Actualizado: 9 de dic de 2020
You just decided it's time to expand your business to Mexico.
You already know it can offer more than tequila. There are 62 million people, with internet connection, waiting to be your costumers and you are thinking about the talent awaiting to join your ranks, since Mexico has become a “world leader” in Engineering and Computer Science graduates.
You also know that there are incredible locations to choose from, whether it is Mexico City, Guadalajara, Baja (to name a few), you know you will find a vibrant lifestyle, great service and amazing weather.
You have heard about tech companies making it big time in Mexico, like Uber, Amazon, Facebook, Google, among many others but, most important, you can't argue against Mr. Business Cat's logic.
In short, you know it makes sense to go to Mexico, but how do you do it?
In our experience, the best way is to form a Mexican Company. In this post, we will go over the most common questions we get from our clients when helping them throughout this process.
Do I really need to form a new company?
While you don’t have to form a new company (foreign corporations and partnerships can legally engage in business in Mexico, provided they comply with certain registrations required by the Foreign Investment Law), it is highly advisable to do so.
Forming a Mexican entity will serve as a corporate shield to protect your main corporation, allocating any liability or risk exposure to your subsidiary. The Mexican entity will oversee the hiring of local talent, engage with customers, and undertake all major legal obligations. The result? Every legal liability, risk, or contingency will be regionally allocated and controlled, preventing it from blowing up in your main corporation.
It will help you save some headaches with Mexican Authorities, which are used to work with Mexican documents rather than foreign ones, and, save some budget on apostille certifications and official translations with authorities, banks, and some corporate customers.
Been there, done that, we know why we say this.
Ok, so what entity should I choose?
There are lots of options. However, in our experience, most foreing businesses end up choosing an S de R.L de C.V (Sociedad de Responsabilidad Limitada de Capital Variable).
This type of entity provides the limited liability advantage of a regular corporation but it is easier to manage since its legal framework allows simplicity. Also, if your holding company is in the USA, an S de R.L de C.V can help to avoid double taxation.
Cool, but is it true I need a Mexican partner?
Not exactly. Foreign Investment Law allows foreign individuals to own 100% of the cap table.
There are some exceptions, though:
Companies with assets with a value greater than the amount established each year by the National Foreign Investment Commission;
Companies that engage in an industry with a specific limitation set forth by the Foreign Investment Law itself (e.g Radio Broadcasting);
Companies that engage in an industry reversed exclusively to the Mexican government (e.g Nuclear energy development) or Mexican corporations with 100% of Mexican capital (e.g development banking for low income individuals).
In some cases, foreign investors will be able to hold more % of equity if they get approved by the National Foreign Investment Commission. We recommend hiring local legal counsel to help determine if your company might be subject to an exception from a foreign investment limitation.
However, in any case, you will need another partner (although not necessarily Mexican), because there are no such things as “sole proprietorship” companies in Mexican Law. Every single business entity in Mexico requires at least two partners to legally exist.
NOTE: The "Sole proprietorships" in Mexico might exist in the case of natural persons engaging in business ("Persona física con actividad empresarial") which, by itself, is quite risky and not advisable.
NOTE 2: Altough not neccessary, a Mexican partner or at least a Mexican country manager can simplyfy things from an administrativa standpoint. Completing processes with Mexican authorities, banks and even some corporate clients can be easier.
What’s the process to form a Mexican entity?
The process is quite simple and it shouldn’t take more than 20 business days. Here is a general roadmap and a time table.
Just some quick notes on the process.
In Mexican Law, bylaws contain what might be considered (i) the articles of incorporation (charter) and (ii) the actual bylaws. All these rules must be carefully written based on the Law applicable to the chosen entity - e.g for S de R.L de C.V the General Commercial Societies Law – and it is highly advisable that they be drafted by a Corporate Attorney. Bylaws often include, (i) the name of the corporation, previously authorized by the Secretary of Commerce, (ii) its state of residence, (iii) rules of the stockholder’s agreement, (iv) rules of corporate governance (iv) appointed representatives and officers, among other matters.
The actual document that proves your company is duly formed is the incorporation deed. This document contains the bylaws and some other specific considerations and acknowledgments. Once this document is signed and sealed, by the initial partners and the notary public your company legally exists. It is advisable to ask the notary public for one (or more) certified copies of the deed for record-keeping and to comply with some post-incorporation obligations. Please note, you won't take home the actual deed you'll sign. The Notary Public will issue a document called testimonio (which will be sent to be registered at your company's state Public Registry) that will serve as your original incorporation deed.
What are the post-incorporation obligations?
After the deed is signed and sealed, your company can start engaging in business. However, there are some post-incorporation obligations to take care of. Those obligations can be classified as follows:
Tax requirements and;
Let’s comment on each.
As mentioned, once the original deed is signed the notary public will issue a document called testimonio which will be sent (usually by the Notary Public) to the Public Registry of your company's sate of residence. This process will take about 1 month, but don't be alarmed, this is just a formality.
In the meantime you would like to register your company at: (i) The Servicio de Administración Tributaria (SAT), aka the Mexican Tax Authority, to get you RFC – the Mexican version of the Tax ID or Employer Identification Number (EIN) - and; (ii) The Foreign Investment Registry. This registrations can be made by a Notary Public or your Corporate Attorney, just remember an appointed representative of your company will have to sign the papers.
If you plan to hire employees, You will have to register your company in the Social Security Institute (IMSS) and in the National Immigration Institute (INM), if you plan to ask for work visas for foreign employees. These are not usually offered as post-inc registration services, Corporate Attorneys usually charge separately for these registrations.
Please note you would have to appoint a representative in Mexico (e.g your country manager or regional director) to complete this registrations signing all the documents needed. I always recommend hiring a Mexican person to complete this registrations.
It is important to set up your bank account once you have signed the incorporation deed. You don't have to wait for any registration to do so. You can ask the Notary Public to issue you a certified copy of your incorporation deed and a letter certifying the original deed is pending registration. This has worked for us countless times, you just have to go to the Bank of your choice and start the process which will be done in a week or so.
During the past few years, Mexican tax system has been evolving to become 100% paperless. This include the obligation of every taxpayer to issue electronic invoices and use electronic accounting tools. Thus, after you register in SAT and get your RFC, you'll need your company’s official electronic signature and electronic certificates. This process is quite easy but they will need to be handled by a representative of your company personally.
Finally, you’ll need to set up your corporate books. These include a private registry of stockholders and book with all the minutes of any stockholder or board of directors meeting, depending on the type of entity you chose. In the case of an S de R.L de C.V the directors or the board should keep a book listing the name and address of each stockholder and the number of stock they hold in the company. This can be done by your Corporate Attorney (literally) in one day.
Now, you are all set.
As you can see, forming a business entity in Mexico is fairly easy, but it is a process you might want to navigate with a professional. If you’d like more information on the subject, please text us a line at email@example.com.