© 2014 galaz, yamazaki, ruiz urquiza, s.c. january 15, 2014 vat certification & key issues...

© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.

January 15, 2014

VAT Certification & Key Issues

Héctor Silva

WMTA breakfast meeting

© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.2

Tax Reform 2014VAT Certification

VAT on temporary imports

Elimination of exemption on VAT on the temporary importations of materials and M&E by maquiladoras.

- This measure created a serious concern due to:

‒ High volumes of temporary importation

‒ Financial cost

‒ Administrative burdens to recover the VAT with the tax authorities.



VAT on temporary imports (2)

Applicable VAT credit to certified maquilas.

- The VAT credit will be equal to the VAT liability in importation that will reduce payment in such a way that they don’t have a cash VAT liability.

A maquiladora that does not obtain certification status may guarantee the contingency of the tax liability via a bond with an authorized entity.



Maquiladora certification for VAT purposes

A Maquiladora may obtain a certification status from the tax authorities that validates that they are properly operating the maquila program in compliance with the purposes it was designed for.

The certification allows a maquiladora to credit in the month the VAT is paid.

The payment of VAT, when applicable, will start one year from the date the tax authorities published the requirements to obtain certification status in order to give proper time to Maquiladoras to achieve certification.

On January 1, 2014 the tax authorities published in the Miscellaneous Tax Rules for Foreign Trade the requirements to obtain certification and benefits of such certification.



Maquiladora certification for VAT purposes (2)

The certification is on a one-year basis and the maquiladora may renew certification up to 30 days prior to expiration.

If a certification is suspended, the taxpayer will have 10 days to produce evidence to clear the cause of the suspension. If a certification is cancelled, the taxpayer will not be able to obtain another certification for 24 months.

A certification request may be filed between April 15 and October 22, 2014 depending on the taxpayer’s location. Certification will be renewed automatically provided the maquiladora files a notice before the term expires and it continues to be in compliance.

A three-tier rating system (AAA, AA and A) will be used to assess maquiladoras’ controls and overall tax and customs compliance:



Maquiladora certification for VAT purposes (3) – "A" rating

Requirements BenefitsElectronically file a certification request Be able to credit VAT on temporary imports.Have adequate inventory controls in place to track theimported goods and materials.

Obtain a VAT refund within 20 business days after the request is filed .

Obtain a positive tax compliance opinion issued by theMexican tax authorities.

Certification will be valid for one year and will be renewedautomatically if the maquiladora file a notice 30 days beforethe expiration date and continues to be in compliance.

Never have been listed on the Mexican tax authorities’ websiteas a ”noncompliant taxpayer.”Have valid “digital seals” and no omissions in the previous 12months.Demonstrate that all personnel are registered with the SocialSecurity Institute and provide documents showing payment ofsocial security.Produce evidence of investment in Mexico.Submit the name and address of clients and vendors abroadfrom the previous tax year.Allow custom officials to carry out an initial inspection andany additional inspections, as needed.With respect to the IMMEX program: (1) have a validprogram; (2) have all addresses or establishments registeredwith the Mexican tax authorities; (3) possess the necessaryinfrastructure to carry out maquila operations; (4)demonstrate that during the pr

"A" rating



Maquiladora certification for VAT purposes (4) – "AA" rating

Requirements BenefitsSame as for an A rating, plus: Be able to credit VAT on temporary imports.At least 40% of its operations performed in Mexico in theprevious year are with suppliers that had a positive taxcompliance opinion and are not listed on the SAT website asnoncompliant taxpayers.

Obtain a VAT refund within 15 business days after a request.

Carried out maquila operations for at least five years, or hadmore than 1,000 employees registered with the SocialSecurity Institute in the previous year, or the value of M&Eexceeds MXP 50 million .

Have 30 days to self-amend any omission in advance of anaudit.

A tax liability was not assessed in the month before thecertification application is filed, or if it was assessed it wasnegotiated for monthly payments or was fully paid up .

The customs authority may notify any omitted tax detectedthrough an invitation letter instead of initiating an automaticexamination.

A VAT refund request was not denied within the previous 12months.

Certification will be valid for two years and will be renewedautomatically if the maquiladora files a notice before theexpiration date and continues to be in compliance

"AA" rating



Maquiladora certification for VAT purposes (5) – "AAA" rating

Requirements BenefitsSame as for an A rating, plus: Be able to credit VAT on temporary imports.At least 70% of its operations performed in Mexico in theprevious year were with suppliers that had a positive taxcompliance opinion and are not listed on the SAT website asnoncompliant taxpayers.

Obtain a VAT refund within 10 business days after a request

Carried out maquila operations for at least seven years, orhad more than 2,500 employees registered with the SocialSecurity Institute in the previous year, or the value of M&Eexceeds MXP 100 million.

Have 60 days to self-amend any omission in advance of anaudit.

A tax liability was not assessed in the month before thecertification application is filed, or if it was assessed it wasnegotiated for monthly payments or was fully paid up .

The customs authority may notify any omitted tax detectedthrough an invitation letter instead of initiating an automaticexamination. .

A VAT refund request was not denied within the previous 12months.

Certification will be valid for three years and will be renewedautomatically if the maquiladora files a notice before theexpiration date and continues to be in compliance.

Allowed to file monthly consolidated customs filings(pedimentos).In regards to customs inventory controls, the company wouldbe considered in compliance.It will be possible not to show the serial number ofmerchandise in customs procedureIt will be possible to perform exportation procedure from its taxaddress.

"AAA" rating

Tax Reforms Key Issues


Issue: Maquiladora’s Income Tax

2014 Tax reform: Revocation of the Income Tax Reduction Decree

Consequence: Income Tax rate of 30% over the tax base

Suggestions: - A more efficient management of the financial profit and taxable base

- Evaluate if the Maquiladora Regime is still beneficial to the company.

Tax Reform 2014Key Issues


Issue: Permanent Establishment protection for its non resident related party

2014 Tax reform: The Maquiladora will only have 2 options to determine its taxable base:

- Applying the Safe Harbor, requiring to report as the minimum taxable profit, the higher between 6.5% over expenses and 6.9% over assets

- Obtaining an Advanced Price Agreement “APA” with Mexican tax authorities

Consequence: Most likely to have an important increase in the profit markup, which will originate a larger taxable base

Suggestions: - Evaluate if the operations in fact create a PE in Mexico

- Perform a feasibility analysis to define requesting an APA option

- Evaluate if the Maquiladora Regime is still beneficial to the company



Issue: Deduction of exempt wages

2014 Tax reform: Limited to 47%-53%

Consequence: - Increase of the taxable base (when applying APA)- The deduction of maquiladora services for the foreign related party will decrease, no matter that the taxable profit will be higher

Suggestions: - Applying the fiscal benefit decreed on December 26th 2013 to deduct exempt wages

- Separating at the accounting records, maquila operation revenues from non maquila operation revenues

- Separating at the accounting records, exempt wages from taxable wages



Issue: M&E property of the foreign related party

2014 Tax reform: At least 30% of the M&E should be owned by the foreign related party

Consequence: If the maquiladora doesn’t comply with this requirement, it would not be considered as maquiladora for Income Tax purposes and would loose the PE protection for its foreign related party.

Suggestions: - If the company doesn’t comply with this requirement and has being complying with article 216-bis as of 2009, will be able to apply the fiscal benefit decreed on December 26th 2013, to have a 2 year period to comply with the requirement

- Evaluate if the Maquiladora Regime is still beneficial to the company


© 2014 Galaz, Yamazaki, Ruiz Urquiza, S.C.

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Contact information:Héctor [email protected]+52 (664) 622 7840

© 2014 galaz, yamazaki, ruiz urquiza, s.c. january 15, 2014 vat certification & key issues...

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