10 Frequently Asked Questions about Manufacturing in Mexico

By Liliana Hernández | CEO at American Industries Group®
Published 29/09/2022

An increasing number of companies from around the globe in a wide variety of industries are looking into setting up operations or expanding into Mexico due to the many benefits it offers. Though they have different experiences and varying levels of knowledge regarding manufacturing in Mexico, all have many questions. In this article, we share answers to some of the most frequently asked.

  1. What are the main benefits of establishing operations in Mexico under a Shelter program?

Establishing operations with an experienced provider of Shelter services in Mexico is the fastest and easiest way to begin doing business. It eliminates the learning curve entirely and minimizes risk, allowing companies to focus all their resources on production. They can take advantage of a Shelter company’s experience in all the administrative aspects of setting up operations, including issues related to finances, customs, permitting, legal compliance, and human resources, among others. It also provides significant savings. Having access to the Shelter company’s economies of scale means they will pay less to purchase goods in Mexico. In addition, under a Shelter model, Mexico becomes a cost center instead of a profit center, providing savings on taxes and duties.

  1. What types of companies can do business under a Shelter model?

Companies in all types of industries have successfully set up operations in Mexico under a Shelter program. Manufacturers of just about anything you can imagine, from electronics to medical devices, automotive parts, and aerospace components, to more niche markets, such as coffin and parachute companies, can take advantage of the benefits of manufacturing here.

  1. Does the IMMEX program allow companies to import goods and equipment on a temporary basis exempt from import VAT tax?

The IMMEX program, in conjunction with VAT certification, allows companies to import materials and equipment temporarily exempt from the 16% VAT. It can take up to a year for companies to complete the VAT certification process on their own, but companies operating under a Shelter company can take advantage of this benefit from day one.

  1. How long does it take to apply for and start receiving the benefits of the IMMEX program?

IMMEX certification is issued 15 business days after the industrial facilities where the company is operating are in working conditions, allowing companies to start taking advantage of the program’s savings.

  1. How do I know if my product qualifies for benefits under the USMCA?

This depends on your product’s HTS (Harmonized Tariff System) code and transformation rules in Mexico. If you would like more information about a specific product, we can prepare a study with detailed information and benefits under the USMCA for this.

  1. When operating under a Shelter program in Mexico, employees are paid by the Shelter company. Does this cause any conflict or confusion among personnel?

No. From the start, employees understand that the Shelter company is only in charge of the administrative aspects of the business, such as payroll, and that personnel reports to and is exclusively working for the Shelter client. As such, they follow the production instructions of their plant manager.

  1. What is the standard work week in Mexico?

The typical work week in Mexico is six days, from Monday to Saturday, or 48 hours in total. Employees can work a maximum of 8 hours during the day between 6 a.m. and 8 p.m. without this being considered overtime and are entitled to one day off for every six days worked.

Night shift workers are allowed to work a maximum of 42 hours per week between 8 p.m. and 6 a.m., with no more than seven hours in a shift. Night and day shifts may be combined, but the hours worked at night must be less than three hours for this not to be considered overtime. A mixed shift allows a maximum of seven and a half hours per day.

  1. Does the government offer incentives to companies establishing operations in Mexico?

In addition to the main incentive programs for companies manufacturing in Mexico, your company may be eligible to receive additional benefits from state and municipal governments depending on your project and requirements for labor, machinery and equipment, technology, infrastructure, and value-added jobs. Possible incentives include training for personnel and tax land incentives.

  1. Are foreign companies operating in Mexico under the Shelter model required to pay income tax in Mexico?

Companies operating under a Shelter model in Mexico must pay income tax from the time they start doing business in the country, even when operating under the non-incorporated option. The tax paid in Mexico can usually be credited or deducted in their home country according to applicable law and the principle of no double taxation.

The safe harbor methodology is used to calculate the taxable amount, which is either 6.9% of inventory and fixed assets or 6.5% of operational expenses, whichever is greater. This amount is then taxed at Mexico’s income tax rate of 30%.

  1. What are employee turnover rate, process capacities, and public utilities availability like in Mexico?

Each region has different strengths and drawbacks depending on the project. To know more about the specialized processes and capabilities available in each, as well as detailed demographic information including turnover rates, salary ranges, and public services, it is recommended working with local experts, so they can help you to carry out the proper site selection process to find the region that will meet your needs.

If you would like further details about any of these answers or have any additional questions, please don’t hesitate to contact us.

Liliana Hernández

CEO

American Industries Group®

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