As a foreigner, you can start a company in Mexico. In this article, we will provide more information about the requirements and what it entails to run your own business in Mexico, so you have a clearer understanding of what to expect. Before embarking on this entrepreneurial journey, it’s highly advisable to seek advice from a notary public, a lawyer, an accountant, or all of these professionals to ensure a smooth and compliant business setup.
10 REASONS WHY MEXICO IS AN EXCELLENT COUNTRY TO INVEST:
a) THERE ARE MANY SECTORS WITH HIGH INVESTMENT POTENTIAL
Key economic sectors such as auto parts, machinery, chemicals, electronics and food represent a magnificent opportunity for investors.
b) IT IS AN EXPANSION LINK IN SUPPLY CHAINS
In addition to labor costs being comparable to those in Asia, Mexico is ideally positioned for those seeking to penetrate or expand their supply chains in the Americas.
c) IT HAS A STRATEGIC GEOGRAPHICAL LOCATION
Due to its ports with access to the Atlantic and Pacific Ocean, merchandise takes approximately 3.7 days to arrive in the United States and between 16 and 29 days to Shanghai, making distribution faster and more efficient.
d) INTERNAL PRODUCTIVITY IS GROWING AT A RAPID PACE
In terms of exports, Mexico has a robust and growing domestic market. Sales in stores include all types of products and services to the satisfaction of consumers around the world.
e) IT HAS NATURAL RESOURCES AND MATERIALS FOR PRODUCTION
There is a great diversity of natural and material resources throughout the Mexican territory, including oil deposits, which make up one of the most important pillars of the economy.
f) IT HAS A FIRST-CLASS LOGISTICS INFRASTRUCTURE
With 117 seaports, more than 370 thousand kilometers of road networks, 66 railway terminals linked by more than 27 thousand kilometers of tracks, Mexico is capable of distributing goods quickly.
g) MAINTAINS A POLITICAL ENVIRONMENT OPEN TO FOREIGN TRADE
Due to its economic stability and political continuity in its structural reforms, Mexico has proven to be capable of receiving foreign direct investments in a reliable and safe economic-political environment.
h) IT IS POSSIBLE TO IMPORT GOODS INTO THE TERRITORY WITHOUT LOING CAPITAL
Within political flexibility, the Fiscal Warehouse Regime allows goods of foreign origin to enter the country, paying taxes until they are extracted from a General Warehouse.
i) PROMOTES THE FLOW OF FOREIGN DIRECT INVESTMENT
Thanks to our free trade agreements with 32 nations, trade between Mexico and other countries is simpler and more profitable in the payment of tariffs, thus reducing the costs of doing business.
j) STRICT SECURITY MEASURES ARE APPLIED AT CUSTOMS
The entry and exit of merchandise from Mexican territory is strictly regulated by the General Customs Administration. All imports or exports must comply with the regulations of the Customs Law.
STEPS TO INVEST IN MEXICO AS INDIVIDUAL
If you want to create a company in Mexico or expand your business to the country from abroad, you will likely want to obtain an investor visa in Mexico. This type of visa will allow you to engage in commercial activities related to your business, as well as influence your eligibility for permanent residence.
WHAT IS AN INVESTOR VISA IN MEXICO?
An investor visa in Mexico is intended for foreigners looking to do business or buy property and who plan to stay in the country for a period of more than 180 days and up to four years. With an investor visa in Mexico, you will have the opportunity to live and work, as well as having the option to qualify for permanent residence. While a foreign citizen can invest in Mexico without having to visit the country, residing in the country will allow him or her to better understand and participate in all aspects of its business operations, as well as make connections, detect potential additional business opportunities and minimize risks.
APPLY FOR A PERMANENT RESIDENCE VISA
When you have an investor visa in Mexico, you can apply for permanent residency. This is the best option if you hope to live in Mexico beyond the four years your visa allows. With a permanent residence visa you can do business, invest, study, bank and travel within the country for an unlimited time.
The application process for permanent residence in Mexico can take up to six months to complete after submitting the required documentation. Please note that no permanent resident holder will be allowed to be outside of Mexico for more than 18 months within five years. In this case, the residence will be withdrawn.
CREATE A COMPANY IN MEXICO
Opening a company in Mexico involves very well-structured processes that are increasingly simpler and more agile.
If you are a sole entrepreneur, and you already have a tax payer number in Mexico and e.firma and you already live in Mexico, SAS is the key for your business
SIMPLIFIED JOINT STOCK COMPANY (S.A.S.)
The Simplified Joint Stock Company is formed by one or more natural persons who are only obligated to pay their contributions represented in shares.
IF YOU UNDERTAKE IN THE COMPANY OF OTHER PEOPLE, LET’S CONTINUE WITH THE FOLLOWING TYPES OF COMMERCIAL COMPANIES.
LIMITED LIABILITY COMPANY (S. DE R.L.)
The Limited Liability Company is one where the partners only respond to the payment of their contributions, without having to compromise their personal assets, therefore, this collective agreement is responsible with the assets of the company.
PUBLIC LIMITED COMPANIES
VARIABLE CAPITAL JOINT STOCK COMPANY (S. A. DE C. V.)
In this type of company, since it has variable capital, it gives the guideline for the capital to increase or decrease according to the needs of the company.
PUBLIC LIMITED COMPANY (S.A.B.)
They have the possibility of marketing their shares on the Mexican Stock Exchange.
INVESTMENT PROMOTING COMPANIES (S.A.P.I.)
Legal figure suitable for entrepreneurs and companies (including startups) to attract and receive capital contributions.
TAXES IN MEXICO
CORPORATE INCOME TAX
Type of tax system
Companies resident in Mexico are subject to tax on their worldwide income. Companies are subject to corporate income tax on the corporate profits of the tax year.
Under the Mexican imputation system, dividends paid between resident companies from corporate profits that have been subject to corporate income tax are not subject to any additional tax. When corporate profits have not been subject to the corporate income tax, distributed dividends are subject to an “equalization tax”, imposed on the company paying the dividends. In order to determine if the dividends have been subject to tax prior their distribution, resident companies must keep an account called “CUFIN”, which records their net, undistributed after-tax profits.
Moreover, dividends distributed by resident companies to resident individuals and nonresidents in general, are subject to an additional 10% withholding “tax on dividends”.
Taxable persons
Corporate income tax is levied on all legal entities resident in or having a permanent establishment in Mexico. In this respect, the term legal entities includes all types of
commercial companies, including corporations (SAs) and limited liability companies (SRLs), partnerships, government agencies primarily engaged in business activities, credit companies, civil companies, entrepreneurial trusts, associations and joint ventures (article 7 of the Income Tax Law (Ley del Impuesto sobre la Renta, LISR)). Non-profit legal
entities are generally exempt from corporate income tax.
Income obtained by such investment companies will be taxed in the hands of their members or shareholders.
This survey is restricted to resident SAs and SRLs, as well as to non-resident entities of a similar nature. These entities will be collectively referred to as “companies”.
Partnerships are considered as legal entities and are treated as separate taxable persons. Therefore, partnerships are not fiscally transparent.
Residence
A company is a tax resident of Mexico if its place of effective management is in Mexico (article 9 of the Federal Fiscal Code (Código Fiscal de la Federación, CFF)).
A company will be regarded as having its place of effective management located in Mexico when the persons taking or executing decisions concerning the company’s control,
direction, operation or administration and the company’s activities are based within Mexican territory.
For instance, if the Mexican company’s Board of Directors or sole administrator is not based in Mexico, the company would be regarded as a nonresident. Moreover, even if the Board of Directors or sole administrator is based in Mexico, the company would be regarded as a non-Mexican tax resident if the persons executing the decisions are not based in Mexico.
TAXABLE INCOME
General
Resident companies are liable to corporate income tax on their worldwide income and capital gains (article 1 of the LISR). Income is to be consistently allocated, as a general
rule, to each financial period on the accrual basis.
Related expenses are deductible in the year in which they are incurred, provided that there is an invoice that complies with tax requirements. Gross income less authorized
deductions (i.e. deductible expenses, cost of goods sold, depreciation and amortization), mandatory profit sharing payments made during the period and ordinary loss carry forward results in the taxable basis of the tax year to which the corporate income tax rate must be applied. The tax authorities may exceptionally use an indirect method to determine taxable income based on circumstantial evidence.
Taxable income is not classified in different categories. However, income derived through controlled foreign entities subject to preferential tax regimes must be accounted separately for the purposes of determining the final tax liability and for calculating advance payments (articles 176 and 177 of the LISR).
Income is broadly defined to include all income received in cash, in kind, in services, in credit, or in any other form, during the tax year. Inflationary gain (i.e. the benefit accruing
to a taxpayer as a result of the reduction in the value of his accounts payable due to inflation) is also included in taxable income. Resident companies are subject to tax on
income originating from permanent establishments abroad; the foreign income tax paid in such cases may be credited in Mexico (see section 6.1.4.). For corporate income tax, Mexico does not use a scheduler system of taxation.
There are several differences between accounting and tax profits. The main differences are related to the depreciation of assets, the currency exchange loss and inflationary
effects.
Special rules apply in calculating the income tax base for taxpayers engaged in land cargo and passenger transportation, as well as agricultural, livestock, forestry and fishery
activities.
MEXICAN LABOR LAW
Mexican Labor-Related Laws and Regulations
In addition to the Labor Law, Mexico has the following labor-related laws or regulations that complete its regulatory
a) Social Security Law;
b) Retirement Savings System Law;
c) Institute of the National Housing Fund for Workers Law (INFONAVIT Law);
d) Federal Regulation on the Safety, Hygiene, and Environment at the Workplace;
e) The Mandatory Standard NOM-035-STPS-2018 on Psychosocial Risk Factors at Work – Identification, Analysis and Prevention, establishing the elements to
identify, analyze and prevent psychosocial risk factors, as well as to promote an environment organizational support in the workplace. (Published on October 23, 2018, in the Official Gazette).
The employers are required to register all of their employees before Mexican public institutions, namely the Mexican Social Security Institution (IMSS, acronym in Spanish),
the National Housing Fund for Workers (INFONAVIT, acronym in Spanish), and the National Fund Institute for Workers’ Expenditures (FONACOT, acronym in Spanish). As a
result, an employer has to pay “social-taxes” to these agencies. Failing to register or making timely payments regarding these social-taxes, the employer is subject to penalties
and surcharges.
Also, the employer will have to register before the tax or treasury authority of the State (i.e. local authority). States collect a Payroll tax that the employer pays based on wages and other expenditures.
The Labor Law provides that the employer is responsible to have each and every single individual employment agreement in writing. Failure to have records and the contracts, the employer may face not only fines on behalf of the Mexican Labor authorities but also costly consequences in the event of a labor dispute.
The employment agreements or contracts have to include mandatory information, such as the employee’s name, the wage, place of work, description of employment activities, duration of the contract, work hours, vacations, among other vital information.
REAL STATE IN MEXICO
Mexico is also one of International Living’s top retirement destinations. The annual Global Retirement Index looks at the best opportunities worldwide for retirement living. Mexico is regularly in the top 10.
BUYING A OWN PROPERTY IN MEXICO
Foreigners can own property in Mexico. It’s perfectly legal. Outside the restricted zones (50 kilometers from shorelines and 100 kilometers from international borders) foreigners can hold direct deed to property with the same rights and responsibilities as Mexican nationals. And inside the restricted zones, foreigners can control land through bank trust agreements, again with the same rights and responsibilities as Mexican nationals. Alternatively, foreigners can hold land in these areas through a Mexican corporation. However, if it’s a residential property that the foreigner plans to use personally, rather than a commercial property or one used purely as an investment, it should be held in a trust agreement.
LIVING IN MEXICO
WORKING IN MEXICO
Any foreigner can work in Mexico, as long as a company or businessman invites him to work and is duly accredited before the National Migration Institute.
For this, the company or entrepreneur must be registered as employers with the institute and follow a procedure to request the foreign worker. Later in his country of origin and before the Mexican consulate, the worker will be interviewed by the Mexican authorities and once the appointment is concluded and if he is eligible in the eyes of the Mexican Government, his work visa will be authorized.
The conditions for the Mexican visa, as well as temporary and permanent residence, depend on each country.
Article written by
Gabriela Aguilera.
Soflanding,
Corporate and Real State Attorney
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