Important considerations when forming a legal entity in Mexico
A strong foundation is important for any new business, but it can be more challenging to accomplish when launching a legal entity in another country. To do business in Mexico, it’s essential to navigate a range of regulations and meet requirements set by numerous federal and state agencies. Knowing what to expect can prevent missteps or omissions that may lead to costly delays.
The process of forming a business entity in Mexico has evolved in recent years. The various government agencies involved continue to work to make the process clearer and speed up response time. However, working with an experienced partner remains the best strategy to simplify company registration in Mexico and speed up your time to launch.
Do you need to register a company in Mexico?
Before establishing a legal entity in Mexico, it’s important to recognize that this step may not be necessary. Depending on the types of business activities you plan to carry out, your foreign company may not need to form a business entity in Mexico.
Foreign companies planning to manufacture goods in Mexico that are subsequently exported out of the country do not need to establish a separate legal entity in Mexico. Instead, these companies can operate under the legal umbrella of an IMMEX-registered shelter company. Through this arrangement, the shelter company takes on both legal risk and administrative activities, leaving the foreign company to focus solely on manufacturing. This structure can reduce a company’s time to launch in Mexico to as little as 30 days.
If the foreign company intends to manufacture goods or services in Mexico and intends to invoice the sale of those goods and services to companies within Mexico, then it must have a Mexican entity.
Requirements of doing business in Mexico
Before rushing into forming a new company, make sure you clearly understand the implications and obligations of owning and operating a business in Mexico. Once you secure your Mexican company’s registration, you are subject to federal requirements that include:
- Corporate taxes, such as income tax, payroll taxes, and VAT.
- Employment laws.
- International trade laws.
- Shareholder liability.
- Shareholder profits or losses.
- Immigration laws.
- Regulatory compliance requirements applicable to the business activity.
By incorporating the above factors into a simple table or matrix that addresses the costs and risk of each element, foreign companies have a higher likelihood of achieving their business objectives in Mexico.
Decide what type of business entity to form in Mexico
Foreign companies have options when it comes to operating structure in Mexico. In the event that determine a standalone company is the best option to meet your needs, there are options for company registration as well.
The most common form of Mexican company registration is “S.A. de C.V.” which literally translates to “anonymous corporation of variable capital.” This is somewhat equivalent to U.S. Corporations or Incorporated entities. Another common option is “S. de R.L.,” which can be loosely translated as a limited liability corporation, or LLC.
To determine which of these two options – or other types of company legal structures – is appropriate for your needs, you’ll need to determine how the organization will handle taxes, shareholder profits, and general liability.
Steps for a successful corporate entity setup in Mexico
To successfully establish a business entity in Mexico, consider the following steps.
- Connect with an expert. An experienced consultant can help with much of the legwork involved in gathering information, submitting it to various government agencies, and completing the process of company registration. The more experienced and reputable the company or individual handling the process on the foreign company’s behalf, the greater the likelihood that the process will have fewer delays due to incomplete or incorrect information.
This partner may be a law, consulting, or accounting firm. Fees for these services can range from USD $4,000 to $15,000, not including regulatory charges. The final cost will vary depending on whether you are using an international or local firm, as well as the complexity of the business ownership and operating structure.
- Have your name approved. Submit three company names in an order of preference to the Department of External Affairs (SRE). The SRE will check the names’ availability. The response time from the SRE is approximately one business week.
- Draw up articles or bylaws. Once the SRE approves a company name, it is time to draw up the articles of incorporation or corporation bylaws. The new company’s articles or bylaws will describe the ownership structure, business activity, and powers given to individuals who represent it in various capacities. For example, a person will need to be appointed the legal representative in Mexico. This is not to be confused with the statutory agent in the United States, who is typically the attorney that represents a company. In Mexico, the legal representative is the go-to person for all issues related to the company’s legal and regulatory obligations.
Once these documents are drafted, they must go before a public notary who will issue a deed of incorporation. Depending on the nationality of the owners of the new Mexican company, the notary may require apostille powers of attorney from the foreign company acting as owner of the Mexican entity. The issuance of these documents may take up to ten business days.
These documents will need to be signed by the owners of the new company, who may or may not need to be physically present when signing. It’s important to note that if a foreign individual is signing the articles of a new Mexican company, that person will need to enter Mexico with the proper immigration status to enter the country for that purpose (not a tourist visa). In addition, the new company will need to have a physical address upon its formation, even if the address will subsequently change.
- Obtain identification, permits, and registrations. Once the articles or bylaws are signed and registered with the applicable government agencies, the new company can request a federal tax ID number. Upon receiving the federal tax ID number, the company can proceed to obtain other pertinent registrations and permits from various government agencies.
Depending on the new company’s business activities, you may need to obtain registrations and/or permits through one or more of the following agencies:
- Department of the Treasury (SAT)
- Social Security (IMSS)
- Department of Commerce and Trade (ECONOMIA)
- Mexican Customs (ADUANAS)
- Department of Environmental Health and Safety (SEMARNAT)
- Department of Labor and Social Provision (STPS)
In general, it takes between 30 and 60 days to secure registrations and permits. However, obtaining VAT and IMMEX certifications are notable exceptions. In today's environment, it takes at least six months to secure these certifications due to more stringent regulations and thorough reviews by authorities.
Obtaining IMMEX and VAT Certifications
1. IMMEX Certification: The IMMEX program allows companies to import materials duty-free and VAT-free for manufacturing as long as the finished goods are exported. To obtain IMMEX certification, a company must first establish its legal entity in Mexico and demonstrate its ability to comply with various regulatory and trade commitments. This includes showing proof of a physical manufacturing facility and the capability to export manufactured goods.
2. VAT Certification: After obtaining the IMMEX certification, companies can apply for VAT certification. This certification allows for the VAT-free purchase or importation of goods necessary for production. The process involves demonstrating compliance with the obligations under the IMMEX program and showing robust internal control systems to track imports and exports.
Why Companies Opt for Shelter Service Providers
Due to the lengthy timeline required to obtain IMMEX and VAT certifications, many companies choose to start operations through a shelter service provider. This approach allows a foreign company to operate under the legal umbrella of an established Mexican entity, which already holds the necessary certifications. This can drastically reduce the time to launch operations in Mexico to as little as 30 days and mitigate legal and administrative challenges, allowing companies to focus primarily on their manufacturing and operational strategies.
Strategies to successfully set up your business in Mexico
The process of forming a legal entity in Mexico can be relatively straightforward, but unexpected delays and questions are a normal part of doing business. Working with a partner who is familiar with this process can greatly reduce complexity and delays.
Foreign companies find that working with Tetakawi can speed their time to launch and ensure a strong foundation for their Mexico-based entity. To move your company forward, contact Tetakawi today.
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