Current Analysis of the Maquila Industry in Mexico

July 24, 2023

In 2022, the Advance Pricing Agreement (APA) was eliminated as a possibility for maquila companies in Mexico. Therefore, the only option was the “safe harbor” Transfer Pricing methodology to determine Income Tax.   


It should be noted that the maquila operation is a very profitable means of investment for foreign multinational groups, given that, if adequate control is ensured, any risk of permanent establishment for the resident abroad is eliminated, and it represents an efficient tax cost. Conversely, this industry has been affected due to the reduction of tax benefits.  

Since 2014, the operations of maquila companies have been subject to important changes in income tax matters due to the prohibition of selling in Mexico. Nevertheless, they have permission to earn up to 10% of other income. On the other hand, two additional methods for Transfer Pricing compliance were eliminated, generating a new requirement for the resident abroad to be the owner of at least 30% of the total machinery and equipment used in the maquila operation. 

Tax Efficiency Analysis

In this regard, the maquila scheme must be suitable for “Safe Harbor” taxation purposes. Therefore, it must be compared against the 3 most used manufacturing alternatives: “Toll manufacturer,” “Contract manufacturer,” and “Licensed manufacturer.” 

Unlike the maquila, regarding the 3 manufacturing schemes, its operations must be within market ranges for Transfer Pricing purposes if the foreign contractor is a related party of the company in Mexico.  

The result of the analysis may vary from one company to another due to several factors, such as the value of fixed assets, financial assets, operating costs and expenses, and the final destination of the manufactured products, as well as the profit margins for Transfer Pricing purposes used in the projections.   

Although the benefits to maquila companies have been decreasing, specifically regarding the advanced pricing agreement methodology, the Mexican Federal Government could decide to incorporate it again through a Miscellaneous Tax Resolution. 


Source: El Financiero México 24/07/23