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Maquiladora — Orbitax Tax News & Alerts
activities – permanent establishment exemption clarified

On 28 March 2007, the 14th Regulation modifying the 2006 Fiscal Miscellaneous Regulations was published in the Official Gazette. The Regulation mainly clarifies Art. 4-A of the Income Tax Law Regulations on the permanent establishment exemption in respect of the maquiladora industry.

Mexico has adopted policies favouring the establishment of maquiladora companies, which process or assemble imported materials and parts for resale to the country of origin or other parts of the world. One of the favourable policies is that, if a non-resident maintains a legal or economic relationship with a maquiladora company or habitually processes in Mexico goods or merchandise maintained in Mexico using assets directly or indirectly furnished by the non-resident or another related company, this will not result in the existence of a permanent establishment in Mexico of the non-resident. The maquiladora company must observe the transfer pricing provisions.

A modifying decree published in the Official Gazette of 4 December 2007 introduced the following Art. 4-A of the Income Tax Law Regulations:


For the purposes of Article 2 of the Law, the provisions of the second last paragraph of this article are only applicable to maquila contracts related to foreign residents from countries in respect of which the provisions of a treaty to avoid double taxation with respect to taxes on income and, if it is the case, the provisions of mutual agreements agreed by the competent authorities under the relevant treaty establish that the foreign residents do not have a permanent establishment in the country in respect of the maquila activities carried on by Mexican residents.

In this regard, the 14th Regulation of 28 March 2007 established the following provision (3.26.10):


For the purposes of the second last paragraph of Article 2 of the Income Tax Law and Article 4-A of its Regulations, foreign residents may apply said the paragraph, provided that they are residents of a country with which Mexico has a treaty in force to avoid double taxation with respect to taxes on income, and they comply with the requirements established in that treaty for its application.


Notwithstanding the second last paragraph of Article 2 of the Income Tax Law, when mutual agreements are concluded in accordance with the treaties described above, foreign residents must also comply, if it is the case, with the conditions established by the relevant agreement.

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