Opening a Business in Mexico

Today the US Dollar reached $18.57 Pesos in Mexico and experts are estimating that the dollar will only go up in the coming days. In recent years more and more Americans have taken advantage of this spike in value by vacationing in Mexico, crossing the border to shop, and even starting a life south of the border.

American business men and women have benefited the most from the current state of the dollar in Mexico as more and more companies are starting to open operations in Mexico. Forget all the hype around Trump… that just applies to import / export businesses. If you are in the service business, our operate online, then you can move to Mexico without any new tax costs.

Since NAFTA, many of the restraints placed on Americans seeking to operate or invest in businesses in Mexico have been erased. The process will become even easier in the upcoming years as Mexico is starting to recognize the necessity of foreign investment. Foreign investment in Mexico reached 15,645.2 million dollars in the first half of the year, an increase of 8.8% compared to the preliminary figure for the same period of 2016.

Mexico is the easiest country in Latin America to start a business as its faster and much less complicated to do so. In some cases it only takes a day and zero dollars to begin running your own company. Still, there are some steps that you must complete in order to comply with the Mexican rules and regulations established to help you begin.

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. This is done to ensure that there is no company already established in the country with the same corporate name.

Drafting the Constitutive Act.

Once the SRE gives the approval and determines the applicable Business Structure, the Constitutive Act must be created. This document is the one that gives life and stipulates all the general and basic aspects of the company: company name, objective, type of company, administration, duration, etc. Once the company is created, the Constitutive Certificate must be notarized before a Notary Public.

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 register, the Tax Identification Number is obtained, which contains the Federal Taxpayer Identification Number (RFC).

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

The next step is to appear before the Public Registry of Property and Commerce  in the state and city where the company will be registered, as well as 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 company.

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

Next is to subscribe your business to the Mexican Institute of Social Security. Even if it is a company in which only the employer exists as the only worker, since it will be necessary for him to make his personal contributions to his Social Security accounts. Also, if you have not done it in time, you may be liable for a fine by the IMSS.

Registration before the other required Government offices. Depending on the commercial activity that the company will perform, you may be required to register to different government organisms, the most common being: Ministry of Health, Secretariat of Ecology and Environment, Mexican 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 seeks to establish.

It is worth noting that, as in the United States, there are many grants that the government gives to new business, you’ll have to look up and see which one applies to your type of business.

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 business are moving to Mexico for lower wages and overhead.

  • An export service business is a company that provides a service from Mexico to people or companies outside of Mexico. For example, affiliate marketers, outsourcing, and internet businesses.

Because of the high taxes in Mexico, we usually suggest you also incorporate an offshore corporation in a low or zero tax country such as Panama. Clients will pay the Panama corporation and you will bring into Mexico only the money you require to operate the business. That is to say, the business in Mexico will break-even or have a small taxable gain.

Note that this only works if your clients pay the Panama company and not the Mexico company. Mexico’s tax authority is likely to deny a deduction for expenses paid to a Panama company.

Also, US citizens should draw their salary from the Panama company maximizing the Foreign Earned Income Exclusion. For more on this, see: Eliminate U.S. Tax in 5 Steps with an Offshore Corporation.

Please keep in mind that these tax suggestions apply to ordinary business income. I am not considering passive income, capital gains, or cryptocurrency trades. For more on those topics, see: 3 Ways to Stop Paying Capital Gains Tax.

Conclusion

I hope you’ve found this article on Opening a Business in Mexico to be helpful. For more information, or for assistance in starting a business offshore, please contact us at info@premieroffshore.com or call us at (619) 550-2743. We’ll be happy to refer you to experts in Mexico who can assist you.

 

 

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