Manufacturing in Mexico: Shelter Operations. An interview between Queretaro’s Aerocluster and Prodensa.
Foreign manufacturers have several options to pursue when setting up a manufacturing operation in Mexico.
The Shelter option is one of the smoothest, safest, and most competitive structures for manufacturing projects. It has been specifically preferred by many Aerospace Industry companies that decided to expand their manufacturing footprint into Mexico.
In collaboration with the Aerocluster of Queretaro, we prepared an interview with its Director, Mr. Antonio Gonzalez, and our Business Development experts, Carlos Loyola, and Ricardo Martinez. We focused the conversation on the fact that many Aerocluster members do have manufacturing operations in Mexico under a Shelter Operation. Seeking to add value to these companies, we discussed the Shelter modalities, compliance implications, and recent changes to Mexico’s Shelter Regulations. In this blog, we will also highlight the recent changes to the Shelter regulations in Mexico. Based on our experience, we will also share recommendations to sheltered Operations already established in Mexico.
The concept of Shelter in Mexico works for Cost-Center type of operations in Mexico. In this concept, the US parent company operates a manufacturing branch without having a wholly-owned entity, working under a Mexican third party’s umbrella.
Shelter in Mexico has 2 modalities:
The main difference between a Multitenant Shelter and a Dedicated Shelter is the way the entity sets up in Mexico. A Multitenant Shelter has multiple companies under a single Mexican entity acting as an “umbrella operation” to all of the companies. In the Multitenant Shelter format, the entity is already set up, representing the fastest option to start-up in Mexico. However, you will share the same entity among all of the companies under the “umbrella”.
This may put you at risk if one of these companies lacks compliance. Ultimately it will impact all companies linked to this entity. On the other hand, a Dedicated Shelter creates a new entity for each specific project to ensure that the compliance is in full control under a single structure.
There have been many changes to the Income Tax Law about Shelter. In 2014, the term of Shelter Operations in Mexico was limited for a maximum period of four years. After those 4 years, the company could decide whether to continue in the Shelter operating structure paying Income Tax for 4 more years or move into a Wholly-owned Maquila structure.
However in 2020, another fiscal reform brought another change, mainly related to Fiscal rules and to Term:
One of the most common topics ignored when selecting a Shelter operator is to have a clear Exit Strategy, which will give your company certainty to continue operating after the shelter contract expires or any significant changes in the law this operational mode.
Taking into consideration the recent changes aforementioned, here are two suggestions for companies already operating in Mexico under a shelter mode:
Prodensa is a professional services firm with 35 years of experience and has supported more than 700 manufacturing companies with Startup or Shelter solutions in Mexico. From start up and shelter operations to consulting and advisory insights, market intelligence, and execution of complex projects across the world, we offer the right mix of team experts, know-how, and local skills to solve even the most demanding tasks.
Contact us to assist you and find the best solution for your new or existing manufacturing project in Mexico.