Skip to main content

Navigating Nearshoring in Mexico: Direct Investment, International Tax, & Transfer Pricing Considerations

Supply chain pressures have MNEs considering a nearshoring approach. Read on for tips to consider when investing in Mexico.
banner background

The globalization of supply chains coupled with increasing vertical integration has led to the proliferation of multinational enterprises (MNEs) over the last 50 years. While MNEs faced challenges in developing these global supply chains, e.g., cultural, logistical, security, tariffs, etc., they were able to adapt and address these challenges, making it easier to surmount them over time. However, recent events such as COVID-19, the U.S.-China trade war, and the Russia-Ukraine war have disrupted global supply chains, causing MNE decision makers to question the core principles and efficiencies of the globalized world that they helped create. 

All these events have pushed the Global Supply Chain Pressure Index1 to record-high levels. This pressure on supply chains has continued since the end of the COVID-19 pandemic with stock shortages—a common thread across many industries—from food and beverages to electronics and semiconductors. To address these pressures, MNEs have reacted by rethinking their supply chain composition and questioning whether to move away from global supply chains to supply chain models often referred to as “regional integration” or “nearshoring.” At the same time, transfer pricing compliance requirements have dramatically increased in the last 10 years, adding to the burdens of operating in a global supply chain.

In North America, the landscape for production and supply is being redefined. Companies are rushing to relocate to serve the U.S. market, where demand remains strong. With the United States-Mexico-Canada Agreement (USMCA),2 Mexico’s export prowess and proximity to the U.S. has made it an attractive nearshoring option for U.S. companies. The question then is how and where to locate in Mexico, a country with big opportunities but also major challenges. Early in-depth analysis, strategic planning, and on-site verification have become a must for every direct investor in Mexico.

JA del Rio’s Direct Investment Advisory and Forvis Mazars’ Transfer Pricing practices can help MNEs in a number of ways when considering direct investment in Mexico:

  1. Site Location: Building a strong business case with reliable, detailed, and relevant information for the project: production data, utilities (energy, water, and natural gas), land and buildings, workforce, local infrastructure, logistics, political and security landscape, cluster mapping, supply chain, and other relevant information for a data-driven site location decision. 
  2. Landing: On-site verification of data and production factors, government relations, and investment incentives, including beauty contests, supplier development, land, and building and services contracts. 
  3. After-Care: Punctual follow-up in each part of the investment process, including government compliance (federal, state, or local), utility suppliers, and key elements for the project.
  4. International Tax & Transfer Pricing: Ensuring the development of a suitable legal entity structure and transfer pricing policies that meet local regulations helps to reduce tax exposure and potential income tax adjustments. Transfer pricing policy evaluations and the production of documentation also are necessary on an annual basis to make sure business and/or industry changes are properly accounted for. This is especially important in Mexico, which has a complex web of international tax and transfer pricing requirements, as well as specific safe harbor policies with respect to maquiladoras.    

If you have questions or need assistance, please reach out to a professional at Forvis Mazars or JA del Rio or use the Contact Us form below.

  • 1“Global Supply Chain Pressure Index (GSCPI),”, February 2023.
  • 2The USMCA is a trade agreement between the U.S., Canada, and Mexico entered into force on July 1, 2020.

Related FORsights

Like what you see?
Subscribe to receive tailored insights directly to your inbox.