By: Brenda Cordova, Mexico Legal Counsel
Have you heard about the Mexican “Fourth Transformation (4T)”? Well, this is how Mexican President Andres Manuel Lopez Obrador (AMLO) wants his term in office to be known as. He says, throughout the course of the history, Mexico has gone through 3 important episodes: 1. Independence, 2. Reform, 3. Revolution, and 4…: the 4T. Because as he has said, he wants his term to be known for deep and big transformations, all for the benefit of Mexicans. However, his plans seem to be quite ambitious and rather hard to accomplish, especially those related to international business and trade related matters.
Last month, on July 1, 2020, the USMCA became effective, and in order for Mexico to implement and enforce this treaty, it needed to amend various laws and regulations, including the General Customs Rules (Reglas Generales de Comercio Exterior for 2020). Later, on July 8, 2020, the President of Mexico and the United States held a meeting which was viewed by many as a message about their willingness to strengthen their business relations and commitments under the USMCA. This gave foreign investors some level of certainty that their business would be protected within the North American territory.
A few days after that meeting, AMLO announced that in order to end corruption acts and organized crime, and also increase collection of taxes during customs clearance, the Mexican Army would now be in charge of safety guard, surveillance, and control of the 49 checkpoints and 116 sea ports located throughout Mexico. He instructed the correspondent officers to coordinate efforts in order for this to happen very soon. Nonetheless, this has raised concerns among customs and trade experts as to just how this could be achieved. Mainly because since 2009, one of the ports was already controlled by the Army, and this arrangement had not helped end corruption and crime there. Additionally, in order to have armed forces handle these duties, it would be necessary to amend the Mexican Constitution and the customs regulations, which basically state that Customs authorities are the only ones that can control customs checkpoints and that the Army could only do this if the country is in a war. On the other side, customs procedures in Mexico are a complex topic, and in order to have qualified personnel, it will be necessary to train the designated officers, which quite frankly could take a long time. Most importantly, one of the purposes of USMCA is to facilitate trade in goods. Thus, having armed soldiers inspecting and clearing goods might not necessarily mean a facilitation on customs clearance procedures.
On July 24, 2020, the Tax Administration Service (SAT) published the first amendment to the General Customs Rules for 2020 previously published on June 30, 2020. This amendment was unexpected by the trade industry because: 1) it amends the rules within less than 30 days after the initial publication, 2) SAT did not publish them as preliminary/advanced regulations (publicaciones anticipadas) as it had been doing so for any change since a few years ago, and as it is set forth under the rules 3) it contains major provisions that may affect some companies adversely. One of the amended rules is 7.3.1. This rule includes the list of benefits for companies having the VAT Certification[1] such as IMMEX[2], fiscal deposits for automakers, bonded warehouse and strategic bonded warehouses. The new amendment abolishes the majority of the customs and administrative benefits for these companies. Under the new regulations, these companies will now be required to submit the value manifest, within 6 months must return or import consumption goods transferred to them, the VAT will not be refunded within 10, 15 or 20 days, the industry sector registration will not occur automatically, temporarily imported goods imported by an AAA cannot stay in Mexico longer than the 36 months’ period, identification number for each good imported into Mexico must be provided, among others. This amendment seems like a simple thing to accomplish, however, in practice it requires additional qualified personnel and days, if not weeks, to prepare and complete.
The benefits enumerated above are now given to companies having the Authorized Economic Operator (AEO). This means that if a company wants to receive all available benefits, it must first obtain and apply for the IMMEX program, then the VAT certification, followed by the AEO certification. The problem is that it takes months, if not years, to obtain and qualify for these programs or certifications.
Another relevant potential change for the trade industry is one regarding NOMs (Mexican Official Norms-Standardization Norms) – aimed to protect and inform Mexican consumers. On July 30, 2020, the Minister of Economy published a preliminary project to amend the General Rules and Criteria for Foreign Trade Matters (Reglas y Criterios de Carácter General en Materia de Comercio Exterior) regarding Annex 2.4.1 –which lists harmonized tariff codes of goods subject to NOM compliance at the time of importation and exportation. There are up to 15 different NOMs that might apply depending on the type of goods and that includes requirements of commercial, health, quality, human safety, hygiene and environment protection, among other information. Complying with these requirements is burdensome for companies, especially because of the associated costs and the times it may take to obtain the correspondent NOM approvals, certification, licenses, etc.
Currently, there are 16 scenarios where importers are not required to comply with the NOM. For example, if goods are imported by:
The proposed change will require importing companies to comply with stricter requirements and some of the exceptions will NOT apply until October 1, 2020. This project or proposed change got more attention when a high-ranking officer within the Minister of Economy tweeted this as a fact. Additionally, Mexican Official Norm NOM-051- SCFI/SSA1-2010, applicable to labels for food and non-alcoholic beverages was recently amended and the government has announced verification procedures in this regard.
Even though some experts have raised their concerns about how the changes above might affect international trade in Mexico, the truth is that something drastic needs to be done in Mexico. Every day we learn about unimaginable corruption acts that occurred in Mexico involving government officers and some private companies. To stop this, Mexico should make the required domestic changes and cut any other bureaucratic problems from the root so that law infringers with abusive or corruptive practices are sanctioned, punished, or prosecuted, thereby stopping them from harming the Mexican economy. Unfortunately, in the meantime good companies might also suffer the consequences because these changes apply to everyone regardless of if they are compliant or not. Therefore, in order to mitigate and reduce the impact that these changes may have on good companies, the Mexican government should implement a risk analysis assessment, look for strategies to accomplish its goals, and look to facilitate and expedite trade by eliminating unnecessary barriers to trade. At the same time, companies doing business in Mexico should be aware of all the changes that are taking place, increase their level of compliance, and ultimately find the best way to reduce any associated risks. The hope (and prayer) is that any change implemented in Mexico is with the best of intentions to accomplish the goals mentioned by the government, and at the same time be able to comply with its business commitments with other countries via protecting and promoting foreign investment.
This article was prepared on August 4, 2020. It is presented to you for information purposes only and is not intended to provide legal guidance or advise. Please consult with your attorney if you need specific information regarding the above or give us a call, we are happy to assist you.
[2] IMMEX stands for Manufacturing, Maquiladoras and Export Services Industry. It is a program of the Mexican government to promote foreign investment that allows the temporary importation of good for transformation, manufacturing and repair of merchandise that is subsequently returned or exported abroad
by Brenda Cordova, Mexico Attorney
In November of 2006, the Mexican government abolished the Maquiladora and PITEX Programs and created the IMMEX Program. IMMEX stands for Industrial Manufacturera Maquiladora y de Servicios de Exportacion (literarily translated into English as Manufacturing Maquiladora and Export Services Industry).
Generally, an IMMEX is a business entity authorized by the federal government to temporarily import into Mexico raw materials, components, parts, other goods, etc., to be processed and subsequently exported or returned as a finished or transformed product abroad. Provided legal requirements and Customs certifications are met, the temporary importation of the materials and goods may be Customs duty and Value Added Tax free. Additionally, IMMEX may save money via the low salaries and wages in Mexico. An IMMEX can represent big savings for large companies who are attracted by these and other incentives to invest in Mexico.
To obtain an IMMEX Program, a company needs to:
IMMEX categories (page 2)
There are 5 different IMMEX categories (modalities) from which the applicant may choose only one:
This category can be obtained for a certified company belonging to a group of companies located in Mexico or abroad (to obtain the certification, the company must comply with a strict list of requirements as set forth under the Mexican Customs regulations). The certified company, as the controller, controls and oversees the operations of the other companies within the group. Each of these companies is an independent entity with their own tax ID number, but the import and export process are managed by the controller. The goods and materials may remain in the facilities of any of the companies within the group and may be transferred among them with a very simple administrative process.
This is the most common IMMEX category where the company imports materials for transformation and subsequently exports or returns them abroad.
This category only applies to specific services such as warehousing, sorting of goods, etc.
Under this category, Mexican companies, with an authorized IMMEX program, may offer the IMMEX services to foreign companies who would receive all the IMMEX benefits without the need to be incorporated in Mexico, or having to comply with the correspondent legal or administrative requirements.
This is for certified companies having an authorized IMMEX program but lack the facility, plant, equipment, etc. to perform the services or productions process. Under this category, the IMMEX company authorizes third parties having those assets, for them to carry on the services or production process under the umbrella of the IMMEX program.
Entry Type
An IMMEX imports its goods into Mexico under an entry type (Mexican customs regime) called “temporary importation for manufacturing, transformation and repair by a maquila or exports program.” This means that the materials it imports for process or services must leave the country within a specific period, otherwise, the benefits will not apply, and consequently sanctions and penalties can be imposed. There are different periods of time frame. For example, some materials can stay in Mexico for up to 18 months and containers, 2 years. If the IMMEX is certified, the time frame for materials can be extended up to 48 months. The equipment and machinery required to carry on the production process or services, can remain in Mexico up to the effectiveness of the IMMEX program.
Transfers
An IMMEX may transfer their materials and goods to any other IMMEX. Under these circumstances, the benefits, as well as the obligations, will be transferred. For example, the materials and goods remain subject to the specific entry type responsibilities and the materials must leave the country within the specific statutory time frame. In certain cases, when the IMMEX that first imported the materials makes an error or commits a violation of the regulations without correcting or disclosing such errors, and subsequently transfers the materials to another IMMEX, who then accepts and receives the records and materials in good faith, now shares a joint responsibility and liability before the Mexican authorities.
IMMEX Legislation
For an IMMEX to stay in compliance and enjoy the customs, administrative and legal benefits, it must follow a broad set of regulations. Unfortunately, these regulations are constantly amended and therefore it is recommended for any person dealing with an IMMEX to stay current with any updates and training. Here is some of the legislation governing IMMEX:
IMMEX responsibilities
Some of their main responsibilities as set forth under the above legislation are:
* Please refer to the above legislations for other specific requirements.
Value Added Tax Certification
Generally, goods imported into Mexico must pay 16% VAT over the value of the imported goods, including customs duties. However, if they are A, AA, or AAA certified, they may receive Customs benefits and a credit for the IVA paid for their importations. The certification will be granted based on the IMMEX’s level of compliance, number of employees, export/import volume, Investments, shares/stocks, capital assets, among others.
An IMMEX showing a higher level of compliance, and a higher volume on their operations, assets, investment, etc. can obtain the “AAA”. This certification provides more advantages and benefits to the applicants. For example: “AAA” certification is valid for three years and the IMMEX may receive a VAT refund within 10 days after the request has been submitted, the “AA” certification is valid for two years and the refund is within 15 days, and the “A” certification is annual, and the refund is within 20 days.
Some of the administrative advantages and benefits for these A, AA and AAA certified IMMEX companies are: the right to file a prior disclosure and correct some irregularities, MX Customs may send warning letters “inviting” a company to correct irregularities, instead of filing one pedimento for each importation, they may file a monthly consolidated pedimento, among other things.
Penalties and sanctions
An IMMEX is highly scrutinized and monitored by the Mexican authorities. Should they detect a violation or inconsistency on their customs records, materials, goods or assets (i.e. incorrect HTS Code, incorrect origin, clerical errors, inventories, overstay of goods exceeding the temporary importation time frame, among others), they may impose penalties and sanctions. Some examples are:
Administrative Sanctions:
Although criminal sanctions are not regularly imposed, they are included on the law as follows:
Final comments
Although the savings and benefits of an IMMEX can be attractive for foreign investors, it is important to point out that the requirements to incorporate an IMMEX and then to operate one, can be an overwhelming and complicated task for anyone. Additionally, IMMEX are regularly monitored by the Mexican government. The slightest error or violation (even inadvertent or derived from human error, e.g., clerical errors), the IMMEX program could be at potential risk for a temporary or permanent cancellation, and criminal sanctions could be imposed against the company’s personnel. Therefore, it is recommended that one implement internal controls to stay in compliance.
This article was prepared by Mexico Attorney Brenda Cordova on October 1, 2018. The information in this article is for general informational purpose only. It is not legal advice and is not intended to provide guidance in this regard. You should not rely on its content to fulfill or comply with your legal responsibilities and obligations. The circumstances of each case are different and there are variations of the law that can affect each company’s operations.
If you need help with incorporating and IMMEX, would like to implement a customs assessment review to an already existing IMMEX, or have issues with one, please do not hesitate to contact us. Our Mexican group of Attorneys and experts on this and any other Customs and trade related topics are eager to assist you.