hour.

4. Manufacturing Clusters and Industry Specialization

Both Mexico and China have developed strong manufacturing sectors, but their strengths differ by industry. While China is known for its electronics and textiles, Mexico has become a major hub for automotive manufacturing, aerospace, electronics, and medical devices.

5. Intellectual Property

Furthermore, it is considered that manufacturing in Mexico count with a lower risk of intellectual property theft than in China. Still both countries have strong work to do in intellectual property protection matters.

What’s Next in regards to manufacturing in Mexico?

The dynamics of global trade have shifted, and for many companies, Mexico is proving to be a more advantageous option for selling products to the U.S. than China. While China remains a dominant player in many sectors, the trade war, rising labor costs, and increasing geopolitical risks have made it a less attractive option for U.S.-bound goods in recent years.

Politics in each country play a very important role, as if import duties in United Sates are increased for products manufactured in Mexico, the scenario can change.

For foreign companies seeking cost-effective, efficient, and nearshore manufacturing, Mexico offers clear advantages in terms of speed, cost savings, and flexibility. As such, it’s no surprise that manufacturing companies are choosing Mexico over China for its manufacturing process and selling goods to the U.S. market.

In Mexcentrix we can help you by facilitating the process through a smooth start and running of operations. Contact us!