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Incorporation

Setting up a company in Mexico

When setting up a company you may want to consider these factors:

  1. Business Factors

    The business environment of Mexico is relatively easy to operate in for foreign companies, where initiatives have been launched to facilitate the incorporation process for companies, such as one-stop shops and introducing more lenient minimum capital requirements. Mexico has close economic ties to the United States and Canada, where active encouragement for foreign investment has increase investment activities between these countries with Mexico as well as the rest of the world. It must be noted that Mexico’s historically high levels of corruption and high crime levels have raised security concerns for foreign companies which pose as an issue for incorporation. These factors must be considered, in addition to:

    • The industry and type of business that will be conducted
    • Nationality of the headquarters / individuals (s)
    • Presence of existing trade agreements or relationships
  2. Location

    Location will be another factor. Separate cities and regions may have different rules, costs and availability.  It is always recommended to seek advice from relevant professionals, such as business or legal advisors, accountants and others depending on your needs.

  3. Language

    The official language is Spanish in Mexico, although up to 100 Native American languages are still spoken among indigenous Mexicans. A majority of Mexicans are monolingual Spanish-speakers. A second language among many educated Mexicans is English, with many Mexican citizens having a degree of fluency in English. It is unsurprising due to the geographic proximity with the United States, where many Mexican and American nationals transit the border frequently.

Your Options

Foreign companies investing in Mexico may use different structures as investment vehicles to incorporate. Under the Foreign Investment Law of 1993 and the North American Free Trade Agreement (NAFTA), a majority of economic activities in Mexico are 100% open for foreign investor participation. Most notably are the infrastructure and financial services sectors which have traditionally been reserved for Mexican investors and the government.

The legal provisions governing the incorporation of companies are Federal in nature, meaning that all company incorporations in Mexico are uniformly regulated by the Mexican Law Governing Commercial Companies, or the Ley General de Sociedades Mercantiles (LGSM). The tax treatments applicable to the different types of companies are largely uniform in nature in Mexico.

The primary types of companies utilized are:

  • Limited Liability Stock Corporation (Sociedad Anónima, S.A.)
  • Limited Liability Company (Sociedad de Responsabilidad Limitada, S.R.L.)
  • Branch succursal
  • Representation Office

Limited Liability Stock Corporation

PLC

Also known as the Sociedad Anónima (S.A.), this is the most common type of business entity used in Mexico. The business operates under a company name and ownership of the company is in the form of shares in the capital of the company. Much like limited liability companies, the liability for each shareholder is limited to the portion of their own capital contributions.

In the S.A., the directors are personally responsible for the prudent management of the company, and are not required to be shareholders. The S.A. issues stocks to their shareholders, which may be transferable and are considered a negotiable credit instrument.

Some procedures must be performed with the Ministry of Foreign Affairs, and may require approval from the National Foreign Investments Commission in certain cases.

Liability

Limited Liability: Liability of each shareholder is only limited to the capital they have invested in.

Minimum Ownership

The S.A. may be a 100% foreign-owned entity.

Number of Founding Members

There is a minimum of two shareholders as founders and no maximum. The shareholders hold shares that are freely transferable by endorsement.

Minimum Capital Requirements

$50,000 pesos (US$4,500) with 20% available for up-front payment for incorporation, and the rest must be fully subscribed to within one year.

 

Procedure:

1. Online registration and authorization of the company name and draft deed of incorporation

The corporation name must be selected and submitted to the Ministry of Foreign Affairs. The founders obtain authorization for using the company name from the Ministry of Economy (Secretaria de Economia). The company must then elect a notary public that will grant the incorporation deed via filing an online draft of incorporation deed with the Ministry of Economy. The notary public subsequently informs the founders of the appointment to sign the incorporation deed. In some cases, authorization may be required from the Foreign Investment Commission to engage in certain activities.

Time: Less than one day

Cost: none

2. Obtaining a Tax Registry Number (RFC) and filing the deed of incorporation

The company charter and bylaws must be drafted before appearing before a notary public (notario público). The notary public may charge high fees when providing expert advice on drafting the company bylaws. Once this is completed, the deed of incorporation must be signed by at least two shareholders before the notary public. Some notaries have an agreement with the Ministry of Finance and Public Credit to grant the Tax Registration Number as well as the deed of incorporation. The notary then files the notarized deed of incorporation with the Public Registry of Commerce.

The following information is included in the company’s articles and bylaws:

  • Name and type of company
  • Number of shareholders and their information
  • Company’s corporate address
  • Corporate purpose
  • Duration of the company
  • Type and amount of ownership interest
  • Management rules
  • Amount of reserved funds

Time: 2 days

Cost:

$10,500 pesos (notary fees)
$14,899 pesos (registration fees)

3. Registration with the Mexican Social Security Institute (IMSS)

A pre-application must be made with the IMSS in order to arrange an appointment to register the company at the IMSS office. This procedure is used to enroll at least one worker in Social Security. This process is regulated by the Social Security Act and the Regulations of the Law on Social Insurance.

Time: 1 day

Cost: none

4. Registration with the local tax administration (Secretaria de Finanzas del Gobierno del Distrito Federal)

The company must register with the local tax administration. The Tax Registration Number and the company’s postal company are required to register.

Time: 1 day

Cost: none

5. Notifying the local government (Delegación)

The company must notify the local government that a mercantile establishment has been created. This can be done online, and for most business with low-risk activities, a notification record will be provided via e-mail.

Time: 1 day

Cost: none

6. Registration with the National Business Information Registry (SIEM)

The company must register with the National Business Information Registry, or “Sistema de Information Empresarial”. Depending on the company’s purpose and operations, the business will be registered with the appropriate chamber.

Time: 1 day

Cost: $100 pesos – $670 pesos depending on number of employees and company’s activities.

7. Additional registrations

Once the company is incorporated, additional steps must be carried out for the entity to become fully operational, including:

  • Obtaining a federal taxpayer identification number from the Federal Taxpayers’ Registry
  • Enroll in the National Registry of Foreign Investment
  • Obtain an importer’s license
  • Enroll any workers with the Mexican Social Security Institute, Worker’s Housing Fund, Retirement Savings Fund and other institutions
  • Preparing employment agreements or negotiating collective bargaining agreements to employ Mexican and foreign employees

Limited Liability Company

The limited liability company is also known as the Sociedad de Responsabilidad Limitada (S.R.L.). The business operates under a company name and ownership of the company is not represented by negotiable certificates. Contributions to share capital can only be transferable in specific cases under the Mexican General Corporation Law. For tax purposes, it can be considered as very similar to a partnership in other common law countries.

 

In the S.R.L., the directors are personally responsible for the prudent management of the company, and are not required to be shareholders. The S.R.L. allows restricted transferability of partnership shares, although any changes to the partnership composition may cause the liquidation of the partnership. The S.R.L. holds an additional advantage, in that proper structuring of the entity may allow tax advantages by transferring operational losses incurred in Mexico to the parent company.

Liability

Limited Liability: Liability of each partner is only limited to the capital they have invested in.

Minimum Ownership

The S.R.L. may be a 100% foreign-owned entity.

Number of Founding Members

There is a minimum of two shareholders as founders and may have no more than 50 members.

Minimum Capital Requirements

$3,000 pesos divided into “interests” that may be unequal in value and rights.

 

Procedure:

1. Online registration and authorization of the company name and draft deed of incorporation

The partnership or company name must be selected and submitted to the Ministry of Foreign Affairs. The founders obtain authorization for using the company name from the Ministry of Economy (Secretaria de Economia). The company must then elect a notary public that will grant the incorporation deed via filing an online draft of incorporation deed with the Ministry of Economy. The notary public subsequently informs the founders of the appointment to sign the incorporation deed. In some cases, authorization may be required from the Foreign Investment Commission to engage in certain activities.

Time: Less than one day

Cost: none

2. Obtaining a Tax Registry Number (RFC) and filing the deed of incorporation

The company charter and bylaws must be drafted before appearing before a notary public (notario público). The notary public may charge high fees when providing expert advice on drafting the company bylaws. Once this is completed, the deed of incorporation must be signed by at least two shareholders before the notary public. Some notaries have an agreement with the Ministry of Finance and Public Credit to grant the Tax Registration Number as well as the deed of incorporation. The notary then files the notarized deed of incorporation with the Public Registry of Commerce.

The following information is included in the company’s articles and bylaws:

  • Name and type of company
  • Number of shareholders and their information
  • Company’s corporate address
  • Corporate purpose
  • Duration of the company
  • Type and composition of ownership interest
  • Management rules
  • Amount of reserved funds

Time: 2 days

Cost:

$10,500 pesos (notary fees)
$14,899 pesos (registration fees)

3. Registration with the Mexican Social Security Institute (IMSS)

A pre-application must be made with the IMSS in order to arrange an appointment to register the company at the IMSS office. This procedure is used to enroll at least one worker in Social Security. This process is regulated by the Social Security Act and the Regulations of the Law on Social Insurance.

Time: 1 day

Cost: none

4. Registration with the local tax administration (Secretaria de Finanzas del Gobierno del Distrito Federal)

The company must register with the local tax administration. The Tax Registration Number and the company’s postal company are required to register.

Time: 1 day

Cost: none

5. Notifying the local government (Delegación)

The company must notify the local government that a mercantile establishment has been created. This can be done online, and for most business with low-risk activities, a notification record will be provided via e-mail.

Time: 1 day

Cost: none

6. Registration with the National Business Information Registry (SIEM)

The company must register with the National Business Information Registry, or “Sistema de Information Empresarial”. Depending on the company’s purpose and operations, the business will be registered with the appropriate chamber.

Time: 1 day

Cost: $100 pesos – $670 pesos depending on number of employees and company’s activities.

7. Additional registrations

Once the company is incorporated, additional steps must be carried out for the entity to become fully operational, including:

  • Obtaining a federal taxpayer identification number from the Federal Taxpayers’ Registry
  • Enroll in the National Registry of Foreign Investment
  • Obtain an importer’s license
  • Enroll any workers with the Mexican Social Security Institute, Worker’s Housing Fund, Retirement Savings Fund and other institutions
  • Preparing employment agreements or negotiating collective bargaining agreements to employ Mexican and foreign employees

Branch

Foreign companies setting up a branch in Mexico may perform commercial activities in Mexico, which includes income-generating activities. This is particularly useful for foreign companies who wish to establish a limited presence in Mexico without committing to a fully incorporated entity.

The branch is considered a proper legal entity in Mexico, where the branch office may open bank accounts and issue invoices accordingly. For tax purposes, branches are permanent establishments. It must be noted that it is not considered a separate legal entity from its parent company, where the foreign company may be liable for actions of the branch. Branch offices are uncommon in Mexico, so usage of branches may pose some difficulties for doing business with other Mexican companies.

Process:

The company must register the branch with the Foreign Investment Registry

The registration of the branch must be made to the Public Commercial Registry. The company must submit their articles of incorporation and by-laws to the Public Commercial Registry.

Prior authorization of the Mexican Departments of Foreign Affairs and Economy (SECOFI) must be obtained. This step requires proper proof that the parent company has been properly incorporated in the home country, and that the charter and by-laws do not conflict with Mexican laws.

To open a branch office, the company must waive the right to invoke protection from its government for matters related to acquisition of ownership of property in Mexico.

Representation Office

A representation office is established by entities that intend to become established in Mexico in the future, and currently require a representative to perform certain activities. Representative offices are not allowed to engage in commercial operations, and typically deal with information and administrating regarding the company’s activities, products or services of the parent company.

The representative office is different from the branch as it does not allow on-going business activities to be performed, and no revenues may be generated. This method does not subject the company to Mexican income tax, nor is it required to establish a legal presence in Mexico via incorporation.

To set up a representative office, the proper approval from the relevant ministries must be sought, and this procedure may be very lengthy, where establishing a legal, taxable presence is recommended over setting up a representative office.

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