Selling or Delivering Products Manufactured by Maquiladoras Into Mexico

Can Maquiladoras sell or deliver their products into the Mexican market? Every now and then, any given plant manager of a maquiladora company in Mexico may hear this question. And the answer is…? Well, the answer tends to be tricky for someone not fully familiar to the rules and regulations applicable to maquiladoras.

One thing we can say is that the legal framework applicable to sales into to the Mexican market is spread out through several regulations, some of which were recently amended and many companies are yet to adapt to the changes. In this article, we intend to address some of the issues that a company needs to consider in order to structure the sale of maquiladora production into Mexico.


Since its inception, the main objectives of the maquiladora program were to promote jobs and exports. Among other benefits, maquiladoras have been allowed to import materials on a temporary basis without the payment of duties or value added tax (“VAT”), provided that the finished products were exported. With time, maquiladoras realized the potential efficiencies that could be achieved, if direct delivery of products to customers in Mexico was possible, avoiding the need to export and re-import those products. The Mexican Government recognized such need and modified some rules and regulations to facilitate sales and deliveries into Mexico, but there are still several issues that need to be addressed.

When talking about sales into Mexico or into the “Mexican Market” it is important to differentiate between sales for consumption within Mexican territory (the “consumption” market) and sales or deliveries of products within Mexican territory, but that are not intended for consumption in Mexico, which are for example, sales or deliveries to other maquiladora companies which use those products a subassemblies and later export the finished products (the “not for consumption” market).

So, can products manufactured by maquiladoras be sold into the Mexican market? The answer is… YES, products manufactured by maquiladoras can be sold for “consumption” and “not-for consumption” into Mexico. The following question is… How to make those sales? In order to define how to sell products manufactured by maquiladoras into Mexico it is important first to identify the business model under which the maquiladora company operates. Maquiladoras operate basically under two models; (1) “Buy-Sell” or (2) “Consignment Manufacturing”, being this latter model the most popular in the industry.

Buy-Sell: Maquiladoras operating under a “Buy-Sell” model own the finished products to be sold either to customers abroad or in Mexico and, therefore, are subject to Mexican taxes arising from their manufacturing and/or distribution activities (i.e. income tax, single rate tax or “IETU” and VAT). For companies operating under this model, selling their products into the “consumption” or the “not for consumption” markets does not create additional tax issues than those created when selling their products abroad.

Consignment Manufacturing: Under a “Consignment Manufacturing” arrangement, a foreign company (the “Foreign Principal”) owns the inventory and machinery and equipment (“M&E”) used by the maquiladora, which provides manufacturing services in exchange for a processing fee.

Maquiladoras operating under this model are eligible to apply certain income tax and IETU benefits with respect to the maquiladora operation carried out on behalf of the Foreign Principal, and the Foreign Principal is not subject to taxes in Mexico with respect to the inventory and M&E located in Mexico, provided that the processing fee paid to the maquiladora complies with Mexican transfer pricing regulations. These tax benefits and regulations are usually referred to as the “special maquiladora tax regime”, which is only applicable to activities related to the manufacturing of the products and not to other business activities (i.e. sale of products).

It is important to highlight that the recent amendments to the IMMEX Decree published in December, 2010, clarify that the portion of the manufacturing activity related to products that are sold into the Mexican Market and are not documented with an export pedimento (either for a direct or a virtual export), will not be able to apply the special maquiladora tax regime with respect to that portion of the operation.

Companies operating under a “Consignment Manufacturing” model need to analyze the alternatives to sell their products to the “consumption” and the “not for consumption” markets in Mexico, as sales made without export pedimentos may expose the Foreign Principal to Mexican taxation or preclude the maquiladora from enjoying the special income tax and IETU reductions mentioned above.

The other important consideration when selling into the Mexican market is related to trade and customs because products manufactured by maquiladoras are made with components imported on a temporary basis and, in principle, such products have to be returned abroad.

The use of materials that are imported on a temporary basis to supply the Mexican market is allowed but only in accordance with customs regulations and may trigger the payment of duties and VAT.

When supplying products to the “consumption” market, the maquiladora must change of the customs regime from temporary to definitive of the components imported on a temporary basis that were used to manufacture such products. Such change of customs regime will trigger the payment of Mexican duties, if applicable, and VAT.

When supplying products to the “not for consumption” market, the transfer can be made through the use of “virtual pedimentos” (customs manifests), which is a special procedure under which the maquiladora that transfers the products issues a virtual export pedimento and the maquiladora that receives the products issues a virtual import pedimento, but the products do not have to be taken to Mexican Customs.

By using virtual pedimentos, the maquiladora that transfers the products has the obligation to pay duties for all of the imported components used in the manufacturing of the finished products. VAT is not applicable upon the filing of virtual pedimentos, because the finished products remain under a temporary importation regime.


There are several alternatives under which maquiladoras can sell or transfer products manufactured by maquiladora companies to customers in Mexico in a manner that is compliant with customs and tax regulations. Below you will find a brief description of some of the most common alternatives as well as their advantages or disadvantages.

a) Sales or transfers made to maquiladoras or companies operating under other similar customs programs. This is probably one of the most common scenarios to supply products to the “not for consumption” market. The sale can be made either by the maquiladora company or the Foreign Principal.

Some advantages of this alternative are:

  • Virtual pedimentos allow for the products to be shipped directly from one company to another without going through Mexican customs.
  • The transfer is documented with an export pedimento and therefore the manufacturing of the products qualifies for the application of the special maquiladora tax regime.
  • Maintaining the products under a temporary regime also allows for the sales to be made without VAT.

The disadvantage of this alternative is that it can only be implemented between maquiladora companies or maquiladoras and companies operating under similar customs programs clearly defined under Mexican customs rules.

b) Sales to non-maquiladora customers made by the Foreign Principal. This is probably the first choice to structure sales for companies operating under a “Consignment Manufacturing” model, because the Foreign Principal, which owns the products, is the seller, but from a Mexican perspective, the Foreign Principal most likely will become subject to taxation in Mexico and companies usually want to avoid this scenario, unless the sale can be made through the use of virtual pedimentos.

c) Round tripping or “U” turn: Under this alternative the products are exported physically by the maquiladora, purchased from the Foreign Principal while the products are outside of Mexico and re-imported back into Mexico.

The importation into Mexico can be made either by the maquiladora , who would then resell the products to the final customer, or directly by the final customer. This alternative is common among maquiladoras operating under a “Consignment Manufacturing” model.

The advantage of this alternative is that the products are exported by the maquiladora and therefore is eligible to apply the special maquiladora tax regime with respect to the manufacturing of those products.

The disadvantage is that the products need to be transported from the maquiladora to the border, which is inefficient from a cost and operational perspective.

d) Selling to Mexican customers through the maquiladora. Under this alternative, the maquiladora company sells to the customer in Mexico. In the case of companies operating under a “Consignment Manufacturing” model, the maquiladora needs either to purchase the finished product from the Foreign Principal or manufacture the products for its own account, which ads an additional layer of administrative complexity because of the need of additional intercompany transactions between the maquiladora and the Foreign Principal (i.e. purchase of raw materials or finished products, payments for the use of the M&E and manufacturing intangibles, etc.) and to maintain separate records for the activities that do not qualify as maquiladora activities.

This alternative is used when the customer in Mexico is not willing to process virtual pedimentos or act as importer of record.

Because of the recent amendments to the IMMEX Decree, the Foreign Principal is exposed to having a taxable presence in Mexico with respect to the manufacturing of the products if it sells the finished products to the maquiladora.

e) Sales through a “special purpose” company. In recent years, the use of a separate legal entity to accommodate sales to customers in Mexico has become a common solution. This separate entity purchases the products manufactured by the maquiladora from the Foreign Principal and resells the products to the customers in Mexico (it is usually referred to as a “Trading” company).

The advantage of this alterative is that the sales from the Foreign Principal to the special purpose entity can be made through the use of virtual pedimentos and, therefore, the manufacturing activity of the maquiladora continues to qualify for the special maquiladora tax regime. In order to be able to use virtual pedimentos, the special purpose entity can operate as a “Services” maquiladora or the manufacturing maquiladora needs to be a “Certified Company” in accordance with customs regulations.

The disadvantage from this alternative is the need to maintain a separate legal entity for these purposes only.

f) Sales through certified maquiladoras. As mentioned above, maquiladoras that become “Certified Companies” in accordance with customs regulations may transfer their products to companies in Mexico that are not maquiladoras through the use of virtual pedimentos.

The maquiladora issues a virtual export pedimento and the Mexican company issues a virtual definitive import pedimento and pays the applicable VAT and duties as if it were importing the finished product from abroad.

The advantage of this alternative is that the products can be sold directly from the Foreign Principal to the Mexican customer, while shipment is made directly from the maquiladora and the maquiladora will be able to apply the special maquiladora tax regime, as the sale is documented with an export pedimento.

The disadvantage is that it requires for the maquiladora to become “Certified” in accordance with customs regulations, which is subject to certain eligibility requirements, and that recently the Mexican tax authorities have initiated tax audits in which they claim that the sales made by the Foreign Principal under this procedure are subject to VAT, which is contrary to the common practice over the years, and for which we believe are several legal arguments to support that such sales are not subject to VAT. Unfortunately this position has created uncertainty for companies operating under this alternative.


Sales and deliveries into the Mexican market of products manufactured by maquiladoras can be made, but each company needs to analyze which alternative is more suitable in accordance with its business model.

Companies interested in selling or delivering products in the “consumption” or “not for consumption” markets need to review their current business model to confirm that the recent amendments to the IMMEX Decree do not create negative implications with respect to the eligibility of the special maquiladora tax regime or, more importantly, create tax exposures for the Foreign Principal.

By: Manuel Padrón-Castillo and Ernesto Ocampo-Langarica
Baker & McKenzie