A Mexico Company Formation Guide

Forming a Company in Mexico

Mexico’s economy is booming, driven by a young and tech-savvy population, its strategic location next to the US, favorable trade deals with North America and the EU, and a government eager to attract foreign investment.

This surge has attracted a wave of companies from various industries, all eager to tap into Mexico’s dynamic market.

Who’s Setting Up Operations in Mexico?

Manufacturing Companies: Mexico’s well-established manufacturing sector, competitive production costs, and participation in trade agreements like USMCA (a/k/the new NAFTA or NAFTA II) continue to be a magnet for automotive, aerospace, clothing, and electronics companies. Mexico’s proximity to the US supply chain offers a significant advantage. Not surprisingly, our law firm is getting a ton of American and Canadian companies seeking assistance with going into Mexico to manufacture products for shipment and sale to the United States, but we are also getting many Chinese, Indian and European companies seeking the same thing.

Tech Companies: Guadalajara, dubbed Mexico’s “Silicon Valley,” is witnessing a boom in tech startups and established technology giants like IBM and HP setting up shop. This is driven by the availability of skilled software and hardware engineers, and a growing domestic market for tech products and services. In addition to Guadalajara, we are seeing interest in Mexico City, Monterrey, Queretaro, and Puebla.

Consumer Goods Companies: Rising disposable incomes and a growing middle class are fueling a growing demand in Mexico for high-end consumer goods. Companies offering everything from designer clothing and furniture to specialty food items are finding a receptive audience in Mexico.

Financial Technology (Fintech) Companies: Mexico’s large unbanked population and increasing smartphone penetration present a vast opportunity for fintech companies.

Renewable Energy Revolutionaries: Mexico is actively seeking to diversify its energy portfolio, creating opportunities for companies specializing in solar, wind, and geothermal power. Government incentives and an increasing focus on sustainability are driving this trend.

Mexico As a Compelling Proposition

The factors attracting these diverse businesses to Mexico include the following:

  • Cost-Competitive Advantage: Mexico offers lower labor costs, as compared to the United States, Canada, Japan, and the EU, making it an attractive option for manufacturing and production facilities.
  • Strategic Location: Mexico’s border with the US facilitates trade and logistics, while also providing access to a wider North American market. Mexico also shares time zones with the United States, and we’ve had Indian, Chinese and European tech companies seek to set up coding operations in Mexico in large part so that they will be on the same time zone as the United States. I’ve also had countless people tell me how nice it is to fly a few hours to Mexico, as opposed to having to fly 12 hours to China.
  • Trade Agreements: Mexico’s membership in trade agreements like USMCA reduces trade barriers, customs duties and tariffs, making Mexican exports more competitive.
  • Skilled Workforce: Mexico boasts a large pool of skilled and educated labor, particularly in engineering and technology fields.
  • Growing Domestic Market: Mexico’s burgeoning middle class with rising disposable income presents a promising consumer base.
  • Government Incentives: The Mexican government actively encourages foreign investment by offering tax breaks, streamlined regulations, and infrastructure development projects in certain sectors.

Planning and Preparation: A Solid Foundation Before Company Launch

The below are some key considerations that will lay the groundwork for your successful Mexican venture:

Business Structure: It is critical that you select the Mexican legal entity that best aligns with your business goals and your ownership structure. The below is a very brief. breakdown of the most common options in Mexico:

  • Sociedad Anonima (S.A.): Similar to a Corporation (Corp.) in the United States. These are the most commonly used entities and also the most regulated by Mexican legislation. Similar to a Corporation in the US, S.A. entities issue shares but are not publicly traded. Shareholders’ liability is limited to their investment, offering protection for personal assets.
  • Sociedad Anonima Promotora de Inversión (S.A.P.I.): This kind of companies provides substantial flexibility to promote investment because it is entitled to issue different share classes that may increase or limit corporate rights, for example the limitation of total or partial votes in the meetings, shares without dividend rights, even this kind of companies are allowed to buy their own shares. It is regulated by the Stock Market Law and is intended to be a preliminary step before listing on the stock market. Like the S.A. is limited to the payment of its shares implying a liability protection and require a minimum of two shareholders and a minimum initial capital investment.
  • Sociedad de Responsabilidad Limitada (S. de R.L.): Similar to a Limited Liability Company (LLC) in the United States or to a Close Corporation these entities offer liability protection to their partners (socios). These are limited to a maximum of 50 partners, it is not mandatory that this kind of companies issue titles and if do it, such documents cannot be negotiable, the entry and exit of partners depends on the approval of the majority of the current partners. It is the second most used option in Mexico, also these require a minimum of two partners and a minimum initial capital investment, starting from one peso per partner.
  • Sociedad por Acciones Simplificada (Simplified Joint Stock Company): This is the simplest Mexico entity structure, can be incorporated only by one person and it’s done on-line in the Ministry of Economy web site. This kind of company is only for small businesses, even the shareholders that incorporate it or wants to participate cannot be part of another company as a shareholder or administrator and cannot have an income greater than 7 million pesos (this amount changes every year). Because this is entitled for Mexican physical persons our law firm has never done one of these and I doubt we ever will.

Variable Capital in the companies: All the options previous mentioned may choose to have a variable capital (C.V.), so the initial capital can be gradually increased over time with minimum legal requirements to record it, compared to those that don’t estipulate to have a variable capital.

Foreign Investment Regulations: Almost all industries in Mexico are open to foreign ownership but the Foreign Investment Law restrict some activities only for the government, or requires a specific percentage of Mexican investment or its necessary to have an authorization for the government prior the incorporation (by this link you can see those activities) , that is why it is important to have the correct legal advice. Also all the companies that have foreign investment must be registered in the Mexico’s National Registry of Foreign Investment (RNIE).

From Concept to Mexican Corporation: A Step-by-Step Guide

The following are the basic steps it is typically necessary to take to form a company ready to operate in Mexico:

1. Company Name Approval: Obtain approval for your desired company name from the Ministry of Economy (SE). Conduct a trademark search to ensure the name isn’t already in use.

2. Develop the Bylaws: This document outlines the company’s structure, purpose, administration, and regulations. It will specify details like the type of corporate entity, capital contributions of each shareholders, profit-sharing arrangements, and the powers of the board of directors. A public notary will be required to authenticate the document issuing a Public Deed.

3. Register with Public Registry of Commerce (RPC): Officially register your company with the RPC, making it a legal entity and granting it the ability to conduct business in Mexico. This process involves submitting the company’s public deed. The notary that incorporates the company can do this process directly.

4. Obtain Tax ID (RFC): Register with the Mexican tax authority (SAT) to acquire the company’s Mexican TaxID (Registro Federal de Contribuyentes -RFC-). This is essential for tax compliance, invoicing, procedures with all the authorities and even to open a bank account. The process must be done directly in the SAT’s offices and can be done only by a Mexican or a foreigner with legal residency, in both scenarios the person must have their own RFC.

5. Secure a Fiscal Address: Establish a legal address for your company in Mexico. This is the physical location of your operations. Having a registered fiscal address is mandatory for tax purposes and receiving official notifications.

6. Open a Corporate Bank Account: Select a reputable Mexican bank that caters to businesses. You’ll need your RFC and other company documents to open the account. Deposit any required minimum capital to activate the account, as stipulated by your chosen business structure.

7. RNIE Registration: As mentioned above, all the companies that have foreign investment must be registered in the RNIE.

8. Additional Registrations: Depending on your industry, you might need to register with specific entities for additional permits and licenses. This could include the Ministry of Labor (STPS) for labor regulations, the Mexican Social Security Institute (IMSS) for employee social security, and specific sectoral ministries depending on your activity (e.g., Ministry of Health for food production, etc.).

The Time it Takes to Form a Mexican Company

Incorporating a company in Mexico typically takes 4-12 weeks. The main cause of delays is the need to apostille/legalize shareholder documents and translate any non-Spanish documents.

Time and costs can vary depending on factors like company structure, legal fees, notary services, location, and any additional permits required. Some cities definitely take longer than others and when time is of the essence you might want to consider having your company formed in one city and then moving its corporate location to another city at a later date. Once again, legal advice is essential to meet the objectives to incorporate a company in Mexico.

Beyond Incorporation: Building a Sustainable Mexico Business

Once you have your Mexican company formed, the following come into play for most companies:

Comply with Ongoing Tax Obligations: Familiarize yourself with Mexican tax laws and filing requirements. Partner with a local accountant to ensure timely and accurate tax filings.

Obtain Business Permits and Licenses: Depending on your industry, you might need additional permits to operate legally. A business lawyer can help identify any necessary licenses and guide you through the application process.

Hire and Manage Employees: Understand Mexican labor laws and employee benefits regulations. Partner with a human resource professional to ensure you are compliant with all employment regulations.

Protect Your Intellectual Property: Secure trademarks, patents, and copyrights to safeguard your brand and innovations.

Viva la Empresa!

With careful planning and strategic execution, you can be well on your way to succeeding in the Mexican market, and contributing to Mexico’s vibrant economic landscape.

 

This blog post was co-written by Fred Rocafort of Harris Sliwoski and Rafael Chávez Molinos, a partner-level attorney with Harris Sliwoski’s affliliated law firm in Mexico, Rivadeneyra, Treviño & De Campo, S.C. Fred and Rafael have worked together on many Mexico company formation and structuring matters.

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