The allure of manufacturing in Mexico has never been stronger for global manufacturers. With its skilled workforce, strategic proximity to the US markets, and significant cost advantages, Mexico stands out as a prime location for manufacturing operations. However, setting up shop in a foreign country comes with its own set of challenges, particularly when it comes to navigating complex legal and regulatory frameworks. This is where shelter services come into play, offering a streamlined path to establishing and operating your manufacturing presence in Mexico.
What are Shelter Services?
In short, shelter services are provided by a 3rd party company local to Mexico that acts as a buffer between your foreign company and the Mexican legal and regulatory systems.
Shelter services in Mexico are recognized by the Mexican authorities through federal law. It is a modality of the IMMEX Program. Under this model, materials can be imported on a temporary basis into Mexico, provided the finished goods are exported. The shelter program has similarities to a free trade zone in other countries, without the strict, geographical boundaries. Read more about the IMMEX Program.
There are different models to suit your needs, but the roles and responsibilities tend to remain the same.
Mexican Shelter Company
Since the legal entity in Mexico is typically under the ownership of the Mexican company, the shelter company acts as the local face to the operation. The roles of the Mexican shelter company often include:
- General Administration
- Accounting, Tax and Treasury
- Finances
- Accounts Payable & Receivable
- Human Resources & Payroll
- Recruiting & Hiring
- Labor Relations & Union Matters
- Environmental, Health & Safety
- International Trade Compliance
- Import and Export Activities*
- Customs*
- Freight Coordination*
- Logistics & Freight Forwarding*
- Indirect Materials*
*Often varies by shelter service provider.
The focus of the company that provides shelter services in Mexico will be to reduce the learning curvy by administering the legal entity and running day-to-day administrative functions in a compliant way.
Foreign Company
The foreign company, through a services contract, funds the Mexican operation and manages all technical and manufacturing activities, including:
- Sales & Customer Service
- Manufacturing Activities
- Maintenance
- Quality
- Scheduling
- Materials
- Inventory Management
By focusing on their core business and corporate processes, the foreign company and the shelter services provider in Mexico effectively partner together to manage the Mexican operation.
Types of Shelter Services in Mexico
Shelter services in Mexico can be broadly categorized into two types, each offering distinct benefits depending on the specific needs of the company. In both types of shelter models mentioned below, the foreign client has the benefit of avoiding a Permanent Establishment by partnering with shelter service provider in Mexico.
Multitenant Shelter
Multitenant shelter services in Mexico can be one of the fastest ways to launch a manufacturing operation in Mexico. It is a model with a shared entity that houses multiple clients.
Pre-Established Entity
The multitenant shelter model is able to provide a fast-track to launching a manufacturing operation in Mexico. This is because the legal entity is already created by the shelter provider, and is up-and-running. Most likely other companies will also be housed under the same entity, with extensions of the various permits and incentive programs branching from the main entity. There are economies of scale in this model, since some administrative activities can be consolidated over the different operations under the same entity. However, sharing an entity with other companies may expose you to risks and liabilities.
Existing Buildings
Depending on the real estate strategy, a shelter operation can be housed in a shared facility, a stand-along building owned by the shelter provider, or an independent building. Nevertheless, a building owned by the shelter services provider in Mexico could create limited flexibility in growing and maturing operations. In many cases, the foreign company has limited ability to transfer operational model or shelter service provider, since the benefits are shared among other companies and cannot be isolated.
Cash Flow Benefits
Since the entity is pre-establish and pre-certified with Value-Added Tax Certification, a new client entering the Mexican entity can avoid paying VAT on the importation of their machinery and raw materials, parts and components sooner than starting from scratch. It can be advantageous to minimize impacts to cash flow by taking advantage of the VAT avoidance incentive since the first day of operation in Mexico.
Dedicated / Independent Shelter
A dedicated or independent shelter is one where a foreign company utilizes an exclusive entity, owned by the shelter services provider in Mexico, to operate their manufacturing facility.
Exclusive Mexican Entity
Often, the Mexican entity is created from scratch, and all permits and incentive programs must be processed. The timeline to start manufacturing is typically more than double that of a multitenant operation, but it has some advantages such as flexibility and customization. Additionally, the exclusive Mexican entity provides the ability to have full access to all financial information and reports, since the operations will be isolated from other companies.
Flexibility and Risk Aversion
A dedicated shelter will allow the foreign client a lot of flexibility in the operation. To start, the client can make an objective decision to their location and building, based on their business plan. It will also protect them from adverse impacts of other companies under the same entity, such as tax, legal or compliance issues. Since it is independent, it can have its own compensation structure and labor relations strategy, which effectively shields you from others and gives you more control of the labor-related decisions.
Transition to Independence
If desired, the foreign company can take over the entity from the shelter service provider and continue running the facility on their own. There will be minimal impact to other clients' operations, which reduces changes in financial or legal aspects to your operation. When becoming independent, a dedicated shelter will allow you to remain in your building, as well as maintain your workforce and permits. This transition can happen without any disruption to the manufacturing operation.
Conclusion
Utilizing shelter services offers a practical solution for global manufacturers to skip the learning curve and work with an administrative operations partner in Mexico. By understanding the different types of shelter services available and carefully selecting the right partner, companies can mitigate the complexities of establishing and running a manufacturing operation in a foreign jurisdiction. Shelter services not only streamline the process but also provide the peace of mind that comes with knowing your operations are in compliance with local laws and regulations.
The same startup support can be provided to companies that choose to create their own subsidiary in Mexico, or that need just one area of support in their journey.
Contact us for a free consultation on how to best navigate shelter services in Mexico, and take the first step towards unlocking the full potential of manufacturing in this vibrant country.
