Tips For Starting A Small Business In Mexico

Ready To Start A Small Business In Mexico But Don't Know Where To Start?

Mexico has the 15th largest economy on the planet, powered by a population ranked by the OECD as the hardest working in the world in terms of annual hours worked. It’s no surprise that many overseas entrepreneurs choose to set up a new business in Mexico.

Opportunities abound in Mexico for motivated entrepreneurs. Mexicos' middle class is growing and restrictions for foreign investment are being lifted.

Thanks to its geography, Mexico is also the third-largest trading partner with the United States (behind China and Canada) and stands to be the door to Latin America, especially in light of the recent woes Brazil is going through.

Finally, it is worth noting that Mexico's proximity to Silicon Valley and equity funds such as Sequoia and Horowitz have made their first investments in Mexico this year. Its proximity to USA and Canada investment hotbed could be fantastic news as more funds follow and take the leap into Mexico.

If you're still thinking of moving to Mexico to start a new business, then you'll need to know a few basics to get started. Read this guide to help you on your way.

Start with a solid game plan.

Thanks to the North American Free Trade Agreement (NAFTA), there are very few restrictions on your ability to own and operate a Mexican business as an American or Canadian.

You don’t need to be a Mexican resident to start a business in Mexico, but you will need to obtain an immigration visa and work visa if you want to physically work at your Mexican business.

You can apply for both resident and non-resident visas at a number of Mexican consulates worldwide, or you can apply for a work visa after arriving in the country through the Secretaría de Gobernación

 

What Business Opportunities Are There?

Mexico´s major industries have grown steadily over the last few years. Some of these industries are:

 

  • Oil& Gas
  • Aerospace
  • Automotive
  • Energy production
  • IT

The establishment of manufacturing facilities in Mexico has seen exports of aerospace components increase by 14.1% annually from 2006 to 2019. Mexico´s aerospace sector is likely to reach tenth place worldwide ranked by sales.  The automotive industry is also growing quickly and Mexico is soon to overtake Canada and the US and as ranked seventh in global car production.

These are all major industries and are heavily regulated and nearly impossible to start a business in. But all these large industries need small business support.

Assuming you’ve got a stellar business idea and a well-written business plan, your first step will be to register your business in Mexico.

 

All business application documents will be in Spanish, so it is advised to get a legal advisor or notary to help you with the application process or have them do everything for you.  Be sure to hire a competent and trustworthy advisor. Take recommendations from others before choosing the right notary.

When starting a business in Mexico, it is imperative to take cultural differences into consideration. Being late is accepted and normal in Mexico.

Knowing that you should always consult a legal professional before starting the business application process. In the end, it can save you a lot of time and stress.

business application and plan

 

Request to the Ministry of Foreign Affairs (SRE).

The first step in creating a company is to submit a request to the Ministry of Foreign Affairs where five possible business structures are listed in order of preference for the company.

What Type Of Business Entity?

One of the first steps to be defined when opening a business is the type of legal entity that will be started. In Mexico, the four most common types are:

    • S.A. de C.V. – Sociedad Anónima de Capital Variable (Stock Corporation)
    • S. de R.L. de C.V. – Sociedad de Responsabilidad Limitada de Capital Variable (Limited Liability Company)
    • S.A.P.I. – Sociedad Anónima Promotora de Inversión (Mexican Investment Promotion Company)
    • S.A.S. – Sociedad por Acciones Simplificada (Simplified Shares Company)

Registration before the Tax Administration Service (SAT).

When the Constitutive Act is created and legalized the next step is with the Tax Administration Service, the Mexican equivalent to the IRS. From this process, the Tax Identification Number is obtained, which also contains the Federal Taxpayer Identification Number (RFC).

Registration in the Public Registry of Property and Commerce (RPPC).

Next, you need to appear before the Public Registry of Property and Commerce in the state and city where the company will be registered, you need to list its purposes, objectives and commercial goals. For this process the presentation of the Constitutive Act is required, the RFC, and the power of attorney that allows the legal representative to carry out actions for the business.

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

Next, you need to list your business with the Mexican Institute of Social Security. Even if you are sole proprietor and the only worker it is still necessary for you to make personal contributions to Social Security accounts. And if you do not pay on time, you will be liable for fine by the IMSS.

Registration before any other required government offices? Depending on the business activity that the company will perform, you may be required to register to different government departments, the most common being: Ministry of HealthSecretariat of Ecology and EnvironmentMexican Institute of Industrial Property,  etc. At this point, you must also fill out all municipal or state permits that are required in the geographical area in which you wish to establish.

Tax Considerations

The corporate tax rate in Mexico is 30%, much higher than the United States thanks to President Trump. Even so, many US export service businesses are moving to Mexico for lower wages and overhead.

It is advisable however to form an offshore company with lower taxes to accept payments and only send the required amount of money needed to operate the Mexican company. (rent, wages, supplies)

What Other Legal Considerations Do I Have To Be Aware Of?

The legal system in Mexico is unique and changing and it is always advised to hire a competent legal advisor. Here is some examples of some other business obligations you need to be aware of.

Business Insurance

Business in Mexico is required to have company insurance with a baseline set of coverage. All vehicles rented or owned must be fully insured as well. Failing to do so can result in time in court and high penalties.

Business Taxes

The Mexican corporate income tax is 34% for all businesses in Mexico according to Mexican income law (LISR) Payment for all taxes must be made on time or you will be eligible for fines.

Import Taxes and Duties

Mexico has over 140 categories for the importation of products. Imported products from North America have an import tax of 7%. The cost of an imported product from the rest of the world is 13.5%.

What importing product to Mexico the following papers are required commercial invoice, bill of lading, packing list, import permits, and other special certificates

Mexico Labor Laws

A Mexican business week is 48 hours during the daytime and 42 hours for the night shift. The business week is considered six or five days or nights.

The termination of an employee or contract worker does not require a notice. At the same time employees are not required to give notice either. Creating a logistical nightmare for the human relations department.

Mexican minimum wage is split into two zones. The free zone of the northern border the rest of the country of Mexico. The minimum wage in the northern border is 176.7 pesos/per day. The minimum wage and the rest of Mexico is 102.68 pesos/per day

Conclusion

Mexico has a booming economy and is a good place to start a small business. But starting a business in Mexico requires a lot of detailed information and the filing of applications. Also about insurance, labor law, and importation of goods. It is advised to hire a reputable legal advisor to get all the details done correctly. The experienced advisers at Mexican newsletter can help you start a small business in Mexico today

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