Restructuring of manufacturing operations

Four key elements for a restructuring of operations through a feasibility study

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What are the advantages for maquiladoras to evaluate their manufacturing model?

What other models of operations are available, in addition to maquiladora?

Since the 1960s, the maquiladora model has been one of the most widely used in Mexico because of the multiple benefits it has granted, particularly because of the elimination of the generation of a permanent establishment for the maquiladoras, which are residents abroad.

However, the benefits of this model have been increasingly limited, and currently they only have an additional deduction related to exempt benefits and a single method to comply with transfer pricing rules, commonly known as safe harbor. This method can be complex for manufacturing companies that are capital–intensive or that maintain high–level of raw material inventories in our country.

In this context, it is essential for companies dedicated to production to evaluate the different manufacturing models, to explore the possibility of a possible restructure, through a feasibility study that allows the advantages of each one to be visible.

1. Manufacturing operations models

In addition to the maquiladora, there are other models such as the so-called toll manufacturer , in which the contracting company can supply raw materials or semi-finished products to another company that has the human capital, infrastructure, knowledge and experience necessary to produce the final product in exchange for an agreed price or toll.

Another model is the manufacturing contractor (in its different available modalities: Private Label Manufacturing, Individual Component Manufacturing, Labor or Service Subcontracting, End-to-End Manufacturing), in which one company manufactures the products under the name or brand of another company.

There is also the full – fledged manufacturing system, where one organization is responsible for all stages of production.

Additionally, it is valuable to measure the effects that operating under the safe harbor modality can have, especially those of an economic nature and review whether there is double taxation for the residents abroad.

2. Feasibility study

3. Effects to be assessed

4. Determination of restructuring

Currently, there are a significant number of capital–intensive maquiladoras in Mexico that are in the process of obtaining an advance price agreement (APA) from the tax authority. These companies must evaluate their operations to determine which model best suits their needs, especially from the 2025 financial year.

As a result of the company–relocation phenomenon in Mexico (nearshoring), the arrival of different manufacturing plants is expected, and they will have to evaluate the advantages offered by conducting the feasibility study. It is advisable that this decision be made before starting operations, in order to avoid setbacks that imply changes in the manufacturing model in the short term.

The manufacturing industry is transforming, and several companies have decided to evaluate abandoning the maquiladora model due to the limitations indicated and, above all, due to the obligation to determine a tax profit that represents, in some cases, 6.9% of the value of all assets.

These include the assets owned by the foreign resident, which may generate operating profits that are not representative of a low–risk manufacturing operation in Mexico.

KPMG Mexico's manufacturing and maquiladora industry specialists have the knowledge, resources, and personnel to conduct a feasibility study to help companies determine the most appropriate business model to operate in our country.

Our services:

We have a strong presence throughout Mexico, as well as multidisciplinary teams specializing in the manufacturing industry. Thanks to our sound industry expertise, we can help you with the following services:

― Feasibility study
― Assistance with the manufacturing operation restructuring process in Mexico
― Support for obtaining export and import programs
― Determination of the location of the companies, considering the available infrastructure, as well as the personnel and logistics for the operations
― Evaluation of support operations in our country, such as shared services, logistics and warehousing
― Assessing the impact of manufacturing operations from an environmental, social and governance (ESG) perspective

Please contact our specialists to receive personalized advice and take advantage of the opportunities in the sector.