Severance Us Employee Working in Mexico by fkd17725


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									The Maquila Program
       The Rules of the Game
The Rules of the Game
   First, ensure that your product may be
    produced under the Maquila program. Some
    products are restricted and require special

   These products include:

The Rules of the Game
   Textile goods and wearing apparel subject to
    the multi-fibers agreement.
   Articles containing radio active devices such
    as smoke detector.
   Firearms and parts of firearms
   Wood products

The Rules of the Game
   Unless the company is working under the
    shelter plan agreement, the company must
    form a Mexican corporation.
   Mexico’s foreign investment law establishes
    that foreign investors may hold 100% in the
    capital stock, of the Mexican corporation.

The Rules of the Game
   A Maquila may be established anywhere in
    the republic of Mexico. Companies wishing to
    set up a maquila in Mexico City may be
    required to obtain a special operating permit.
   A Maquila must function as a Mexican
    corporation for all legal, fiscal and labor

The Rules of the Game
   A Maquila is allowed to import into Mexico,
    machinery, equipment, tools, materials and
    components duty free provided the goods are
    covered by a valid NAFTA certificate of

The Rules of the Game
   Machinery and equipment imported into
    Mexico that are not covered by a NAFTA
    Certificate of origin are subject to Mexican
    customs duties on the date of importation.
   Mexican value added taxes (VAT) are not

The Rules of the Game
   Materials imported in to Mexico are subject to
    Mexican customs duties if they are not
    covered by a NAFTA Certificate of origin.
   Duties are due 60 days after they are
    exported to the US.
   Duty drawback may be applicable

The Rules of the Game
   Materials may only remain in Mexico for a
    period not to exceed 18 months.
   Maquilas are allowed to recover most value
    added taxes paid in Mexico
   A Maquila is required to export at least 30%
    of its production.

The Rules of the Game
   No more than 70% of a maquilas production may be
    sold in the Mexican national market
   Maquilas are allowed to sell their products to other
   Maquilas are required to pay Mexican corporate
    income taxes of 34% on the company’s taxable
   Maquilas are required to pay the Federal Tax on
    Assets of 1.8%
   Maquilas are required to provide employees with a
    profit sharing program of 10% of profits.          10
The Rules of the Game
   Maquilas are obligated to choose between meeting
    a Safe Harbor provision or secure an Advance Price
    Agreement issued by the Ministry of finance to
    declare a minimum taxable income in Mexico:

         Safe Harbor – 6.9% of the value of the assets, or 6.5% of
          the total cost of operation in Mexico, which ever is higher.
         Transfer Price – the maquila applies for a resolution on a
          transfer price for determining the taxable profit in Mexico.
         Maquilas are obligated to maintain an automated inventory
          control system.

The Rules of the Game
   Should a maquila leave Mexico, it must notify the
    Ministry of the Economy within 30 days of the
    expected move.

   If a maquila is closed, all machinery and equipment
    entered into Mexico under the maquila permit must
    be exported from Mexico, and

   The maquila is required to fulfill all legal obligations
    incurred in Mexico.
Licenses and Permits
Licenses and Permits
   A Maquiladora program issued by the Ministry of the
    Economy provides the company with an open-
    ended license to operate under the Maquila Regime.
   Imported materials may be imported temporarily for
    a period of 18 months without having to pay the
   Machinery and equipment may be imported into
    Mexico under a temporary permit and not be subject
    to the VAT.
   All foreigners staffing a maquila must have a
    Mexican work permit – FM-3 “Non-immigrant Visa”.
The Application Process
The Application Process
   It is recommended that the company establishing a
    maquila retain a reputable Mexican law firm to set
    up the Maquila.
   The following description of the application process
    is intended for illustrative purposes only:
   The first step in establishing a maquila is to obtain a
    permit for incorporation form the Ministry of Foreign
   A Mexican corporation must be formed under the
    General Law of Mercantile Companies.
The Application Process
   The most popular style of incorporation is the
    variable capital company designated as SA de CV.
   The corporation’s name must be approved by the
    Ministry of Foreign Affairs.
   The Ministry of the Economy must approve a
    maquilas operating permit before any goods are
    imported into Mexico.
   Once the Maquiladora program is approved, the
    company’s name is entered into the National
    Register of the Maquiladora Industry.
The Application Process
   The maquila must also be registered with numerous
    governmental agencies ranging from the Customs
    bureau to the Social Security Institute. Regular
    reporting is required by many of these agencies.

The Three Options You
     Have to Enter the
 Maquiladora Program
3 Options
   Contract Manufacturing

   Direct Ownership

   The Shelter Plan Program

Contract Manufacturing
             in Mexico
Contract Manufacturing
   You provide materials and components, specialized
    equipment and blue prints.
   Your product is built to your specifications and your
    delivery schedule
   You are billed at the contracted piece price.

Contract Manufacturing
   Advantages:
         No long-term investment in Mexico
         No long-term commitments in Mexico
         No legal involvement in Mexico
         Very Quick start up

   Disadvantages
         Usually the most expensive option
         Lack of control over product
         Your product can be placed on the “back-burner”
         You are dependant on the integrity and financial strength of the
         Possible unauthorized transfer of technology

Direct Ownership
Direct Ownership
   You establish a subsidiary company in Mexico
   You secure all of the necessary permits.
   You establish accounting and personnel procedures
    to comply with the requirements of federal and state
   You establish procedures to comply with Mexican
    and US customs.
   You locate and lease a production facility
   You deal with and engaged the services of Mexican
    contractors in fitting-up the production facility.

Direct Ownership
   Advantages
         Usually, the most cost effective option in the long term.
         You have complete control of your product
         You have complete control of the Mexican operation
   Disadvantages
         Lengthy start-up time
         Long term lease on the production facility
         May be required to transfer US administrative personnel to
         Arrange for telephone service and utilities.
         Severance pay obligation for all employees hired in Mexico.
         The maquila will be subject to Mexican transfer tax or safe
          harbor agreement.
         The maquila will be subject to the asset tax.
The Shelter Plan
The Shelter Plan Program
   You contract with a Shelter Plan Operator in Mexico
   You provide on-site plant management and the
    transfer of technology.
   The Shelter Plan Operator provides its knowledge of
    the Mexican corporate structure, maquila operating
    permits, labor hiring and administration and Mexican
    customs procedures.

The Shelter Plan Operator
   Personnel administration
   Payroll administration
   Mexican and US customs documentation services
   General administrative services in Mexico
   Warehousing
   The Shelter plan operator secures all necessary
   The Shelter Plan Operator is usually paid on a
    clock-hour basis (usually the number of hours
    worked by the Mexican direct labor workers at an
    agreed upon hourly rate)
The Shelter Plan Program
   Advantages:
         Quick start-up time
         Lower start-up expenses
         Flexibility: Remain under shelter plan or use the shelter
          plan as a stepping stone to direct investment.
         You have complete control over the production of the goods
          produced in Mexico.
         Possible assistance in reducing severance pay liability
          when reducing the workforce.
         Peace of mind

The Shelter Plan Program
   Disadvantages:
         In the long-term, usually less cost-effective than direct
          investment for larger operations.
         You do not have complete control over the Mexican

Proman - Trento
    Shelter Plan
   Personnel
    Payroll (Administration is Shelter cost)
   Infirmary (Customer cost)
   Guards (Customer cost)
   Union relations

 Accounting (Mexican Fiscal – Shelter cost)
   Import/Export (Shelter cost)
   Environment (Shelter cost)
   Permits (Administration is Shelter cost)
   Maintenance (Supervision is Shelter cost)   33
Shelter Plan Services
   Provide information and assist in your value
    analysis project
   Assist in building design
   Assist in building facilitation
   Assist in relocation of plant manager
   Use of office space and services during
    construction phase

Shelter Plan Services
   Screen, test and hire the direct labor
   Hire the indirect and salaried personnel
   Secure the necessary Mexican permits
   Ensure compliance with US Customs
    import/export regulations
   Provide payroll administration

Shelter Plan Services
   Assist in developing training/motivational
    programs for the client companies
   Provide ongoing operational support in
   Assist in securing staging warehouse space
    in Nogales, Arizona
   Provide information for tax declarations for
    foreign personnel

Items included in the
Mexican G&A Column

  1.    Mexican indirect labor       12.   Telephone Expense
  2.    Mexican salaried labor       13.   Office Equip & Maintenance
  3.    Shipping/Receiving expense   14.   Office supplies
  4.    Employee benefits            15.   Maintenance Supplies
  5.    Production expense           16.   Data processing
  6.    Q.C. Department expense      17.   Equip, Repairs & Purchases
  7.    Rent                         18.   Equipment Rental
  8.    Mexican Insurance            19.   Outside services
  9.    Plant Facilitation           20.   Mexican Broker
  10.   Plant Maintenance            21.   U.S. Brokerage Charges SB
  11.   Utilities                    22.   Mexican Permits

Freight connections
and costs
Obregon – Nogales 330 miles    United States of America
Nogales – Detroit 2190 miles

Land Freight
By Train                            Nogales
Obregon – Nogales               SONORA
$215 usd (one way)                    Obregón
Nogales - Detroit                                         Gulf of México

By Trailer
Obregon – Nogales              Pacific Ocean
$600.00 (Round trip)

       Thank you!
Trento Industrial Parks of
 Sonora® / Promotora de

              November 20, 2002

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