Best Practice for Establishing a Company in Mexico

Mexico is a key business destination in Latin America, thanks to its strategic location, strong trade relationships, and flourishing market made up of innovating industries. With an immense local population of around 126 million (second in the region behind Brazil) and increasing average household wealth, the consumer population is highly responsive to new products and services.

This regional powerhouse poses a highly advantageous platform for entrepreneurs looking to do business locally and across Latin America. We explore the best way to establish your business and become an integral part of the economy’s bright future.

Innovative industries in a booming Mexican market

Mexico is a key business destination in Latin America, thanks to its strategic location, strong trade relationships, and flourishing market made up of innovating industries.

Establishing a Company in Mexico – Seven corporation types

There are many legal aspects to consider in order to establish your company in Mexico. First and foremost, you must choose the legal entity (business type) you want for your commercial activities. According to article 1° of the Mexican General Corporations Law, there are 7 classes of corporations. 

Four of these can be established with variable capital:

  1. Sociedad en nombre colectivo (collective company)
  2. Sociedad en comandita simple (simple limited partnership)
  3. Sociedad de responsabilidad limitada (limited liability company or LLC)
  4. Sociedad por acciones simplificadas (simplified stock company)
  5. Sociedad anónima (public company).

The other two options available to business owners are:

  • Sociedad en comandita por acciones (limited shares partnership)
  • Sociedad cooperativa (cooperative company).

The most common choices for foreign businesses in Mexico are Sociedad anónima and Sociedad de responsabilidad limitada due to the lowered levels of personal risk in these structures.

Many peripheral laws, such as those outlining the country’s civil, agrarian and security regulations, establish other parameters and classes for corporations in those industries. Seek guidance from a local legal expert or representative on whether any further classes exist for the type of business you want to operate.

Bylaws: setting the foundations for your company

Types of corporations in Mexico - seeking legal guidance

Seek guidance from a local legal expert or representative on whether any further classes exist for the type of business you want to operate.

Partners and stockholders must draft the corporate bylaws for this new company. These bylaws, otherwise known as a company constitution, must include: 

  • name of the company 
  • fiscal address
  • corporate purpose
  • capital stock
  • admission or exclusion of foreign investment
  • partners/stockholders rights and obligations 
  • legal representation 
  • management
  • powers of attorney
  • liquidation terms.

The bylaws can include other corporate factors that your legal representative can advise on. The act of drafting bylaws must be performed before a Public Notary in Mexico, who will then take steps to incorporate the company at the Public Registry of Commerce.

These institutions will produce a Minute of Ordinary Assembly, a document announcing the incorporation of your company. Once the Public Notary and Registry of Commerce fulfill their duties, your company is officially established, and you can start operating.

Local and international staffing considerations

Not every new business needs employees immediately, but if you need to hire staff, keep the following points in mind:

Social Security 

Every employer needs to register their employees at the Mexican Social Security Institute. It is important to note that partners/stockholders do not have the right to have access to the Mexican Social Security Institute, unless they are considered employees of the company and take part in its activities. In this case, partners/stockholders must also be registered at the Institute.

Workers’ rights

Mexico’s Labor law establishes several workers’ rights that you must be compliant with. This includes details outlining: wage payments, rest days, vacations, vacation bonuses, Christmas bonuses, among other requirements. 

Every company has to pay close attention to these obligations in order to operate safely in Mexico. 

Immigration Law

In case the company wants to incorporate personnel residing abroad, Mexico’s National Institute for Migration requires businesses to provide specific documentation, such as proof of the employer’s registration and eligibility to obtain a work visa for the foreign employee.

Unsure about your employment obligations? Partner with a PEO

Use a PEO in Mexico

Professional Employment Organizations have mastered local and overseas employment laws, and can relieve you of your employment duties.

PEO stands for Professional Employment Organization. These companies have mastered local and overseas employment laws, and can relieve you of your employment duties. By partnering with a PEO under a ‘co-employment model’ in Mexico, you can offload your human resource needs and obligations to experts. PEOs can staff your company and keep you compliant with relevant local and international obligations as you need. 

They’ll mitigate any risk your business encounters when entering a new market, which is especially helpful if you don’t have any in-house local knowledge in this area.

Taxation requirements

This is one of the most important points when establishing a company in Mexico. Done improperly, your business could face penalties and setbacks to operating in the country. Done right or with the help of local expertise, you can rest assured that your business starts off on the right foot and secures long term success.

The Mexican Taxpayers Office (known as SAT) is a decentralized office of Mexico’s Ministry of Commerce and Public Credit that is in charge of tax revenue. The SAT also promotes strategies for taxpayers to fulfill their obligations. 

The most common obligations that taxpayers must fulfill include (but are not limited to): 

  • annual tax returns 
  • statements of transactions with third parties (known as DIOT)
  • Multiple Information Return (known as DIM)
  • provisional payments

The aforementioned requirements are related to income tax, flat rate business tax, and payroll tax. Of course, there are other tax obligations that you should be fully aware of. Make sure your accounting team (whether in-house or outsourced) understand your taxation requirements.

Accounting support

Every company needs to have an excellent control of their finances, so it is important to choose your accounting services and personnel carefully in order to maintain a successful business. Like many other parts of the world, some of the most common tasks your accountants must stay on top of include: balance sheets, net income statements, trial balances, tax determinations, audits, inventory and fixed assets, payroll services, transfer pricing services.

Comply with anti-money laundering regulations

Although the Anti-Money Laundering (AML) law came into effect in October 2012, most companies are unaware of their obligations, or do not fulfill them appropriately. 

Article 17 of the AML law indicates which activities and amounts must be included and presented in statements. More information on this is available on the country’s AML website, managed by the Ministry of Commerce and Public Credit. 

AML-related statements must be presented no later than day 17 of each month. If your activities and revenue streams don’t meet criteria for formal acknowledgment, you must still present a ‘nil activity’ statement.

If your activities and/or revenues surpass the amount identified by AML law, your monthly statement must include information regarding the client(s) with whom those operations were carried out, and the corresponding financial figures for each client.

In recent years, Mexican authorities have paid greater attention to businesses’ AML procedures. If your company cannot fulfill its AML obligations, you could face certain penalties.

Intellectual property

Intellectual property protection in Mexico

Make sure you understand the differences between elements of IP defined by Mexican law, and make the investment to protect the distinctive signs and activities of your business.

Mexico has a higher than regional average ranking for its intellectual property (IP) protection regulations. Businesses can register trademarks, brands, slogans and logos to be protected within the territory.

These registration procedures take place at the Mexican Industrial Property Institute. Make sure you understand the differences between these elements of IP as defined by Mexican law, and make the investment to protect the distinctive signs and activities of your business. In doing so, you secure your company’s credibility and revenue stream. You obtain the legal right to take action against other individuals or companies attempting to use those registered signs for their own commercial benefit in Mexico.

Need help getting started? Contact us

Expanding your business to Mexico requires a lot of careful planning, and support from the right people. You’ll need to comply with regulations outlined in various aspects of the country’s commercial legislation.

Consider seeking external services to support you with your legal, tax, accounting, payroll and employment needs. At Biz Latin Hub, we’re a single point of contact for providing all your market entry and back-office business solutions.

Our Mexico team, made up of local and expatriate legal, accounting and human resource professionals will ensure your business stays compliant every step of the way.

Reach out to us at [email protected] for a personalized quote today.

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