MEXICO – US TRADE RELATIONSHIP 

 Mexico is currently the United States’ largest source of imports. According to Investopedia, the United States imported approximately $506 billion worth of goods from Mexico in 2024.

As part of the United States’ strategy, the imposed tariffs since the beginning of 2025 have included Mexico. Tariffs of around 25% on imports from Mexico were enacted under executive orders, targeting sectors such as automotive, agricultural products, and manufactured goods. Below is a summary of current tariffs applicable to Mexico:

However, despite these new measures, more than 84% of Mexico’s exports to the U.S. remain duty-free under the provisions of the USMCA. Only the remaining 16%—primarily non-USMCA goods such as certain auto components, steel, and aluminum—are subject to the 25% tariff.

CHINA – US TRADE RELATIONSHIP

Since the start of the U.S.–China trade war, bilateral trade between the two countries has steadily declined. Many companies have responded by shifting production closer to the United States through nearshoring, with Mexico emerging as a primary destination. As a result, Mexico has now overtaken China as the United States’ top trading partner.

According to The Wall Street Journal, U.S. imports from China fell from 22% of total imports in 2018 to around 12% by early 2025. In value terms, imports dropped from $505 billion in 2018 to $439 billion in 2024—a $66 billion decline. This underscores the significant impact tariffs have had on the U.S.–China trade relationship, an effect that is expected to persist.

US – CHINA TARIFFS

On August 12, the United States and China agreed to extend their tariff truce for another 90 days, until November 10, 2025, postponing the implementation of additional duties on each other’s goods. This agreement temporarily eases tensions in a trade relationship that has been marked by escalating tariffs, retaliatory measures, and mounting uncertainty for businesses.

Futhermore, this extension prevents U.S. tariffs on Chinese products from surging to 145%, while Chinese tariffs on U.S. goods were set to reach 125%—levels that experts considered would have created a near-total trade embargo between the two economies, severely disrupting global supply chains, increasing consumer prices, and placing additional pressure on companies reliant on cross-Pacific trade. In addition, the potential breakdown of trade flows could have pushed businesses to accelerate diversification strategies, benefiting alternative manufacturing hubs like Mexico.

As of now, the US tariffs imposed will remain as follows:

IMPLICATIONS FOR CHINESE INVESTORS IN MEXICO

Mexico has been among the countries least affected by recent U.S. tariffs, largely thanks to the protections offered under the USMCA. Establishing operations in Mexico can be highly advantageous—particularly when the finished goods manufactured meet the USMCA rules of origin. Mexcentrix can assist by analyzing Bills of Materials (BOMs) to verify whether a product qualifies as USMCA-origin, potentially delivering significant tariff savings compared to the rates currently applied to Chinese products.

While USMCA provisions shield the majority of Mexican exports from new duties, certain sectors—most notably automotive—continue to face substantial challenges. Nevertheless, investor sentiment remains strong, with many projects moving forward. This is driven by the competitive advantages of USMCA protections and the deferred implementation of some tariff measures, even as uncertainty lingers for select foreign investors.

For all countries, balancing protectionist policies with the benefits of integrated supply chains will be key to sustaining growth, stability, and competitive advantage in the global market.

For companies navigating these new challenges, Mexcentrix Services can provide the expertise and operational support needed to establish manufacturing operations in Mexico efficiently. From compliance, cost optimization, risk reduction, and supply chain integration, Mexcentrix helps businesses adapt to changing trade conditions.

On April 2, 2025, during “Liberation Day” President Trump announced a 10% base tariff on almost all imports and added steep “reciprocal” tariffs on more than 60 nations, scheduled to take effect on April 9. These were delayed 90 days to accommodate negotiations, then postponed again to August 1, and entering into effect as of today.

Court challenge: A federal court ruled in May that this action overstepped executive authority under the International Emergency Economic Powers Act (IEEPA), but enforcement was paused pending appeal, keeping the tariffs active.

What Is Changing on August 1, 2025

• Base tariff: 10% on most imports.
• Targeted increases:
  • European Union and Mexico: Originally 30%, now reduced to 15% across some goods following a July 27 agreement. However, steel from Mexico will be subject to a 50% tariff only for shipments exceeding the annual bilateral quota. Mexican products tht comply with the USMCA Rules of Origin are exempt of the 30% tariffs.
  • Canada: Up to 35%, implementation delayed to September 1, 2025.
  • Brazil: 50% on broad imports.
  • Copper products: 50% tariff now applies only to finished copper goods; raw copper is exempt.
  • Japan and South Korea: 25%, delayed to September 1, 2025.
  • India: Newly added – 25% tariff on key industrial goods and electronics.
  • 150+ other nations: Tariffs between 10–15% expected.

Additionally, revised enforcement letters were sent to 30 countries, clarifying the scope and timelines.

International Response and Repercussions

In response to the U.S. imposing tariffs, countries around the world have reacted in various ways:

Mexico denounced the tariffs as a violation of the USMCA and proposed retaliatory tariffs on U.S. goods like pork and cheese. However, it emphasized a preference for negotiation and suggested creating a joint diplomatic working group.

Canada, led by Prime Minister Carney, called the tariffs unjustified and reaffirmed its own 25% counter-tariffs on C$155 billion worth of U.S. goods. This sparked a “Buy Canadian” boycott as a form of protest.

China condemned the tariffs, imposing counter-tariffs on U.S. exports like soybeans and LNG, accusing the U.S. of economic coercion.

South Korea and Japan criticized the U.S. tariffs and called for negotiations. South Korea also introduced emergency support measures for its exporters to ease the impact.

Australia expressed disappointment, describing the tariffs as unfriendly, but chose not to retaliate. Instead, it sought an exemption through diplomatic dialogue.

Taiwan negotiated a 20% tariff rate and continues to push for better terms, citing its strategic economic alignment with the U.S.

Meanwhile, countries like Thailand, Cambodia, and Pakistan welcomed the new tariff structure, viewing it as an opportunity to grow their trade with the U.S.

Source: Financial Times, Reuters, Canadian Governmen, CNBC

Economic Impact

Prices are already rising across multiple sectors, particularly within the manufacturing industry. Companies are facing elevated input costs due to increased tariffs on critical materials like copper, steel, and electronics components.

Key sectors such as automotive, industrial machinery, and technology are experiencing significant disruptions in pricing and supply chains. Financial markets have shown a mixed response: equities remain steady, while the dollar has weakened due to trade-related uncertainties.

Summary Table 

August 1 represents more than just a policy deadline; it marks a significant turning point in the United States’ approach to global trade. Whether the tariffs result in new trade agreements or spark a broader trade conflict, their effects will be far-reaching.

For further information or inquiries, please contact us. Mexcentrix experts are available to assist with insights, USMCA compliance analysis and studies, and strategic guidance regarding the upcoming tariff changes.

A Strategic Location in the Heart of Mexico

Nestled in the Bajío region, San Luis Potosí is within easy reach of major hubs like Mexico City, Guadalajara, Monterrey, and key U.S. border crossings. It has direct access to key highways such as Federal Highway 57 and modern rail networks. Its central location also ensures competitive distances to Mexico’s main ports: approximately 750 km to Lázaro Cárdenas, 700 km to Manzanillo, and 650 km to Veracruz, strengthening its logistics and export capabilities via both the Pacific and Gulf coasts.

Accelerating Industrial Momentum and Building Availability

This expansion is largely driven by a strong manufacturing sector. The region also boasts a Class-A facility inventory nearing 28 million square feet, with vacancy rates remaining low and highly competitive at around 2.5%.

Centerpiece: Automotive Cluster

In Q1 2025, San Luis Potosí produced 82,831 vehicles, operating at 70.8% capacity.

• GM led with 55,655 units.
• BMW assembled 27,176 units.

There were also USD 39.4M in new automotive investments, with expansions by Continental, JTEKT, and SL MEX, the latter opening a headlamp plant, creating 385 jobs. SLP remains a key automotive hub in Mexico.

Diversification: Aerospace & Beyond

Manufacturing here isn’t limited to cars. The aerospace sector is experiencing a boom cumulative FDI in aerospace now exceeding US$130 million, transforming SLP into a centralized supplier of high-precision aircraft components and systems. Over 4,100 new jobs across five major aerospace plants exemplify this trend. Meanwhile, electronics, medical devices, appliances, and food-processing niches continue to expand.

A Well-Prepared Workforce

Approximately 20% of San Luis Potosí’s 1.2 million economically active residents work in manufacturing, providing the region with a strong and stable labor force. This strength is further reinforced by industry-education partnerships, including dual-training programs developed with BMW, Cummins, local universities, and technical institutes, which focus on enhancing skills in mechatronics, materials, and automation.

Competitive Operations & Infrastructure

San Luis Potosí boasts a highly competitive operational environment supported by modern infrastructure and a strategic geographic location. The state is well-connected through major federal highways and rail networks, facilitating efficient access to key seaports such as Manzanillo and Altamira, the U.S. border, and central Mexico. Additionally, it benefits from a growing international airport and a portfolio of well-developed industrial parks equipped with world-class facilities and utilities.

As of May 2025, data from Solili reports that the average industrial lease rate in San Luis Potosí stands at approximately USD 5.58 per square meter per month (around USD 0.52 per square foot per month), positioning the state as one of the most cost-competitive industrial rental markets in Mexico.

In 2025, the state has at least 25 industrial parks (both public and private), with 18 currently operational across seven key municipalities.
Since 2022, six new parks have been inaugurated, with more under development in Villa de Reyes, Santa María del Río, and Mexquitic de Carmona.

Government Incentives & Business Climate

Both federal and state authorities extend tax-related incentives or other types of incentives. SLP’s business environment is further acclaimed for political and labor stability, streamlined permitting, and active recruitment support. In the second quarter of 2024, San Luis Potosí attracted USD 1.064 billion in FDI, representing 3% of the national total, positioning it as the seventh state to receive the most investment in that period.

Why Manufacturers Should Take Notice

San Luis Potosí has transformed into a compelling site for manufacturers seeking scalability, regional connectivity, and stable, cost-effective production. Its rapidly evolving ecosystem, anchored by global OEMs, diversified into high-tech sectors, and underpinned by an avowed workforce, positions it as a rising star in Mexico’s industrial narrative. As companies pivot forward, SLP offers an environment equally rich in promise and substance.

If you want more detailed information or personalized guidance about investing and manufacturing opportunities in San Luis Potosí, consider reaching out to Mexcentrix, with headquarters in San Luis Potosi, is a trusted partner that specializes in easing business expansions in the region. Their expert insights and hands-on support can help you navigate the local landscape and maximize your success in this vibrant market. Contact us!

In today’s fast-paced global market, manufacturers constantly seek ways to cut costs without sacrificing quality or efficiency. One of the most effective approaches is to expand or relocate operations to Mexico, a country that offers an ideal combination of low cost and a skilled workforce.

Mexico’s Manufacturing Wages vs. U.S.

When comparing manufacturing wages, Mexico offers a clear cost advantage over the U.S, allowing companies to keep margins while scaling operations.

Both México’s and the United States’ labor costs vary per location and industry; nevertheless, below you can find approximate fully burdened rates for some common positions in the manufacturing industry:

United States Labor Costs Source: U.S. Bureau of Labor Statistics,  Occupational Employment and Wage Statistics (OEWS) Profiles, May 2024 Profiles.  

A Skilled and Growing Workforce

Mexico continues to invest in education and vocational programs, producing a growing pipeline of engineers and technicians. Many companies from Germany and its surrounding have benefited from the dual education model.

Furthermore, regions such as Bajío, Monterrey, and Tijuana are recognized for their industrial ecosystems and technical universities, making them attractive hubs for advanced manufacturing.

This ongoing investment in human capital ensures that manufacturers can count on a reliable workforce to support long-term growth.

Regional Flexibility for Operational Strategy

Mexico’s labor market also provides geographic flexibility. While northern border areas often have higher labor rates due to increased demand and cost of living, central and southern regions can offer more affordable options while still maintaining access to infrastructure and skilled labor. In the southern region there is still a need for training and qualifying personnel for the manufacturing industry.

This diversity allows manufacturers to customize their site selection based on budget, logistics, and access to supply chains or export routes.

Why Mexico Makes Strategic Sense

In addition to finding cost savings in real estate and logistics costs, with its affordable and skilled labor, Mexico has become a go-to destination for manufacturers aiming to reduce costs and increase efficiency. It’s not just a matter of lowering expenses; it’s about building a scalable, resilient, and responsive supply chain close to major consumer markets.

Moreover, operating under a shelter company like Mexcentrix, we can help you save up to 40% in the start-up phase and up to 20%

Ready to Establish Your Operations in Mexico?

At Mexcentrix, we help international companies navigate every step of the manufacturing setup process from site selection and legal compliance to full shelter services and operational support. Contact us today to learn how we can support your success in Mexico.

One of the main advantages when nearshoring to Mexico is its cost-effective labor market. However, it’s important to understand the country’s labor framework to stay compliant and build a productive workforce. Here’s what you need to know:

Key Aspects of Mexican Labor Law

Mexico’s Federal Labor Law (Ley Federal del Trabajo or LFT) is the primary legal framework that governs labor relations in the country. It sets out the rights and obligations of both employees and employers, aiming to promote fair labor practices, decent working conditions, and social justice. The law applies to most employment relationships in Mexico and covers various aspects such as employment contracts, wages, working hours, rest periods, occupational safety, and procedures for labor disputes.

Key Principles of Mexican Labor Law:

• Worker Protection: The LFT strongly favors employees in legal interpretation, as it’s based on social justice and constitutional labor rights.
• No Employment at Will: Employees in Mexico cannot be dismissed without cause and without severance; labor laws are much more protective compared to countries like the U.S.
• Mandatory Benefits: Employers must provide specific benefits, including paid vacation, Christmas bonus (aguinaldo), profit sharing, social security, and severance pay if applicable.

Work Shifts and Hour Limits

The law classifies work shifts into three main categories: daytime, nighttime, and mixed shifts, each with specific rules regarding allowable working hours. These classifications are essential for ensuring compliance with labor standards and protecting workers well being. Below is an overview of each shift type:

Daytime

• Hours: between 6:00 a.m. and 8:00 p.m.
• Maximum daily duration: 8 hours.
• Maximum weekly duration: 48 hours.
• Working days: Monday to Saturday.

Night shift

• Hours: Between 8:00 p.m. and 6:00 a.m
• Maximum daily duration: 7 hours.
• Maximum weekly duration: 42 hours.

Mixed Workday

• Combination: Includes periods of the day and night shift, provided that the night period does not exceed 3.5 hours; otherwise, it is considered a night shift.
• Maximum daily duration: 7.5 hours.
• Maximum weekly duration: 45 hours.

 Overtime Pay

Hours worked beyond the established workday are considered overtime and must be paid as follows:

• Up to 9 overtime hours per week: Paid at 200% of the regular hourly wage.
• From the 10th overtime hour per week onward: Paid at 300% of the regular hourly wage.

The law limits overtime to a maximum of 3 hours per day and no more than 3 times per week, meaning a total of 9 overtime hours per week.

Trial Periods

According to Article 39-A of the Federal Labor Law (LFT), when entering into an initial contract for an indefinite period or more than 180 days, a trial period may be established with the following maximum durations:

• Up to 3 months (90 days) for operational, administrative or general positions.
• Up to 6 months (180 days) for management, managerial, or positions requiring specialized technical knowledge.

During the probationary period, the employer may terminate the employment relationship without liability for payment of severance (liquidation), provided that there is objective evidence of lack of aptitude or performance, and the legal procedure is respected.

Minimum Wage

As of January 1, 2025, the official minimum wages set by the National Minimum Wage Commission (CONASAMI) are:

• General minimum wage: MXN 249.00 per day (USD 14.50)
• Northern Border Zone: MXN 374.89 per day (USD 21.80)

Mandatory Benefits by Law

Mexican employers are legally obligated to provide the following benefits:

Common Additional Benefits Offered by Employers

Many companies offer voluntary benefits beyond what the law mandates to remain competitive. These include:

• More than 15 days of Christmas bonus
• Savings funds (Fondo de Ahorro): Often matched up to 13% of salary
• Food vouchers (vales de despensa): Tax-exempt up to a limit (approx. 40% of UMA)
• Transportation assistance
• Private health insurance
• Life insurance

Employee Dismissal

Dismissal in Mexico can be with cause or without cause, but either way, it must follow legal protocol:

• Without cause: Requires a severance payment of

• • 3 months of daily salary
  • 20 days per year worked
  • 12 days per year of seniority bonus (capped at 2x minimum wage)

• With cause: No severance required, but must be justified (Article 47)

Final Recommendations

Here are some best practices for hiring in Mexico:

• Always use written contracts, even for temporary roles.
• Register employees with the IMSS and INFONAVIT on day one.
• Keep detailed payroll records for compliance and audits.
• Partner with a local HR/payroll provider if you’re unfamiliar with local laws.
• Use a compliant payroll software

Mexico’s labor landscape is structured to protect employees but remains employer-friendly when properly managed. Understanding your obligations and offering attractive benefits will position your company as a competitive and responsible employer. For more insights into how shelter companies can help your business, consider contacting Mexcentrix and exploring case studies of companies that have successfully leveraged this model.

Mexcentirx can guarantee 100% compliance with labor laws and facilitate the process of hiring in Mexico. Contact us!

In the highly competitive global manufacturing landscape, companies are constantly seeking ways to enhance efficiency, reduce costs, and improve their market positioning. One valuable program in Mexico that has helped numerous manufacturers achieve their goals is the PROSEC (Programa de Promoción Sectorial), established in Mexico in 2002.

What is PROSEC?

PROSEC is a program that allows a reduction of the general import tax (IGI) on imported goods to be used in the production of specific products of the 24 PROSEC sectors.

The program is beneficial for businesses that produce goods for both domestic and international markets.  Nevertheless, in order for the company to be able to obtain the PROSEC authorization, it must manufacture the goods listed in Article 4 of the PROSEC Decree, using the goods/materials listed in Article 5 of the PROSEC Decree.

By lowering import costs, PROSEC enables manufacturers to optimize production processes and remain competitive.

Key Benefits of the PROSEC Program in Mexico

1. Reduced Import Duties: Companies enrolled in PROSEC can import necessary materials and equipment at lower or zero tariff rates, significantly reducing operational costs.
2. Increased Competitiveness: By lowering costs, manufacturers can price their products more competitively in both local and international markets.
3. Encourages Investment: The program makes Mexico a more attractive destination for foreign direct investment (FDI) in manufacturing.
4. Eligibility Across Various Sectors: PROSEC is available for a wide range of industries, including automotive, electronics, textiles, and pharmaceuticals, among others.

How to Apply for the PROSEC Program in Mexico?

Manufacturing companies interested in joining PROSEC must:

Rule 8^th (Regla Octava)

According to Article 2, Section II, of the Complementary Rules of the General Import and Export Tax Tariff Law, Eight Rule is an import permit to reduce the general import tax (IGI) for those goods that are not listed in Article 5 of the PROSEC decree. Depending on the criteria to which they are subject, they can be authorized or not by the Ministry of Economy.

To be a company applicable for this permit, it is indispensable to have the PROSEC Program first, and in case of temporary imports, it must also count with an IMMEX Program.

Companies that have a manufacturer’s registration and authorization to import under the 8th rule may import such goods through any of the HTS Codes of heading 98.02 of the tariff of the general import and export taxes (TIGIE), solely and exclusively to expand an industrial plant, replace equipment or integrate an article manufactured or assembled in Mexico.

Obtaining PROSEC or Rule 8^th 

PROSEC and Rule 8^th are both considered valuable tools for manufacturing companies seeking to enhance efficiency, reduce costs, and remain competitive in a globalized economy.  These programs present compelling opportunities worth exploring.

For manufacturing companies seeking to explore these programs and optimize their operations, Mexcentrix can help you!

At Mexcentrix, we can support you in analyzing whether your company is eligible to obtain PROSEC or Rule 8th and assist you through the complete application process and compliance with obligations, such as the Annual Report of Foreign Trade Operations.  

Contact us for more information! 

Is your company considering manufacturing in Mexico?

Mexico has become one of the top manufacturing destinations due to its skilled workforce, proximity to the U.S., cost advantages, and trade agreements like the USMCA. However, choosing the right location within Mexico is crucial to ensuring your operation runs efficiently and cost-effective. Below you will find a guide with factors to consider for selecting the best site for your business.

1. Understand Your Industry Needs

Different regions in Mexico specialize in various industries. Choosing a location that aligns with your manufacturing needs or an already established industry cluster,  will help you take advantage of the local talent pool, suppliers, and infrastructure.

• Automotive: Predominantly in the Bajío region (Guanajuato, Querétaro, Aguascalientes, San Luis Potosí) and Northern Mexico (Chihuahua, Nuevo León, Coahuila)
• Aerospace: Strong presence in Baja California, Chihuahua, Querétaro, and Sonora
• Electronics: Concentrated in Tijuana, Guadalajara, and Monterrey
• Medical Devices: Mainly in Tijuana and Baja California

2. Consider Proximity to the U.S. Border

If your supply chain depends on quick access to the U.S., a northern border state like Baja California, Sonora, Chihuahua, or Nuevo León may be ideal. These regions offer:

• Shorter transit times
• Lower logistics costs
• Established maquiladora (IMMEX) infrastructure

However, if labor costs are a major concern, you may find better rates in central or southern Mexico.

3. Evaluate Infrastructure & Logistics

Your manufacturing site should have the necessary infrastructure, including:

• Road & rail access: Mexico has key highways connecting to the U.S. and industrial railways.
• Ports: If you rely on overseas shipping, look at locations with faster access to  Veracruz, Manzanillo, or Lázaro Cárdenas.
• Airports: If you need fast global shipping, cities like Monterrey, Guadalajara, and Mexico City have major cargo hubs.

4. Analyze Labor Availability & Costs

Labor costs vary across Mexico. Border cities typically have higher wages due to demand, while central and southern states offer more affordable labor.

• Higher wages but experienced workforce: Monterrey, Tijuana, Ciudad Juárez
• Balanced costs and availability: Querétaro, León, Aguascalientes, San Luis Potosi.
• Lower wages but growing talent pool: Puebla, Yucatán, Oaxaca (But not much industrial infrastructure or established industries).

Furthermore, labor is more difficult to find in the northern region, due to the competitive market.

5. Review Incentives & Government Support

Many states offer incentives to attract foreign manufacturers. These can include:

• Tax Incentives
• Reduced utility costs
• Training programs
• Customs benefits

6. Assess Security & Business Environment

While Mexico has strong industrial zones, security varies by region. Before selecting a site, consider the following:

• Crime rates & safety
• Local government stability
• Union activity

7. Evaluate Real Estate & Operational Costs

The cost of leasing or purchasing industrial space varies by region. While northern states often have higher real estate costs, central and southern Mexico may offer more affordable and variety of available options.

Compare:

• Industrial parks with built-in utilities
• Custom-built facilities
• Availability of warehouse space

Selecting the best manufacturing site in Mexico requires balancing industry needs, location, infrastructure, labor, incentives, security, and costs. Each business has unique requirements, so conducting thorough research with support from local experts such as Mexcentrix can ensure a smooth expansion into Mexico.

If you’re looking for expert guidance on choosing the right site, navigating legal requirements, or understanding cost structures, contact us.

In recent years, Mexico has positioned itself as a key destination for global manufacturing. For many years international companies seeking to reduce costs,  bring their operations closer to strategic markets or expand abroad,  have found the maquila model in Mexico an attractive option.

The maquila model offers significant tax advantages, allowing companies to reduce operating costs while maintaining high production standards. However, it is crucial to understand current regulations and select the right operating scheme to take full advantage of these benefits.

Maquiladoras in Mexico

There are 6,500 companies in the maquiladora and manufacturing export industry (IMMEX) that play a fundamental role in the Mexican economy, with the following contribution in 2024:

Source: Sector manufacturero: participación en PIB México 2024, INDEX Consejo Nacional de la Industria Maquiladora y Manufacturera de Exportación 2024

Main maquila models in Mexico

Companies seeking to establish operations in Mexico under the maquila model may choose to operate under different structures, among them:

• Maquila Model: Allows the temporary importation of inputs and components without paying some applicable taxes, as long as that the finished products are exported and that they count with the authorization of the applicable programs (Maquiladora and Export Services Industry Program (IMMEX Program) and VAT and IEPS Certification) Maquiladoras operating under the IMMEX Program, can carry out operations in Mexico without being considered as a permanent establishment of the resident foreign company. In order for this special treatment to apply they must import the materials under this program and additionally comply with the several requirements, including among others:

• Ownership of machinery and equipment: The owner of the machinery and equipment used in the transformation process is the foreign company and must not have been previously owned any related party in Mexico
• Income from the maquila operation: The totality of the Maquiladora Companies’ income must derive from their maquila operation. The only income allowed from related activities, for example, selling of scrap, must not exceed 10% of the total income generated by the maquila.
• Double Taxation Avoidance Treaty: Mexico must have a double taxation avoidance treaty in force with the country from which the foreign company belongs, too.
• Toll Manufacturer Model: Under this model, the Mexican company receives materials from abroad on consignment, which then transforms them into the finished goods, and returns the finished goods to the foreigner, without owning the inputs.

Under this model, the Mexican company acts solely as a supplier of manufacturing services to its foreign customers, and the machinery and equipment belong to the Mexican company.

• Shelter Model: Enables a company to provide services to multiple foreign companies and facilitate their operation in Mexico, reducing time, costs and liabilities. Unlike the Maquila Model, this framework exempts the foreign company from establishing a legal entity in Mexico, and therefore a permanent establishment is not created in Mexico.

Taxation of Maquiladoras

A maquila company can calculate their taxable income based on the Safe Harbor method. In which tax profits equals 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.

Challenges of the Maquila Model in Mexico

Despite its many advantages, the maquila in Mexico faces several challenges, among them:

• Complex and strict regulation: Failure to comply with tax, foreign trade and operational requirements can result in penalties and loss of benefits. Companies must count with an inventory control software (Annex 24) to control temporary imports, and which can involve significant time investment and administrative burden.
• Compliance strategies: Specialized advice is key to ensure that the operation complies with Mexican laws and international treaties.
• Political U.S Landscape: President Trump policies on tariffs, by imposing duties to mexican goods, can impact the maquiladora industry in several aspects including the closing of plants in Mexico.

The maquila model in Mexico is an excellent option for companies seeking to reduce costs and optimize their production within the nearshoring framework. However, its correct implementation is key to avoiding risks and ensuring regulatory compliance.

Companies interested in this model should analyze the different operating structures, and consider the support of experts such as Mexcentrix who give specialized advice to maximize the opportunities that Mexico offers in the manufacturing industry. Contact us!

Expanding operations into Mexico is a strategic move for many foreign businesses but navigating the complex regulatory and administrative landscape can be challenging. Shelter companies provide an effective solution, allowing businesses to establish a presence in Mexico without dealing with legal and administrative burdens. There are several types of shelter companies, each offering different levels of service and flexibility. Understanding these models can help businesses choose the right fit for their needs.

1. Shared Shelter

A Shared Shelter model enables multiple companies to operate under a single legal entity. This approach allows businesses to share critical regulatory registrations, such as the Importers Registry, IMMEX permit, and VAT & IEPS Certification. Since administrative services like payroll, human resources, and accounting are shared, companies benefit from lower operational costs. This model is ideal for businesses looking for a cost-effective way to establish operations in Mexico with minimal risk and legal exposure.

2. Dedicated Shelter

In a Dedicated Shelter model, the foreign company operates under an exclusive legal entity owned by the shelter service provider. Unlike the Shared Shelter model, this entity is not shared with other businesses. Under this model, companies can still benefit from a full administrative support. Companies opting for this model typically require greater operational autonomy but prefer to avoid the legal complexities of creating their entity.

3. Independent Shelter

The Independent Shelter model allows foreign companies to establish their legal entity in Mexico while still leveraging of the administrative expertise of a shelter service provider. This model is best suited for companies that want to have legal presence in Mexico and full ownership of their operations but that need assistance in managing compliance, HR, payroll, and other administrative functions.

4. Flexible Shelter / Stand- Alone Administrative Services

For businesses that do not require the full shelter service and only need a third party company to take care of some administrative services, some shelter service providers offer this solution. In this scenario, companies can select only the specific administrative functions they need, such as payroll, HR, foreign trade, accounting or tax services, without committing to a full-service package. This is ideal for businesses that already have some operational capabilities in Mexico but need support in specific areas to enhance efficiency and compliance.

5. Contract Manufacturing with Shelter

Unlike other shelter models that primarily focus on administrative services, the contract manufacturing with shelter also integrates production capabilities. There are only a few shelter companies in Mexico that are also contract manufacturers and that operate under this approach.  In which they actively participate and get involved in the whole manufacturing process. This model is particularly advantageous for businesses looking to outsource production.

Choosing the Right Shelter Model

Selecting the appropriate shelter model depends on various factors, including the business strategy of the company and of the expansion, the complexity of operations, and cost considerations. Businesses seeking to entry into Mexico with reduced risk and legal exposure may find the Shared Shelter model appealing, while those requiring exclusive legal entities may prefer the Dedicated or Independent Shelter options.

By understanding these shelter models, businesses can make informed decisions that align with their strategic goals and operational requirements, ensuring a smooth and efficient expansion into Mexico. For more insights into how shelter companies can help your business, consider contacting Mexcentrix, which in addition to the shared, dedicated and independent shelter also offers the Flexible Shelter / Stand- Alone Administrative Services solution.

We adapat to your company needs and requirements. Contact us!

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!