Setting Up a Company in Mexico
This article has been produced to serve as a guide for foreign companies or individuals interested in investing or doing business in or with Mexico. It addresses many of the questions foreign companies and private investors often have in regards to doing business or investing in our jurisdiction. That being said, this guide is not all-inclusive, and will by no means serve as a substitute for professional legal advice in Mexico. In order to make the best decisions in your particular case, we recommend the solicitation of proper legal advice. An experienced Mexican corporate attorney is able to offer a company professional advice in the following:
Determining the corporate and tax structure most appropriate for a proposed venture in Mexico based on its needs, expectations, and area of business.
Procuring the proper immigration documentation, as well as the necessary Federal and State licensing.
Fulfilling the necessary Federal and State registrations.
Advising the company on the requisite bookkeeping which must be followed.
Advising the company on various labor law issues.
Attorneys licensed to practice law in Mexico are permitted to do so in any and all 32 states of the Republic, hence location is not nearly as important for your consideration as experience and reputation.
Vehicles for Doing Business in Mexico
When considering expanding business operations into Mexico, many companies and individual investors often ask the same questions, some of the most common are: “How complicated is it to enter the Mexican market?”; “What different legal vehicles are available?”; “What are the implications of each option?” In the end, the answers to these questions depend entirely upon the size and scope of the proposed operation under consideration.
Each different legal vehicle available to the foreign investor or company represents different implications which need to be thoroughly considered before deciding which option best fits the needs, expectations, and area of business of the proposed venture. The most common methods for entering the Mexican free market are:
Representative Office – This represents the most limited way of doing business in Mexico. This form of establishment is enacted by entities which have business contacts in Mexico, but do not have operations of a large enough scale to require a higher level of presence.
The Foreign Investment Law (FIL) recognizes representative offices, but exempts them from the registration requirements set forth by such statute. Likewise, representative offices are exempted from any invoice tax payment obligations provided they receive no income, with the exception of any withholding obligations on local employees. The foregoing exemptions have a simple reason: representative offices are established to serve as a link between the foreign parent company and potential clients in Mexico. Their operations are restricted to mere promotion of the goods or services provided by the principle office, thus, they cannot make any direct sale nor receive any income from a Mexican source.
Branch Office – Through the establishment of a branch office, foreign companies are permitted to engage in business activities in Mexico without being required to incorporate a Mexican subsidiary. However, foreign companies will retain their liability characteristics from abroad, a risk which should be thoroughly discussed with your corporate attorney in Mexico before deciding on this corporate structure.
In order for a foreign company to be permitted to establish a branch office in Mexico, it must secure authorization to register in the Public Registry of Commerce from The National Commission of Foreign Investments, the Ministry of Foreign Relations, and the Ministry of Economy. Upon securing authorization and then registering with the Public Registry of Commerce, the foreign company will then be permitted to conduct business operations in Mexico. Profits accrued by the branch office will be taxed the same as a permanent establishment in Mexico, and will pay taxes on the income generated from such branch offices at the normal corporate income tax rate of 27%, unless the company is headquartered in a country which Mexico has executed Treaties for the Avoidance of Double Taxation, such as the United States, Canada and France. In such a case, the company will only be taxed on income resulting from the operations of the Mexican branch office.
Partnership Venture (Joint Venture) – Foreign investors that require creating a commercial establishment through this legal vehicle may only do so through a branch office or Mexican subsidiary of their company. A partnership venture is defined by the General Law of Business Organizations (“Ley General de Sociedades Mercantiles” also known by its acronym “GLCC”) as a contractual agreement between one managing associate and two or more silent partners for the rendering of one or more transactions. By principle, under such an agreement the managing associate receives the contributions from the silent partners. Unless explicitly stated otherwise, the partners will transfer title of their contributions to the associate, who operates under his own name and is the person liable for his acts before third parties. There is no legal relationship between third parties and the silent partners, who are only responsible for the amount of their individual contributions. The contract of the venture should provide for the conditions of distribution of profits or losses of the venture.
Stock Corporation (S.A. “Sociedad Anonima”) – This is the form of organization most commonly used by foreign investors in Mexico. Stock Corporations are governed in Mexico by similar regulations and provisions as they are in the United States and other countries, in that:
1. their administration is entrusted to a Board of Directors;
2. they have a capital stock divided into shares and their stockholders are liable only to the extent of their contributions;
3. their shares represent equal value, will confer equal rights, and are freely transferable;
4. the shares are divided and presented as titles, (registered bonds), which transmit rights, conditions, etc. of stockholders;
5. the Shareholder’s Meeting is the ultimate source of corporate power;
6. each share bestows the right to one vote in the decisions made by the assembly; and
7. the corporation’s constitution shall be a public document.
Furthermore, in accordance to Mexican law, a stock corporation must be formed by at least two (2) partners and have a minimum capital investment of $50,000 pesos. One share of stock must be purchased by each partner. In Mexico, the incorporation of the company will be carried out by a notary public.
Limited Liability Company (S. de R.L.) – The Limited Liability Company creates a company of limited responsibility similar to a S.A., whereas the liability of the stockholders is limited to the amount contributed. However, unlike a S.A., the number of shareholders is limited to fifty persons (50). A S. de R.L. organization requires a minimum capital investment of $3,000 pesos, which is divided into “participation units”, as opposed to stocks in a S.A. The partners are only liable for this initial capital investment. There are no restrictions in the changing of associates, as long as the associates that represent the majority of the capital agree, unless otherwise specified by the by-law.
- Doing Business in Mexico : Doing Business in Mexico