If you are looking to register a company in Mexico in order to take advantage of the opportunities available in Latin America’s second-largest economy, you may find that your best option is to form a branch. Because when you incorporate a branch in Mexico, your headquarters based elsewhere retains a significant amount of control over the entity, while also being able to build on the brand recognition that your company has developed elsewhere.
With a population of almost 128 million people and a gross domestic product (GDP) that hit $1.27 trillion in 2019 (all figures in USD), Mexico represents a major market with a wealth of opportunities that are particularly popular among investors due to its close proximity to the United States.
Economic growth over recent years has seen a corresponding rise in prosperity in the country, with gross national income (GNI) reaching $9,480 per capita in 2019. Despite fluctuations in foreign direct investment (FDI) over recent years, an impressive $29.35 billion of FDI inflows were registered that same year.
Mexico is a major trade hub, being the 17th-largest exporter in the world, and the company has a host of free trade agreements (FTAs) in place with countries and regional associations in the Americas, Asia, and Europe. That includes the US-Mexico-Canada Agreement (USMCA), providing preferential access to the largest and ninth-largest economies in the world, as well as the Pacific Alliance — an economic integration that recently celebrated its tenth anniversary and also includes Chile, Colombia, and Peru, and which has ambitions to expand beyond the region.
Mexico’s most valuable export goods include vehicles, computers, petroleum oil, medical equipment, and fresh produce, with the United States the destination for more than three-quarters of Mexican exports. Other important recipients include Canada, China, Germany, and Japan.
If you are considering doing business in this large and growing market, read on to learn about three reasons to incorporate a branch in Mexico, as well as the key steps involved in completing the process. Or reach out to us now to discuss your market entry options.
What is a branch?
A branch is a legal entity established in one jurisdiction, but which is linked to a headquarters elsewhere, meaning that the branch is effectively an extension of the main organization. That means that the headquarters retains a significant amount of control over the branch, and is able to step in and influence activities and strategy on a day-to-day basis.
It also means that the headquarters accepts a significant level of liability with regard to the actions of the branch, and could incur financial penalties or otherwise be held responsible and answerable in the event the branch is deemed in breach of local regulations.
An alternative option to branch formation is company incorporation or to register a subsidiary in Mexico. A subsidiary is considered more separate from the headquarters than a branch, and as such entails a lower level of liability, while also meaning that the headquarters retains less control over its operations and finances.
If you are unsure about which type of entity best suits your needs, your chosen legal representative in Mexico will be able to help you decide based on your needs and the nature of your business.
5 reasons to incorporate a branch in Mexico
When you incorporate a branch in Mexico, you will enjoy the following five advantages:
- Time-saving: The branch incorporation process is significantly quicker than full company formation, while providing you with many of the same advantages. As such, it can also be a good stop-gap solution ahead of going through full incorporation in the country.
- Cost-effective: The costs involved when you incorporate a branch in Mexico are not only lower in terms of the official fees, but because the process is quicker, you will also make savings in legal and accounting expenses associated with the process.
- Brand recognition: By incorporating a branch in Mexico, you retain the branding and associated product recognition of your main business elsewhere. This can be a major advantage when trying to get established in a new market, especially if your brand already enjoyed a level of recognition in Mexico prior to your launch.
- Pooled resources: By incorporating a branch and maintaining your branding, you are able to pool resources, such materials and manpower used for marketing.
- Broader control: When you incorporate a branch in Mexico, you retain broad control over the entity, offering you the opportunity to modify and correct financial and operational elements of the business.
How to Incorporate a branch in Mexico
There are three key steps to complete when you incorporate a branch in Mexico, which will usually be completed in no more than 25 days:
Step 1: Request official authorization from local authorities
This involves demonstrating to the Ministry of Economy of Mexico that your company has been legally incorporated in its country of origin, as well as showing that all bylaws and statutes established for the branch are in keeping with local regulations and norms.
This step also involves declaring who your appointed legal representative is in Mexico, who will have broad powers to represent you in front of local authorities, and is generally completed in approximately 15 days.
The following documents will be required as part of this step:
- The power of attorney (POA) you have signed with the legal representative, proving that they have authority to act on your behalf
- Officially translated and legalized (notarized) copy of the bylaws and articles of incorporation for the branch
- Proof of payment of the fees associated with this procedure
Step 2: Receive your tax ID (RFC)
In order to incorporate a branch in Mexico, you will have to apply for and receive a tax identification number (RFC). This can be initiated online via the Tax Administration System (SAT), however, your legal representative will have to visit the tax authority in-person to complete the process.
This process can be carried out in conjunction with the next step, and will require the following documentation to be presented:
- A legalized copy of the POA officially translated into Spanish
- The personal ID document and tax ID number for the legal representative
- Proof of the branch address in Mexico
- Bylaws and articles of incorporation duly legalized and officially translated into Spanish
- Proof of address for the headquartered company in its country of origin
- A valid tax ID for the headquarters in its country of origin
Step 3: Officially register your branch in Mexico
Once you have received authorization from the Ministry of Economy, you will need to register your branch with the National Registry of Foreign Investments (RNIE). This step will take approximately 10 days to complete, and will involve you presenting the following documentation:
- The POA demonstrating your legal representative’s status
- An official ID document to prove the identity of your legal representative
- The branch RFC
- A completed form indicating the economic activities the branch will be engaged in
Biz Latin Hub can help with company formation in Mexico
At Biz Latin Hub, our multilingual team of company formation agents is equipped to help you successfully incorporate a branch in Mexico in the shortest time possible. With our full suite of back-office support offerings, including legal, accounting, and HR services, we can be your single point of contact to support your market entry and ongoing operations in Mexico, as well as the other 15 countries in Latin America and the Caribbean where we are present.
Contact us now to find out how our services can help your specific needs.
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