Special Tax Status for Maquiladoras Extended

The U.S. and Mexican governments have extended indefinitely the special tax status of export-assembly companies, known as maquiladoras, in a bid to ensure continued foreign investment.

Mexico’s 3,500 maquiladora companies, 95% of them U.S.-owned, had pressed the government to provide clear rules after a tax agreement signed last year was set to expire in 2002. The maquiladoras will continue to pay tax on 6.9% of their assets, or 6.5% of their costs, whichever is higher.

“The maquiladora industry complained this was too short a horizon given the investments they wanted to make,” said Mario Budebo, fiscal policy coordinator at the Finance Ministry. This extension “provides certainty that wasn’t there.”

Extending the agreement indefinitely and guaranteeing that any possible changes will avoid companies being taxed twice on the same profits could keep the industry expanding at record pace. Maquiladora output accounts for about 45% of Mexico’s $13 billion a month in exports this year, and the industry expects the number of companies to grow 14% to 4,000 by the end of the year.

The National Council of the Maquiladora Industry estimates the industry will generate $15.66 billion worth of value-added production this year, up 16% from 1999, a rate at which it believes it can continue to expand in the future.

However, the current agreement eventually will be replaced by new tax accords being negotiated by members of the Paris-based Organization for Economic Cooperation and Development.