How to Incorporate a Business in Mexico as a Foreigner
For the United States, doing business with a country that offers a geographic location that ensures faster turnaround and production time and tremendous ease of communication due to similar time zones represents a huge economic advantage.
In addition to excellent trade relations and a promising economy with a well-trained workforce, Mexico is a strategic country that offers perfect conditions and numerous possibilities for foreign companies to prosper with profitable investments.
This article is a practical guide that aims to guide the entrepreneur on the steps, recommendations and obligations involved in establishing a company in the country.
For better understanding, we invite you to visit all the links included in the text, as they describe in greater detail each of the fundamental aspects to successfully incorporate a US company in Mexico.
What makes Mexico so attractive for foreign investment?
The figures detailed by the United States Department of Commerce indicated that Mexico surpassed China as its largest partner. commercial, representing 14.9% of the total trade carried out by the neighboring country.
On the other hand, in 2020, 39.19% of the total investments of foreign origin received in Mexico were from the United States. This indicates the strategic economic synergy shared by both countries.
Furthermore, in recent years, Mexico has become a nearshoring stick for companies looking to increase their production and profits with a wide range of goods, such as:
1. TVs and electronics
5. Home appliances
6. NASA suits
7. Printers and ink
8. aerospace components
9. Medical devices and components
10. Fender Stratocaster Guitars
Operating in this manufacturing paradise brings great benefits to international companies, such as lower production costs with cheaper labor, tax incentives, savings in transportation costs, simple administrative management, among others.
1. It attracts the largest amount of foreign investment in South and Central America.
2. It is a global economy with greater passage of international markets thanks to all its Treaties and Inter-institutional Agreements .
3. It enjoys a strategic geographic position and acts as a transit platform to North and Latin America.
4. It has a great variety of natural resources, which allows the development of all kinds of industries with very competitive prices.
5. The workforce is young, large, affordable, and well-qualified.
6. The Ministry of Economy offers programs and decrees that encourage foreign investment in the country.
7. Thanks to the Foreign Investment Law and the Treaty between Mexico, the United States and Canada, the T-MEC, most of the industrial or service economic activities in Mexico are open to the economic participation of foreign investors.
In addition to the above, there are other factors that provide security and confidence for Americans who see in Mexico an opportunity to undertake. The Mexican government created an open and safe environment for foreign investors.
Recent economic policies allow investors to guarantee the safety of their operations.
Why is Mexico a Good Country for Business?
Mexico currently has 12 Free Trade Agreements signed with 46 countries and 32 Agreements for the promotion and reciprocal protection of investments with 33 countries, for which it is considered a guarantee that the investment and operations will be profitable and successful.
It is important to mention that the Ministry of Economy offers programs and decrees that encourage foreign investment in the country. Some of them are:
• DRAWBACK program
• IMMEX Decree
• Highly Exporting Companies Program (ALTEX)
• ECEX Registration
• Law on General Import and Export Taxes
Mexico is one of the easiest Latin American countries to start a business in, however, it is important to understand that starting operations in Mexico from the United States is an extensive process.
The task also implies facing cultural clashes and differences regarding the administrative and legal processes that are carried out in the country.
Additionally, foreign entrepreneurs who want to start operations in Mexico face the great obstacle of not knowing where to start.
The length, cost and duration of this procedure will depend on several factors. Some of them are the nationality of the shareholders, in which sector the company will operate, if it plans to import or export, among other issues.
Therefore, the process is different for each company because each case has its own characteristics.
In addition, it is important to consider that the obligations, costs and permits required during the registration process tend to vary between the different Mexican municipalities and states.
The Basics of Starting a Business in Mexico
Foreigners can undertake in Mexico through the use of a subordinate agent, the constitution of a Mexican company or the acquisition of shares in a Mexican company that already exists.
The use of any of these methods will create a permanent establishment and will be managed under the same legal system as Mexican companies.
It is crucial to know that there is a big difference between the legal and tax system of Mexico and that of the United States.
Therefore, the regulations to establish a company are different from those of the neighboring country.
Although there are many favorable aspects for foreign investment, working hand in hand with expert consultants in the legal and tax area is practically imperative for the operation of an efficient business.
In the process of setting up a company in Mexico, the first thing to do is create a new company.
In Mexico, commercial companies are legal vehicles that allow us to operate a business through an independent legal entity that has its own assets and personality.
The biggest advantage of converting your company into a commercial company is the possibility of raising more capital for the development and growth of the business.
Even Mexican law allows the creation of a commercial company with capital held 100% by foreign investors. There are seven types of commercial companies:
1. in collective name
2. in a simple partnership
3. limited liability
5. Limited by shares
7. For simplified actions
6 Steps to Incorporate a Business in Mexico as a Foreigner
Choosing the right company that works best for you and your partners is one of the most important steps, since it is at this moment that you will establish the main foundations of the business.
Then, you must comply with all the documentation and processes for the legal constitution of the company. Some of the process steps are:
1. Obtain authorization from the Ministry of Economy to register its constituent documents in the Public Registry of Commerce.
2. Formalize before a public notary the constitutive documents and the authorization.
3. Register the notarial instrument in the Public Registry of Property and Commerce (RPPC)
4. Register with the Tax Administration Service (SAT)
5. Procedures before the Mexican Social Security Institute (IMSS)
6. Open a business bank account
It is also valuable to know about the transfer pricing regulations in Mexico and the required documentation , since these have allowed the tax authorities to establish standardized reporting and documentation controls to monitor and evaluate intercompany relationships between the members of a business group multinational.
Mexico is one of the countries with the greatest experience and seniority in the implementation of Transfer Pricing regulations in Latin America , starting from the introduction of the concept of the Arm’s Length Principle.
Legal and Tax considerations for doing Business in Mexico
All companies must know the legislation of the country in which they are established.
The weight of Mexican law does not take foreigners as an exception, so anyone who starts a business in Mexico must consider a series of regulations.
Its compliance is essential to have a better control and prevention of problems that may harm the operation or growth of a business. Some of them are:
General Law of Commercial Companies
State codes or laws and municipal regulations on the opening of establishments
• Income Tax Laws
• Value Added Tax Law
• Industrial Property Law
• Federal Data Protection Law
• Federal Labor Law
• Social Security and Infonavit Laws
In addition to these legal considerations, regarding accounting regulations, there are important aspects that must be taken into account.
Mexico is considered the most complex country with respect to accounting regulations and the rules and regulations are constantly changing.
The continuous development of the country’s economy has made it imperative for the government to have strict regulations that allow it to maintain better control over the economic activities that are carried out on a daily basis.
Therefore, the government has made an effort to optimize control strategies and thus obtain a greater amount of tax contributions.
According to the Mexican Tax Code, companies are considered residents in Mexico if their main center of administration or effective place of management is in this country.
Therefore, they are subject to the same tax system as national companies.
The accounting needs of each company are different, that is the very nature of business, but the regulatory requirements are the same.
Given this complex dynamism in tax legislation, it is important to always work hand in hand with up-to-date experts on the changes that directly impact the daily operations of companies.
With everything covered in this article, it is clear that starting operations in Mexico represents great benefits for foreign investors and, without a doubt, the development and growth of the economic synergy between both countries will continue to prosper over the years.
However, combining the benefits, it is also important to take into account that it is essential to have a notion of the nature of each procedure carried out to start successful operations.
That is why we emphasize the importance of working hand in hand with expert advisors on the subject, as well as bilingual specialists to maintain fluid communication and a clear cultural interpretation of needs.