As noted in Doing Business Mexico’s summary about the IMMEX program, IMMEX companies have strict obligations, including inventory control requirements. Needless to say, all importers and exporters in Mexico –whether IMMEX or not– must keep, as part of their book-keeping obligations, an inventory control system of the foreign goods. The trade manager of the company has to constantly update the customs records or files, and the company has to have such documents readily available to the tax and customs authorities.
However, IMMEX companies are subject to stricter obligations. To import goods under a temporary customs regime, IMMEX and Maquiladora companies must implement an automated inventory control system that meets the legal requirements per article 59 of Customs Law and other applicable rules and regulations.
1.IMMEX Benefits: Deferring Import Duties
IMMEX and maquiladoras usually integrate the temporarily imported goods into a productive process to obtain an intermediate or final good, which will then be exported or used in an export service.
As it is commonly known, one of the most notable IMMEX benefits is the possibility to defer the payment of import duties (i.e. the General Import Tax ) applicable to temporary imports. However, this benefit is subject, of course, to the condition that such goods and materials are returned abroad after being used in a production process or an export service, and per the specific timeframe established on the IMMEX Decree.
Duty Deferral restrictions may apply, for instance, as a result of a Free Trade Agreement. Doing Business Mexico made an interesting summary on Duty Deferral.
Depending on the product, an IMMEX company may defer the payment of other import “taxes”, such as antidumping and countervailing duties.
As the productive processes and services vary depending on the purposes and activities of each IMMEX company, the inventory control of the temporarily imported goods is subject to special guidelines. The purpose of the inventory control is to track the location and transformation of the IMMEX’s temporary imports in every stage of the productive chain, keeping these materials locatable and their transformation in the registered facilities until they are returned abroad.
2. IMMEX and Automated Inventory Controls
Keeping an automated inventory control system is a permanent obligation to operate and maintain the IMMEX Program Authorization per articles 10 and 24 (IX) of the IMMEX Decree.
Furthermore, the General Rules of International Trade (“GRIT”), issued by the Customs and Tax Administration Service (SAT for its Spanish acronym), establishes guidelines that develop the IMMEX Decree providing “benefits” or facilitation measures to IMMEX companies. Specifically, rule 4.3.1 states that the automated inventory control system must fulfill all requirements established in Annex 24 of the GRIT. Consequently, within the Mexican customs argot, the automated inventory control system for IMMEX companies is commonly referred to as “Anexo 24”.
In general terms, Annex 24 of GRIT states the minimum information an automated inventory control system must contain to keep track of the IMMEX’s temporary imported goods, that are either subject to manufacture, transformation, or repair activites or used in export services.
The requirements for the automated inventory control systems stated on Annex 24 allow IMMEX companies to:
- Fully comply with the provisions established in Mexican Customs Law related to inventory control of temporarily imported goods.
- Serve as a tool to verify that the temporarily imported goods are returned (or exported), helping IMMEX companies to identify those goods that are pending of being returned (or exported).
- Generate reports that allow compliance with the information requirements established in the customs regulations.
According to Annex 24, the basic information that an automated inventory control system must record and collect information.
General Information Catalog
The General Information Catalog allows recording the information of the goods and materials that will be temporarily imported, the facilities registered with the SAT where these goods are going to be located and processed, and the finished goods intended for export.
The Customs Module
The Customs Module allows recording specific customs information on:
- Entries (i.e. temporary imports);
- Used materials;
- Exits (i.e. returns/exports, destructions, donations, customs regime changes, etc.); and,
- Fixed assets.
During IMMEX normal import-export operations, the customs module allows to discharge (i.e. discount) automatically the quantity or volume of each material using the “PEPS method” (first entry, first exit by its Spanish acronym), i.e. discounting the used material with the oldest import. Also, the system must discharge the scrap or waste material at the time of its donation, destruction, transfer, customs regime change, or return (i.e. export).
The Used Material Module
This module contains information on the productive process registered on the company’s IMMEX Program. The module allows the IMMEX company to cross-reference the volumes of the finished goods with the real consumption of the components or materials used in its production for a specific period of time and the amount of scrap and waste that results from such a productive process. This is usually obtained through the Bill of Materials of each final product.
The Reports Module
This module shall allow generating the following reports regarding the temporarily imported goods:
- Entries Report;
- Exits Report;
- Balance Report; and,
- Used Materials Report.
Annex 24 and Customs Law considerations for an IMMEX company
The Customs Law provides that temporarily imported goods may be subject to different “destinations”, inter alia its return or export, physical transfer to another IMMEX company (e.g. a virtual transference), change to a definitive import regime, or regularization when the temporarily imported good exceeds the allotted legal stay time in Mexico. These alternatives can (and should) be registered in the inventory control system to discharge the temporarily imported goods from the system according to the real destination of the imported materials.
Benefits Having Updated Reports
The reports generated by the inventory control system aim to prove compliance with the customs-related obligations, but IMMEX companies can use these reports internally to measure the company’s production efficiency. Furthermore, the reports can serve to identify any difference between the company’s internal records and SAT’s international trade operations database of the company, called “Data Stage”.
If a company carries out such an internal audit with trade experts, the IMMEX may detect any customs inconsistency and, if necessary, take timely correcting measures avoiding fines or even the suspension of its IMMEX program!
Conclusion
As a whole, Annex 24 is intended to allow IMMEX and Maquiladora companies to easily keep track of their temporarily imported materials, proving their timely return or export before customs authorities (SAT), distinguishing Mexican goods from foreign ones, as well as temporarily imported from the definitively imported goods.
In my opinion, an IMMEX company with a well maintained and carefully operated inventory control, consistent with Annex 24, will have a significant competitive advantage for its operation. Moreover, complying with these record-keeping obligations also entails a very important benefit, the IMMEX company will be able to provide a timely response to the SAT in the event of a possible audit, revision, or in-spot visit.
Do not underestimate the SAT, that is a lesson that has been learned by many IMMEX companies!