The Shelter Series
As part of the series, read the first blogs, "Is your Multitenant Shelter Holding you Back?", "5 FAQs about Transitioning from a Multitenant to a Dedicated Shelter" and "Unveiling the True Cost: Multitenant v. Dedicated Shelter in Mexico".
Embarking on your Dedicated Shelter Journey
Transitioning from a multitenant shelter to a dedicated entity in Mexico can unlock a world of possibilities for your business. Greater control, increased efficiency, and reduced risk are just a few of the benefits that await you.
However, navigating the complexities of the process can be daunting, and stricter governmental requirements make the task increasingly more challenging. At Prodensa, we understand your concerns and have the experience to successfully complete the task at hand. We've helped many companies like yours make this move successfully, ensuring a smooth transition and maximizing the potential of your dedicated shelter in Mexico.
This post delves into a the important milestones of the transition from a multitenant shelter to a dedicated entity, providing you with a roadmap for success. But remember, you don't have to walk this path alone. Prodensa can be your trusted partner throughout the journey.
Navigating Independence with Confidence: The Shelter Brothers
That’s where The Shelter Brothers come in. Baja California natives, these brothers have a unique blend of advisory expertise and hands-on project management. Their knowledge and 20 years of combined experience offer unparalleled support to manufacturers seeking to optimize and evolve their operations in Mexico.
Alberto Loyola, Project Manager & Carlos Loyola, Business Development Director at Prodensa offices, Tijuana
Carlos and Alberto share their expertise below with a look at the transition process, and their successful role in the independence of 3 multitenant shelter operations in the Baja California area.
The Dedicated Shelter Transition Milestones
The transition from a multitenant to a dedicated shelter entity can look very different, depending on the operation's industry/type, size, inventory, raw material, equipment and business plan. First we will take a look the full process of incorporating and certifying a newly-created legal entity to transition the current manufacturing operation.
Incorporate a new Legal Entity
A new Mexican operating entity needs to be set, either an existing shell entity or one incorporated from scratch. This can involve obtaining a notarized public deed and registered for a Tax ID ("RFC" for it acronym in Spanish) before the Mexican tax authorities.
Sub-lease the Space
Most companies in a multitenant shelter operation are not looking to change their actual site, so for these cases, it is required to sub-lease a portion of the current industrial facility to set up a Pilot Production Line. This is a fundamental requirement for ensuring a smooth transition.
New Entity Setup
Taking the necessary time to properly establish a new operation is crucial. This includes both the hiring of employees and ensuring the operation complies with all required permits and registrations. In addition to the Social Security Registration, the new entity will also require new banks accounts to be setup, an accounting and procurement system, a payroll system, Importer of Record (depending on the type of imported goods), state payroll tax registration, suppliers, etc. Some permits, contracts and licenses can be transferred, while others will need to be prepared for the new entity.
Setup a Pilot Production Line
In order to obtain the IMMEX, a pilot production line is required to be set up in the designated space of the new entity. This step will need to have a defined floor space for the production line/process of the new entity. In order to comply with labor requirements, at least one employee must be hired under the new entity. The machinery, equipment and raw materials will be imported definitively (paying value-added tax) to be installed on the pilot production line.
Obtain New IMMEX
A new IMMEX will be required under the new legal entity; this could take between 2-3 months and is subject to a visit from governmental authorities for the approval. It takes longer for sensitive materials, and with a new federal government administration, times could change.
Transfer the Assets
The ownership of the assets will transfer to the new entity. Depending on the type and classification of assets, different strategies could be deployed. It is possible to do a virtual transfer for certain assets permanently imported. Fixed assets purchased domestically have to be handled separately. And temporarily imported assets need to be evaluated to see if they can be virtually transferred, or imported permanently.
Regarding VAT, in some cases it is paid on the transfer with recovery later on, or obtaining a VAT & IEPS Guarantee. The lease agreement will also need to be transferred.
VAT Certification Application
The VAT Certification could take 4-6 months to approve. Once achieved, it will give the new legal entity the full benefits of the IMMEX Program and VAT Certification. This will allow you to claim a credit for VAT paid on import, saving money.
Employer Substitution
One goal of the transition is to retain your trained workforce. This requires a lot of coordination in order to be successful. The strategy must be defined in relation to employee communication, collective bargaining agreement (union), compensation package, internal work rules, labor registrations, personnel support services, software and systems, time clock configuration, etc.
The employees will retain their seniority and benefits without disruption and will need to sign a letter in which they acknowledge the change of employer. This requires a high level of communication, coordination and trust in order to avoid inconveniences to the most important part of the operation.
The employer’s substitution is typically done in stages according to a new entity hiring schedule, running parallel payrolls until all employees are transferred.
During the transition, your current shelter operator will be required to provide essential documentation and facilitate a smooth turnover of responsibilities. While contractual obligations typically mandate this, maintaining a positive relationship throughout and after the transition is always advisable.
Prodensa: Shelter Experts
By partnering with Prodensa, you gain more than just a dedicated shelter; you gain a team of experts dedicated to your success. Our comprehensive approach considers every aspect of the transition, from initial planning to post-move optimization. With our experience, expertise, and unwavering commitment to communication, we'll ensure a seamless move to your dedicated space.
Prodensa offers dedicated shelter services, or we can help you to setup and maintain your own legal entity in Mexico. Our customizable support adapts to your business plan.
NAVIGATING INDEPENDENCE WITH CONFIDENCE
CARLOS LOYOLA, Business Advisor
A degree in International Business, a background in economic development and involvement in community organizations like Mexicali EDC, Tijuana EDC, and CANACINTRA Mexicali
Nearly 12 years of PRODENSA Business Development experience and a key leader of Baja California's footprint growth, attending clients such as as Living Spaces, Medline and Becton Dickinson (among many others) and generating over 9,000 jobs for the region.
Respected by local institutions to advise the transition of 5 manufacturing operations to newly created legal entities in the region.
ALBERTO LOYOLA, Project Manager
Industrial Engineer with an MBA, aerospace expertise with prior positions in UTC Aerospace Systems, Ascent Aerospace and TE Connectivity in the Baja region
Over 5 years of PRODENSA experience, specialized in transition of operations, managing and leading PRODENSA's Tijuana regional office and team, assisting over 10 operation startups and transition for clients in the region
Successful transition of 4 manufacturing operations to newly created entities, responsible for developing and executing the transition strategy and adapting to surging scenarios and complexities of a transition