Do you want to do business in Mexico?
Francisco Vilchis Orea
by Francisco Vilchis Orea
As one of the most important economies in Latin America, Mexico offers great opportunities for foreign investors looking to expand their operations in a strategic market. However, setting up a business in Mexico requires a thorough analysis, and finding the right advice on to comply with local regulations and maximise the benefits available.
The importance of comprehensive advice
Starting a business in Mexico is not a one-size-fits-all process. Investors' strategic decisions should be based on a thorough understanding of the legal, tax, and operational options available. Experienced legal and financial advisors can make the difference between a successful start and a series of regulatory or operational problems.
Appropriate legal entity
The Mexican legal framework offers several types of corporate structures for setting up a business. Recommended options include:
Corporation with variable capital (S.A. de C.V.): Ideal for large-scale commercial activities, with the possibility of issuing registered shares.
Limited liability company (S. de R.L. de C.V.): Suitable for profit-making activities, this option offers a more restricted decision-making process and allows greater control over a limited number of shareholders.
Foreign branch (Permanent Establishment): Allows operations under the regime of the foreign parent company with tax registration in Mexico.
Each entity has specific implications in terms of organisation, supervision, partner liability, administrative structure and tax regime. It is important to evaluate which entity best suits the needs of the business.
Pre-incorporation considerations
As part of proper planning, it is essential to evaluate the following elements:
Initial capital: Amount of investment and source of funding.
Company name: It is necessary to apply to the Ministry of Economy for permission to use the desired company name.
Tax obligations: Compliance with the regulations of the Tax Administration Service (SAT) for the Federal Register of Taxpayers (RFC).
Fiscal address: Investors should establish a real tax address prior to incorporation. In addition, having a utility bill in the name of one of the shareholders will facilitate the registration process with the tax authorities.
Legal representative: A legal representative must be appointed to act formally before the SAT. This representative must be registered with the RFC as they will be responsible for fulfilling tax obligations and managing the required procedures.
Corporate bank account: Consider the response times of various banking institutions and their requirements in order to have an operational corporate bank account.
Employees: When hiring employees, compliance with the Federal Labour Law (LFT) and Social Security Law (LSS) is required, along with registration with the Mexican Social Security Institute (IMSS).
Formalities: Notarisation before a notary public, registration with the Public Registry of Commerce (RPC), obtaining the RFC and opening corporate bank accounts are all necessary.
Key authorities
The Mexican regulatory framework involves several authorities:
Ministry of Economy: Approves the corporate or business name of the company.
Tax Administration Service (SAT): Regulates registration in the Federal Register of Taxpayers (RFC) and the company's tax compliance.
Mexican Social Security Institute (IMSS): Oversees employers' social security obligations.
Local tax office: Regulates tax obligations related to the hiring of employees.
Common risks
Investors need to be aware of common mistakes such as:
Choosing a legal structure that does not fit their business model;
Failing to establish a tax domicile;
Underestimating tax and employment obligations; and
Failing to appoint a legal representative with a registered Federal Taxpayer Registry (RFC).
These risks can be mitigated with the right specialist advice that identifies the unique needs of each project and provides effective solutions.
Conclusion
Setting up a business in Mexico is a strategic decision that can open doors to a competitive and dynamic market. However, success depends on proper planning and the guidance of experts who understand the Mexican legal and fiscal framework.
AVP is a Mexican accounting, tax, and legal firm with more than 15 years of experience in consulting for all types of companies, private investors, and governmental entities. The firm specialises in providing a complete tax and legal structure to companies, as well as providing protection against possible contingencies, and analysing each situation from different disciplines.
XLNC member firm AVPMexico City, MexicoT: +52 55 2743 1687
Auditing & Accounting, Tax, Law Firm, Advisory, Corporate Finance, Fiduciary & Estate Planning
Francisco Vilchis Orea, a law partner at AVP Soluciones, holds a degree in law and a master's degree in administrative and fiscal law from the Faculty of the National Bar Association S.C., and has completed diploma courses in tax update and ABCs of criminal tax defence. Contact Francisco.
