For the United States, doing business with a country that offers a geographic location that ensures faster turnaround, production time, and tremendous ease of communication thanks 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 many possibilities for foreign companies to prosper with profitable investments.
This article is a practical guide that aims to guide the American entrepreneur on the steps, recommendations, and obligations involved in establishing a company in Mexico.
What makes Mexico so attractive to Foreign Investment?
Mexico ranked as the top trading partner of the United States during the first two months of 2021, according to data from the US Census Bureau. The figures detailed by the United States Department of Commerce showed Mexico surpassed China as its largest trading partner, representing 14.9% of the total trade carried out by the neighboring country.
On the other hand, in 2020, 39.19% of the total foreign investments 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:
• TVs and electronics
• Home appliances
• NASA suits
• Printers and ink
• Aerospace components
• Medical devices and components
• Fender Stratocaster Guitars
Benefits of Operating in Mexico
Operating in this manufacturing paradise brings significant benefits to international companies, such as lower production costs with cheaper labor, tax incentives, savings in transportation costs, and simple administrative management, among others.
As mentioned in our specialized website, Doing Business in Mexico, our country:
• Attracts the largest amount of foreign investment in South and Central America.
• It is a global economy with a great passage of international markets thanks to all its Treaties and Inter-Institutional Agreements.
• It enjoys a strategic geographic position and acts as a transit platform to North and Latin America.
• It has a great variety of natural resources, which allows the development of all kinds of industries with very competitive prices.
• The workforce is young, large, affordable, and well-qualified.
• The Ministry of Economy offers programs and decrees encouraging foreign investment in the country.
• Thanks to the Foreign Investment Law and the Treaty between Mexico, the United States, and Canada, the USMCA, most of Mexico's industrial economic activities or services are open to the financial participation of foreign investors.
In addition to the above, there are other factors that provide security and confidence for Americans who see Mexico as an opportunity for entrepreneurship.
Programs that Encourage Foreign Investment
The Mexican government created an open and safe environment for foreign investors. Recent economic policies allow investors to guarantee the safety of their operations.
Also, Mexico currently has 12 Free Trade Agreements signed with 46 countries and 32 Agreements for the reciprocal promotion and protection of investments with 33 countries, so it is considered a guarantee that the investment and operations will be profitable and successful. It is essential to mention that the Mexican Ministry of Economy offers programs and decrees that encourage foreign investment in the country. Some of them are:
• DRAWBACK program
• IMMEX program
• Highly Exporting Companies Program (ALTEX)
• ECEX registration
• General Import and Export Tax Law (Ley de los Impuestos Generales de Importación y Exportación)
How to Incorporate a Business in Mexico from the United States
Mexico is one of the easiest countries in Latin America to start a business. However, it is important to understand that starting operations in Mexico from the United States is an extensive process.
The task also involves facing cultural clashes and differences in the administrative and legal processes that take place in the country. Additionally, foreign entrepreneurs who want to start operations in Mexico face the big question: where do I start?
This procedure's length, cost, and duration will depend on several factors.
Some of them are:
• The nationality of the shareholders
• In which sector will the company operate
• If the company 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 essential to consider that the obligations, costs, and permits required during the registration process often vary among the different Mexican municipalities and states.
Let's start with the basics...
Foreigners can start up a business in Mexico through a subordinate agent, the constitution of a Mexican company, or the acquisition of shares in a Mexican company that already exists. Using any of these methods will create a permanent establishment and 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 in Mexico and the United States. Therefore, the regulations to establish a company differ from those of the neighboring country.
Although there are many favorable aspects to foreign investment, working hand in hand with expert consultants in the legal and tax area is imperative for an efficient business operation.
In the process of setting up a business in Mexico, the first thing to do is to create a new trading company. In Mexico, commercial companies are legal vehicles allowing us to operate a business through an independent legal entity with 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. Society in collective name
2. Limited partnership
3. Limited liability company
4. Anonymous company
5. Limited joint-stock partnership
7. Simplified joint stock company
Choosing the right company that works best for you and your partners is one of the essential 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 described in our "Checklist to start commercial operations in Mexico" for the legal constitution of the company. Some of the process steps are:
1. Get authorization from the Ministry of Economy to register your constituent documents in the Public Registry of Commerce.
2. Notarize the constitutive documents and the authorization
3. Register the notarial instrument in the Public Registry of Property and Commerce (RPPC) 4. Register in 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 multinational corporate group members.
Mexico is one of the countries with the greatest experience and seniority in implementing Transfer Pricing regulations in Latin America, based on the introduction of the concept of the Arm's Length Principle.
Legal and tax aspects to take into consideration.
All companies must be aware of 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 rules.
Their compliance is essential to control better and prevent problems that may harm the operation or growth of a business. Some of them are:
• General Law of Mercantile 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, there are essential aspects that must be taken into account concerning accounting regulations. 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 them to maintain better control over the economic activities that are carried out daily. Therefore, the government has made an effort to optimize control strategies and thus get greater tax contributions.
According to the Mexican Tax Code, companies are considered residents in Mexico if their principal place of administration or effective area of management is in Mexico. 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 essential to always work hand in hand with up-to-date experts on the changes that directly impact companies' daily operations.
With everything covered in this article, it is clear that starting operations in Mexico represents significant 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 consider that it is essential to have a notion of the nature of each procedure 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.
"You don't need to know everything; you just need to find someone who does."
Why is EFE Consulting Group™ your best ally in incorporating your company in Mexico?
Broadly speaking, it can be understood that the incorporation process comprises many steps and strict regulations to which it is necessary to adhere at all times. The process can be much more time-consuming and complicated if political and local rules are not understood.
No foreigner who begins the process of opening a business in the country can start without first working hand in hand with a team of experts who help them throughout the process. At EFE Consulting Group™, we consider ourselves the best consultants in Mexico, your best ally, and your trusted advisor.
With our broad portfolio of services, we will take care of finding the best solution, always focusing on customer satisfaction. We know how difficult it can be to establish a business in a foreign country. That's why our team of consultants is committed to working tirelessly to achieve your business goals exceptionally.
• Legal and tax services
• Financial services
• Human capital management
• Strategic consulting
• Family business
Our team combines knowledge, experience, professionalism, and youth. Indispensable factors to offer an agile and quality service focused on supporting organizations to correctly and timely comply with their procedures for a successful incorporation and operation in Mexico.
We know that achieving success is not a linear path; there are a series of obstacles along the way. At EFE Consulting Group™, we accompany you during this journey, ensuring you choose the best path for the prosperity of your business.
There are many law firms, accountants, and consultants, but if you are looking for one with experience and technical expertise, differentiated services, and a passion for business, contact EFE Consulting Group™, your trusted advisor.
The opinions expressed in this article are the author's sole responsibility and do not necessarily represent the opinion of EFE Consulting Group™.