The Sector Promotion Programs or commonly known as PROSEC are instruments aimed at companies that produce specific merchandise, through which they are allowed to import with a tariff based on the value of the goods, at a preferential tariff of the General Import Tax (IGI). Likewise, the Program benefits companies in the industry in order for various goods be use through the elaboration of specific products, regardless of whether the goods are to be produced, are destined for export or to the national market.
Background and rationale
On August 2, 2002, a decree establishing various Sector Promotion Programs – PROSEC Decree was published in the Official Gazette of the Federation (DOF), with the main purpose of to establish various sector promotion programs. Thus, consequently, it transcends in maintaining a stable competitiveness of the national productive industry in international markets and commercial competitiveness abroad, as well as to monitor and update the instruments to promote the integration of efficient productive chains.
The following is a summary of the PROSEC Program, the requirements for its authorization, obligations and benefits:
a) Program´s Scope
The establishment of various Sector Promotion Programs by the Federal Government, as previously mention, has the purpose of reaching and maintaining greater conditions of supply of raw materials and machinery for the national productive industries, as well providing its productive industries with the best means to compete in international markets, as well as in the domestic market. However, the sole purpose is to overcome the commercial challenges and inject a preferential promotion to certain sectors of the Mexican economy.
b) General Benefits
The PROSEC Program benefits the different industries within its threshold, for the importation with preferential tariffs, of various goods in order to be incorporated and ultimately be use in the merchandise production process, according to the authorized sector. It should be remark that the benefits of the program are only in accordance to the specific goods that will be imported and are contained in the sector in specified, in other words, for the production of a merchandise, a good contained in a different sector may not be imported. Below are the benefits of the program listed:
- Importation of preferential tariffs for a definitive importation of the inputs and machineries listed in each program;
- The facility to apply to different modalities within the Program;
- The option to transfer the imported merchandise temporarily under its Program, to other companies within the Programs or companies registered to operate in its Program;
- Incentive for companies of commercial interest in the national and international market;
c) General Obligations
- Producers in the PROSEC Program are mainly obliged to allocate imported goods for the sole purpose of the registered sector, however, if they decide to allocate them for different purposes, they must pay the general import taxes applicable to the goods, with the corresponding updates and surcharges;
- Members of the Program must annually submit a report to the Secretariat of Economics, including their operations under the program corresponding to the immediately preceding year, no later than the last day of April. In the event that the company does not present the annual report, it will be temporary suspended consequently losing its benefits as long as the omission is not rectified. Furthermore, after two months, if the company has not submitted the report, it will permanently lose its validity.
Similarly, the following must be continuously complied with:
- Be in continuous compliance with their tax obligations;
- Have the registry of general importers and specific sectors (Padrón de Importadores);
- Manifest the customs value of the merchandise;
- Verify the origin of imported merchandise or machinery;
- Comply with the provisions of the PROSEC Decree or other provisions derived therefrom;
- Comply with the conditions under which enrollment in the Programs was granted;
- Always keep the merchandise that was imported under the program destined for the sector.
d) Sectors and modalities of the PROSEC program
With the purpose and as an incentive to achieve greater national and regional integration, acknowledging that specific supplies and machineries are critical for certain industries that have competitive tariff conditions, the Program contemplates 24 promotion sectors corresponding to different industries. Likewise, it should be noted that these industrial sectors are directed to legal entities/companies established in Mexico who produce goods, manufacture the goods and who undergo an industrial process.
The catalog of the sectors of the Program is listed below:
| I. Of the Electric Industry | II. Of the Electronic Industry | III. From the Furniture Industry |
| IV. From the Toy, Recreational Games and Sporting Goods Industry | V. Of the Footwear Industry | VI. Of the Mining and Metallurgical Industry |
| VII. From the Industrial Capital Equipment | VIII. From the Photographic Industry | IX. From the Agricultural Machinery Industry |
| X. Of the Various Industries | XI. Of the Chemical Industry | XII. From the Rubber and Plastic Manufacturing Industry |
| XIII. Of the Steel Industry | XIV. From the Pharmaceutical Products, Medicines and Medical Equipment Industry | XV. From the Transportation Industry, except the Automotive and Auto Parts Industry Sector |
| XVI. From the Paper and Cardboard Industry | XVII. From the Wood Industry | XVIII. From the Leather and Fur Industry |
| XIX. From the Automotive and Auto-parts Industry | XX. Of the Textile and Clothing Industry | XXI. From the Chocolate, Candy and Similar Industry |
| XXII. From the Coffee Industry. | XXIII. From the Food Industry | XXIV. From the Fertilizer Industry |
Likewise, the PROSEC Program has two modalities; Direct Producer and Indirect Producer, although they differ in the beneficiaries of the program, both share the purpose destination in the national market. The modalities are described below:
- Direct Producer: Legal entities that manufacture the goods in the programs of the different sectors and corresponding goods.
- Indirect Producer: It is mainly concentrated in suppliers of the steel industry, to service machinery and equipment centers that process steel products, as long they are registered in the direct product program for the purchases these inputs; additionally, it may provide the technical adaptation service to specific projects.
e) Goods that apply.
The goods imported under the programs will only be used for industrial promotion purposes. Furthermore, extending only for producers who have authorization to operate in any of the 24 programs previously listed, they may choose to import the goods, with the specific IGI tariff therein, provided that they are used in the production of the goods corresponding to each program. It must be highlighted that these goods, whose objective in the program are to produce the goods, they may be imported, specifically indicating the corresponding sector.
f) Requirements and their scope
In order to obtain the PROSEC Program authorization, regardless of its different industries, the interested legal entities must submit the following information and documentation to the Secretariat of Economy:
- The presentation of the application in the established formats, it should be filled and detailed with the following data and general documentation:
a) Constitutive act (acta constitutive) and the corresponding power of attorney (poder notarial) in original or a certified copy;
b) Taxpayer Registry Certificate (RFC);
c) The data corresponding to the partners and/or shareholders and legal representatives; - Addresses of the company’s plants where the production processes related to your request are carried out. In the case of not having plants it then should be filled with the fiscal address of the company;
- Indicate the sector(s) to which the company wishes to apply;
- Each sector of the merchandise of the goods to be produced must be mentioned, indicating the tariff fraction (fracción arancelaria);
- Document that legally certifies the possession of the property, such as a lease or loan, where the operation of the Program intends to be carried out, in which the location of the same is indicated, photographic evidence must be attached. If there are no plants, the possession of the company’s fiscal address must be legally proven.
- Notarization facts issued by Public Notary official, which must include:
a)Location of the address(es) in which the production or service processes will be carried out, indicating the characteristics, conditions, details of the facilities, surfaces in square meters, photographic evidence must be attached.
b) Property ownership status of the property, as well as a document proving it (the address must coincide with that stated in VUCEM as a production plant);
c) Inventory of the machinery, equipment, furniture through which the production process or services are carried out, attaching photographic and documentary support regarding legal possession;
d) Description of the merchandise to import and the tariff fraction;
e) Description of the final product to be manufactured and the tariff fraction;
f) Description of the physical space where it will be stored, photographic evidence must be attached;
g) In case of having temporarily imported merchandise, inventory of said merchandise, and photographic evidence that coincides with it, otherwise, state that there is no temporary merchandise;
h) Number of employees at the facilities at the time of the Facts Acts, and the activity carried out, attaching photographic support evidence of the them. As well as the following supporting documentation: payment of employer worker fees before the Mexican Institute of Social Security (IMSS), in case the hiring of company personnel either through a third party (Outsourcing), you must provide a copy of the service provision contract, as well as the document proving the legal hiring of employees;
g) Authorization and Resolution
The first step in obtaining the authorization of a program is the submitting the application format, as well as with the simultaneous compliance with the requirements. The corresponding resolution will be issued within a maximum period of 20 business days.
h) Validity
Lastly, it should be highlighted that the validity of the programs is annual and will be automatically renewed, once the producers present the annual report of the operations carried out under the program.
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