For foreign manufacturers operating in Mexico through a related legal-entity (a maquila operation), taxes are assessed and collected at the federal, state and sometimes municipal level in the form of income, consumption and payroll taxes.
When the Mexican legal entity is a related-party to the foreign company, the Mexican government assumes that arms length transactions will not take place and has therefore instituted a method for calculating income taxes based on asset value or operating cost since the maquila operation does not receive income from sales. This is commonly referred to as Safe Harbor.
Another form of calculating income taxes for maquila operations is known as advanced pricing agreements (APA’s). When the related-parties are companies located in NAFTA countries, double taxation is not allowed. Therefore, income taxes paid in one NAFTA country may be credited or deductible in another.
Value-added tax in Mexico is calculated at 16 percent and is assessed on most goods and is paid if the product will be used by a consumer in Mexico. Maquila operations may be eligible to receive a reimbursement on VAT if the consumer is outside of Mexico. The country recently underwent a major tax reform, much of which was enacted January 1, 2014.