The Mexican government has announced changes to the manner in which the value added tax law applies to transactions completed by certified IMMEX operations, which are known are Empresa Certificadas or certified importers. The change relates to specific transactions that may only be completed by such certified companies where the maquiladora operation completes a virtual exportation transaction and a Mexican company completes a normal (or definitive) importation on the other side of the transaction. The new rule indicates that such transactions may no longer be considered exports for purposes of the value added tax law. As such, the normal value added tax rules and reporting apply to such transactions.
The effect of this change appears to be as follows:
- For transactions where the US parent company is the seller of the goods, the VAT must now be withheld by the Mexican buyer under article 1(A) the value added tax law. This mechanism typically allows for an "in and out" transaction on the same VAT return, resulting in no net cash flow effect for the buyer of the goods.
- For transactions where the Mexican IMMEX company is the seller of the goods, VAT should now be charged on such transactions by the Mexican seller as the sale is no longer considered an export transaction.
The unusual result appears to be that the Mexican resident purchasing the goods is now required to double report such transactions for value added tax purposes – once when the definitive importation of the product is completed, and again when the Mexican company pays for the goods in question. And even worse, for transactions where the Mexican IMMEX operation is the seller of the product, the second VAT transaction will have a cash flow effect - resulting in additional budgetary and cash flow concerns for the Mexican company.
As mentioned above, this new rule appears to apply only to certified IMMEX companies as this change was published in the Foreign Trade General Rules for such operations. However, we will continue to monitor how the authorities implement and interpret such rules and provide additional details as appropriate.