Company incorporation in Mexico

Mexico offers a wealth of opportunities for foreign businesses due to its strategic location, large market, and strong trade relationships, especially with the United States and other Latin American countries. The government has implemented various reforms to attract foreign investment, particularly in sectors such as manufacturing, technology, retail, and services.

Most Common Business Forms for Foreign Companies

The most common business structures for foreign companies in Mexico are the Sociedad Anónima (S.A.) and Sociedad de Responsabilidad Limitada (S. de R.L.).

• Sociedad Anónima (S.A.): The Sociedad Anónima (S.A.) is similar to a corporation and is the most common business structure for larger foreign companies. It allows for the issuance of shares and is suitable for businesses that may later seek to raise capital or expand. The liability of shareholders is limited to the capital they contribute.
• Sociedad de Responsabilidad Limitada (S. de R.L.): The S. de R.L. is more suitable for small to medium-sized businesses. It has fewer formalities and is often used by foreign investors seeking to maintain control while limiting their personal liability. It is similar to a limited liability company (LLC).
• Foreign ownership is allowed up to 100% in most sectors. However, certain activities such as banking and transportation require a local Mexican partner.

These structures offer flexibility for foreign investors depending on the scale and nature of the business, with the S.A. being more suitable for companies planning to issue shares or seek outside investors.

Setting Up a Company in Mexico

Setting up a company in Mexico requires several steps, and the process can vary depending on the chosen business structure and location. Here are the general steps involved in incorporating a business in Mexico:

1. Choose a company name and ensure it is not already in use by another company. The name must be approved by the Mexican Ministry of Economy.
2. Draft and notarize the company’s Articles of Incorporation (Escritura Pública) in front of a notary public. The document must include the company’s objectives, capital, and governance structure.
3. Register the company with the Mexican Tax Administration Service (SAT) to obtain a Federal Taxpayer Registry (RFC). This is necessary for tax purposes.
4. Open a corporate bank account in Mexico and deposit the required capital. The minimum capital requirement varies, but for an S.A., the minimum is typically MXN 50,000 (approximately USD 2,500), while an S. de R.L. has a lower requirement.
5. Register the company with the Public Registry of Commerce (Registro Público de Comercio) to obtain legal recognition and the right to operate.
6. Depending on the business activity, register for local permits and licenses, such as a municipal operating license and zoning permits.

The process of incorporating a business in Mexico can take between a few weeks to a few months, depending on the complexity of the business and the location. Foreign businesses are encouraged to consult with legal and accounting experts familiar with local regulations to ensure compliance with Mexican laws.

Taxation and Withholding Taxes

Mexico offers a relatively straightforward tax regime for companies, but there are key points that foreign businesses should be aware of:

• Corporate income tax in Mexico is set at a rate of 30% on net profits. Companies are required to file annual tax returns and comply with regular tax reporting obligations.
• Mexico also has a 16% Value Added Tax (VAT), which applies to most goods and services. Businesses must register for VAT if they are engaged in taxable activities.
• Regarding dividends, there is a 10% withholding tax on dividends paid to foreign shareholders, which may be reduced under Mexico’s double taxation treaties (DTA) with various countries.
• Mexico has a wide network of DTAs that help reduce withholding taxes and avoid double taxation on income generated by foreign businesses.

Service Providers for Company Incorporation

• Crowe Mexico
• Morales & Osorio
• Grupo México
• Latin Lawyers
• Somos Consultores

These service providers can assist with all aspects of company incorporation in Mexico, including legal advice, tax registration, and ongoing compliance, ensuring that foreign businesses are set up correctly and operate within the legal framework.