Starting a Business in Mexico
What are the keys to starting a business in Mexico? What will you need to take under consideration in terms of visas, business structures, and taxation? My Business Plans is here to walk you through the process.
If you’re on the fence about where to launch your latest venture, starting a business in Mexico is definitely worth your consideration. With one of the world’s top-20 economies and a population that the OECD ranks as being the hardest-working in the world in terms of the annual hours worked, Mexico is a great idea for anyone looking to start a business.
With a population of around 120 million, Mexico is rich in both resources and a competent, varied labour force. Since the North American Free Trade Agreement came into effect in 1994, Mexico’s economy has grown substantially, especially in the manufacturing sector; industry and services now account for over 95 percent of Mexico’s GDP. Foreign investment has also increased rather steadily over the past few years; while the renegotiation of the agreement and a period of currency inflation and depreciation resulted in some uncertainty over the past year, both the Mexican peso and the NAFTA negotiations are expected to stabilize in the latter half of 2018. The weak peso has also motivated some businessmen and women to take advantage of the relative bargain and set up shop south of the border; starting a business in Mexico could be your key to success. As with beginning a business anywhere else in the world, you’ll need to draft a strong business plan that includes in-depth information on your business concept, available resources, projections, strategies, research, and more. Check out our business plan templates available for free download to help you along in starting your business in Mexico, and read on for more particulars on how to get started.
Visas and Immigration
If you aren’t already a Mexican citizen or resident, you’ll need to apply for a visa before you think about starting a business in Mexico. You won’t be allowed to start a business in Mexico on a tourist visa, and it’s important that you take the visa and immigration process seriously. As an entrepreneur or businessperson, you have a couple different options available to you:
Temporary Resident Visa (TRV): this visa will allow you to live and work in Mexico for up to a year before the visa must be renewed; it can be renewed up to 4 years, after which anyone wishing to stay must apply for a Permanent Resident Visa. In order to get your TRV you’ll need to demonstrate that you’re economically secure; the amounts that you’re expected to show in your accounts varies according to currencies and between countries, but it’s around 1500 USD per month — your local Mexican consulate will lay this out in your local currency. You’ll apply for this visa at your local consulate; after you receive your visa, you’ll have 180 days to arrive in Mexico. At customs, the temporary visa in your passport will be re-marked and you’ll have 30 days in which to present yourself at your local National Immigration Institute office, or INM, where you’ll finalize your visa. Be sure to keep a checklist of everything you’ll need to present at these appointments.
Permanent Resident Visa (PRV): If you’re related to a Mexican national or have familial ties in the country, if you’ve renewed your TRV up to its four-year limit, or have married a Mexican national, for example, you can apply for a PRV. You’ll apply for this visa at your local consulate; after you receive your visa, you’ll have 180 days to arrive in Mexico. At customs, the temporary visa in your passport will be re-marked and you’ll have 30 days in which to present yourself at your local National Immigration Institute office, or INM, where you’ll finalize your visa. Be sure to keep a checklist of everything you’ll need to present at these appointments.
Keep in mind that only individuals who are the son, daughter, parent, or sibling of a Mexican national and resident (this includes regularized foreigners) can apply for a visa within Mexico. You’ll want to start your visa process a month or two before you plan on starting a business in Mexico. Once you have a visa, you’ll be able to open a local bank account and begin thinking about starting a business in Mexico!
Structuring your Business
In Mexico, your business can exist under one of the following five structures:
- Sole trader: a sole trader, like a sole proprietorship, is a one-person owned and run business where the owner claims full liability for the company’s debts and lawsuits; because it’s a pass-through structure, tax is paid on individual income.
- Limited Liability Stock Corporation (SA): an SA must have at least two shareholders, whose liability is limited to their stock interest. 50,000 Mexican pesos in minimum capital will be needed, 20 percent of which will be due for incorporation. Shares can be traded publicly after appropriate filing, and a statutory examiner outside the company must be appointed to represent shareholders.
- Limited Liability Corporation (LLC): an LLC in Mexico must be established by at least two people and must pay corporate tax rates, or 34%. Owners’ liability is limited to their partnership interest. Minimum capital of 3,000 Mexican pesos and 50,000 maximum, 50 percent of which to be paid at incorporation. Shares cannot be traded publicly.
- Partnership: A relatively rare form of incorporation in Mexico because partnerships do not benefit from limited liability. All establishing partners are equally liable for taxes, debts, and litigation. You can also establish a limited partnership, but you’ll want to employ a lawyer and write up a bulletproof agreement before you enter into business.
Incorporating your Business
Once you’ve decided upon your structure, you’re that much closer to starting a business in Mexico. Regardless of the business structure you’ll be starting with, you’ll need to decide upon a name under which your business will operate and check to make sure that this name is still open to you; you can see the government’s database page and register your business name here.
You’ll also need to submit a request to the Ministry of Foreign Affairs stating your name and the structure you intend to use for your business. Once this request has been accepted (and don’t worry, it doesn’t tend to take more than a few days), you’re well on your way to starting a business in Mexico!
Next you’ll need to draft your Constitutive Act, which must be notarized before witnesses before it will be deemed valid. This document will lay out all of the essential information on you, your partners, your business and its structure and mission, and the duration for which it is intended to exist, as well as including any dissolution and redistribution procedures that would habitually be present in a company’s bylaws.
Now, you’ll need to take your Constitutive Act in order to register with the Tax Administration Service, who will give you a Tax Identification Number. Your TIN will also include your Federal Taxpayer Identification Number, or RFC, which you’ll need in order to pay your dues to the state. This only takes a few days.
With your RFC and your Constitutive Act, you’ll now need to go to the Public Registry of Property and Commerce in your region and present your tax registration and all the pertinent information about your company; you’ll also need to establish power of attorney for your company by this point.
Finally, you’ll register with the Mexican Institute of Social Security. Whether you’re working as a sole proprietor or an LLC, employees or not, you’ll need to make some form of contribution towards Social Security. This is an especially important element for anyone who will be hiring employees.
The federal corporate income tax rate in Mexico is at 30 percent, and individual income taxes are directly proportional to income on a sliding scale up to 30% for incomes over 3,000,000 Mexican pesos for nationals and 1,000,000 for some foreigners. However, in 2016 a presidential decree delineated several Special Economic Zones such as Yucatan, Chiapas, Salina Cruz and more, where in the interest of promoting investment and development, local corporations are tax-exempt for the first 10 years of business and taxed at half the normal rate for the following 5 years. More regions are expected to be named Special Economic Zones, and those already named have experienced a solid increase in industries related to food, steel, textiles, and manufacturing.
Depending on what kind of business you’re setting up, you also may need to register your company with the Ministry of Health, Institute of Industrial Property, or others. Make sure that you have all of the necessary permits and licenses before you begin doing business ! But don’t worry, starting a business in Mexico is known for being a relatively forgiving process; as long as you pay attention to cross your t’s and dot your i’s, you should be off to the races in no time. And of course, the key to any business’ success anywhere in the world is a fool-proof business plan; check out our business plan templates available for free download to make sure you have absolutely everything in order for your business venture in Mexico.