Doing Business in México This document describes some of the key Railroad tracks, however, have had practically no commercial and taxation factors that are relevant development in decades. on setting up a business in Mexico. Digital communication networks allows Mexico be 1. BACKGROUND in great level to satisfy any national and international necessities. Brief description of Mexico. Mexico is a democratic republic; it has 31 states and 2. CHOICE OF LEGAL FORM a Federal District. The executive power is elected every six years. Legal frameworks are established through statutes, the General Mercantile Societies Law and other In Mexico there are 120 million inhabitants who are applicable special laws. mainly concentrated in the big cities. Mexico City, the capital, has 21 million inhabitants. Corporations are constituted through a public Spanish is the official language; almost 97% of the instrument which creates a juridical personality. population is catholic. This public instrument is notarized and registered before the Public Registry of Commerce. Mexican economy. Mexico has two main sources of wealth: oil and The society’s legal representative acts on behalf of tourism which represents almost 30% of the Gross the entity with a notarized power of attorney Domestic Product (GDP). The manufacturing granted by the shareholders. industry (maquiladoras) is significant, and commerce and services are continuously growing. Any of the societies mentioned below may be constituted with fixed or variable capital. The average inflation for the last few years has been less than 4% annually. The fiscal year coincides with the calendar year. The official currency is the Mexican peso and the 2.1 Limited Liability Company (Sociedad most convertible currency is the US dollar. The de Responsabilidad Limitada) exchange rate has been very steady in the last 5 years: around 12 pesos per one USD. As with the S.A., the S. de R. L. is one of the most widely used for doing business in Mexico. Infrastructure A broad border with United States allows Partners are responsible up to the amount of their continuous traffic to and from production and contribution, unless they are part of the Board of consumption centers. Ports located on the coasts Directors or be Statutory Auditors. have enough infrastructures to deal with international trade.De la Paz, Costemalle DFK,SC es una entidad legal autónoma e independiente que forma parte de DFK Internacional.
2.2 General Partnership 2.8 SubsidiaryNot in use in Mexico. They are constituted using the before mentioned form, and operate as legal societies constituted in2.3 Limited Liability Partnership Mexico.Not in use in Mexico. 2.9 Public Limited Company2.4 Limited Partnership A public entity is that which trades on the security exchanges. Any society which is solvent may quoteNot in use in Mexico. in the security exchange issuing obligations or special shares series fulfilling provisions in the Law.2.5 Branch or representative office. In Mexico, a public entity is constituted with theA branch and a representative office can operate in Mexican government participation of up to 51% ofMexico only if their offices are registered before the the capital stock when the society’s activity isPublic Registry of Commerce; constitutive strategic for Mexican’s development or 100% ofinstrument, by laws (estatutos sociales), powers of the capital stock when the society’s activity isattorney, must be authenticated by authorities of fundamental for Mexico. In both cases,their home country, in Spanish (or accompanied by stockholders can only be Mexican individuals oran official Spanish translation), protocolized before societies with a charter restricting foreignera Notary Public here in Mexico. investors.One must apply to the Ministry of Foreign Affairs to 2.10 Joint Ventureobtain permission to carry out transactions inMexico. This is an association that can be between individuals, businesses or a mix of them. SameEach year the entity must present and publish its rules, rights and obligations apply to all itsBalance Sheet audited by an independent certified signatories.public accountant. The Association in Participation AgreementThis type of entity is not ideal, since it is subjected (Asociación en Participación) is a temporaryto a tax regimen as a corporation constituted association conformed for commercial purposesaccording to Mexican law, a subsidiary company is through a contract signed by one or more silentthe best option. partners (“asociados”) who give goods or services to an active partner (“asociante”), both pursuiting2.6 Sole Proprietorship a common objective, grants participation in profits and losses of the business. The active partner willThese societies are prohibited in Mexico. A appear before third parties and the silent partnercompany must be formed by a minimum of two will not.partners, however 99% of capital stock can beowned by one individual. According to the Mercantile Societies General Law this association has no juridical personality2.7 Offshore Legal Entities and acts through the individual who associates, assumes the responsibilities generated by theYearly, the location of offshore countries is contract before authorities, individuals and thirdapproved. All operations performed with these parties.countries need to be informed to the authority,mainly for tax purposes. The associates have no responsibilities in the before mentioned.
However, for tax purposes, the contract does have •Special clauses for setting conditions of partner’sjuridical personality and is subjected to tax law like exclusion, as restriction or termination of sharea mercantile society. sales.2.11 Sociedad Anónima (S.A.) (Corporation) •The implementation of mechanisms for agreements achievement among shareholders.This type of corporation is the most widely usedfor doing business in Mexico. Our financial system is 3. AUDITING REQUIREMENTSbased on this corporation type. 3.1 Requirements and ThresholdsThe responsibility of the shareholders is limited tothe amount of their contribution, with the Tax audit - enterprises fulfilling any of theexception made of the legal representative or the following three requirements are subjected to themembers of the Board of Directors and the Board compulsory tax auditing whose results are filedof Oversight. with tax authorities in May of the following year:To constitute this type of corporation at least two •Revenues greater than US $ 2.6 millionindividuals are required. •More than 300 workers •Assets greater than US $ 5 million2.12 Trust / Foundation Financial audit – medium, large companies, allTrust can only be formed with authorized Trust financial institutions, as well as public and stateHouses. institutions are usually audited and reported to its government body.Foundations (Instituciones de Asistencia Privada)are born with the aim of perpetuity. They are ruled Special audits – local authorities, social securityby local entities (Junta de Asistencia Privada). and housing institutions force certain companies to be audited for special purposes.Civil societies are organizations whose partnerscontribute work and resources toward an 4. TAXATIONeconomic result with no commercial speculation.Their regulations are included in their bylaws and The most significant taxes caused according to thethe Civil Code. Included in this type of societies are amounts collected are income tax; value added taxprofessional, cultural and social services. and the new business flat tax.2.13 Sociedades Anónimas Promotoras de Taxes caused by societiesinversión (SAPIs) 4.1. Corporation TaxesIt´s a new corporate model that the objective isattract capital and investors. It has also been the Business Flat Taxkind of entity of choice for hungry-for-public-funding companies targeting the stock market. An allternative minimum tax now called “Impuesto Empresarial a Tasa Única” IETU (Business FlatThis new legal figure allows: Tax). This new tax shall be paid by Mexican-•More freedom for the company to have a single resident entities and individuals on theirdocument that regulates its shareholder’s relation, worldwide income received as compensation forinstead of having the bylaws and multiple contracts the sale of goods, for independent servicesbetween them. rendered and for leased goods. Non-residents•Modalities on how shares may be issued. with a permanent establishment in Mexico shall also be subject to this tax.
The tax shall be determined on a cash-flow basis 4.3 Dividend Paymentsat a rate of 17.5%. As a transition, a 16.5% ratewill be applicable in 2008 and 17% rate will apply Dividends are tax free when the society paid taxesin 2009. The alternative minimum tax shall be previously. Otherwise, income tax needs to bedetermined on an annual basis, with monthly integrated by gross up.estimated payments. The basis of the alternativeminimum tax for almost all taxpayers shall be 4.4 Branch Profits Taxdetermined by subtracting all deductions from theaggregate taxable income. Same rules as Corporation Tax applyIncome Tax. 4.5 Personal Income TaxAll entities revenues, cash, goods, services, credit Mexican Income Tax Law taxes individuals’or any other type, including those obtained abroad revenues obtained from the following concepts:are taxed according to income tax law. Itsmaximum rate is 30%; as such it is applied to some •Wages and subordinated personal servicesactivities and for corporate tax. Individuals pay this •Business and professional activitiestax with a progressive table from 0% to 30%. •Leases •Sale of assetsThe fiscal losses of preceding years are subjected •Purchase of assetsto the following provisions: •Interest revenue •Prizes•They will be decreased of tax profits only in the •Dividends following ten years. •Other•Tax losses will be updated with inflation factors.•When the taxpayer is entitled to deduct tax Besides authorized deductions for each individual’s losses and fails to do so, the right to deduct the taxed revenues there are personal deductions amount not decreased shall be forfeited. described below:•The right to deduct tax losses cannot betransferred in the case of a merger; it can only be •Medical and hospital feestransferred when corporations divided. •Funeral expenses •DonationsTax on Cash Deposits (IDE) •Interests on mortgage loans •Complementary contributions to the retirementIt is calculated at a 2% rate on the deposits made plansin cash to an account maintained with Mexican •Allowances major medical expenses insurancefinancial institutions, and which will be applicable •Compulsory school transportationwhen the aggregate deposits exceed MXN$25,000 in each month. The tax shall be collectedby the institutions receiving the deposits, who A deduction of fiscal losses is authorized only toshall issue the corresponding certificates of individuals with revenues from business activitieswithholding to the taxpayers. in the following terms:Asset Tax Law •Fiscal losses are compensated against taxable profits of the next ten yearsIt is was abrogated January 1, 2008 •Tax losses shall be updated according inflation factors4.2 Small companies’ rate •When a taxpayer who is entitled to deduct fiscal loss in a fiscal year and fails to do so, the right toSmall businesses are limited and not geographically deduct the amount not compensated for, shall be centered in big cities. (See below paragraph forfeited.“Incentives and Development Programs”).
4.6 Capital gains tax Study under the international rules, a trusted database is searched and applicable items areThis revenue is tax exempted until realized when compared under the “arms’ length” principle.earnings is computed and tax caused is paid. The above has higher enforcement with4.7 Land tax international related parties.Possession of real estate is taxed based on thegovernment estimation of value. 5. Allowances4.8 Value Added Tax 5.1 DepreciationVAT is applied to the value increased through the Financially, depreciation is made according to theproductive chain, taxing the ultimate price of goods assets’ useful life. For tax purposes the commonand services that is paid by the final consumer. practice is to apply the maximum rates authorized by tax laws which generally anticipate expenses.All individuals and entities engaging in the activitieslisted below are required to pay Value Added Tax: 5.2 Investment allowance•Sale of assets Sporadic investment facilities are declared to•Rendering of independent services promote investment (domestic and foreign) in•Grant of temporary use or sale of assets certain non developed or damaged regions and•Import of goods or services cities.Taxpayers have the right to deduct the VAT payable 5.3 (Tax Credits) Incentives andby them when purchasing goods or services development programscorresponding to the main activities of theirbusiness. In general terms, investment incentives in Mexico are as follows:4.9 Sales Tax •Importation of raw materials and machinery and equipment used for production of goods forNot applicable as the VAT is a federal tax in export, free of tariffs and taxes.Mexico. •The possibility of immediate depreciation of fixed assets4.10 Local Taxes •The possibility of purchasing land in some states ofLocal governments can and actually collect special the Republictaxes on: payroll, education, etc. •Access to venture capital from developmentBase is usually 2% on payroll/education, etc or a banks.minor VAT percent locally defined. 6. EMPLOYMENT4.11 Tax treaties Minimum wages are applied with consideration ofMexico has more than 80 international treaties, geographical areas made up of municipalities andwhich means an advantage to foreign investments in states. Minimum wage is the name for the salary aavoidance of double taxation. worker earns in established geographical areas.4.12 Transfer pricing rules Salaries are paid weekly for physical work and biweekly for all others.All companies in Mexico, dealing with relatedparties, need to perform a Transfer Pricing Workers earn an annual bonus and participate in 10% of the profits of the enterprise.
6.1 Social security / unemployment 6.2 Employment of foreign personnelSocial security guarantees the right to health, No aliens are allowed to work in Mexico unless amedical care, protection of the means of proper work permit is granted by the Secretaríasubsistence, and the necessary social services for de Gobernación (State Ministry).the workers’ welfare, as well as a retirementpension guarantied by the federal government 6.3 Medicalwhen legal requisites are fulfilled. Execution ofsocial security is the responsibility of public Medical expenses for workers are covereddependences, federal or local, as well as through social security as described above. As adecentralized organizations. usual policy, companies pay medical insurance policy for their officers as well.The Instituto Mexicano del Seguro Social (IMSS)is a decentralized public Institution with its own 6.4 Payroll taxesjuridical personality and patrimony, founded in (See above in “Individual Taxes”)1944, in charge of organization and managementof social security for social and private sectors. No deduction is allowed on minimum wage personnel.Social security includes a compulsory and a An increasing rate from 0% to 30% is approvedvoluntary regimen. every year as income tax. Social Security (housing, medical, retirement,In the compulsory regimen, individuals secured motherhood, nursing, etc) is paid between theare those who render permanent or eventually State, the employee and the employer.remunerated and subordinated services to other Altogether personnel taxes for the employer canindividuals or entities, and also to economic units rise up to 2.3 times payroll.with no juridical personality. Workers shouldhave as beneficiaries of social security services 7. WITHHOLDING TAXESthe spouse or partner, as well as ascendants anddescendants authorized by law. 7.1 InterestCompulsory regimen includes insurance for the A flat rate is withheld in the financial institutionsfollowing: and paid on the name of the deposit-holder if the rate is above certain level.l. Job risksll. Illnesses and pregnancy The financial institution issues a tax certificate tolll. Invalidity and life be used in the yearly annual return.lV. Retirement, dismissal by advanced and old ageV. Nurseries and social benefits 7.2 RoyaltiesAs a part of the obligations established in the A flat rate of 10% is calculated on all royalties paid.Social Security Law, employers must register Special treatment applies to foreign paid royalties.themselves and their workers in IMSS (seeabove), and communicate those who added or 7.3 Dividendsdropped from employments as well as any salarymodifications. No withheld tax is calculated on dividends that have already paid income tax. If dividends comeUnemployment taxes are non existent in Mexico. from non-income-tax-net-profits, a rate of 29% is determined, withheld and paid by the entity on behalf of the shareholder.
8. MISCELLANEOUS Immediate depreciation of investment: the entities may choose to concentrate in one fiscal Development programs. Mexico has Programs for year (the first or second) the greater percentage Export Development as described below: of tax depreciation of fixed assets instead of applying the rate enacted in fiscal laws. Enterprises Maquiladoras with temporary imports for located in Mexico City, Guadalajara and producing export goods (IMMEX): Import of Monterrey, and investments in transportation and raw material, machinery and equipment, packs and office equipments are excluded this benefit •Aguascalientes • Cancún • Campeche • Ciudad de México • Chetumal • Guadalajara • Mérida • Michoacán • San Luis Potosí • Villahermosa • Riviera Maya • crates, fuel, and spare parts with no payment of tariffs and VAT and other special fiscal benefits, the Facilitated real estate purchases: some state requirements being: governments evaluating project benefits give The entity is dedicated to produce non-oil reductions in the price of real estate in order to merchandise attract foreign investment. Export 10% of its sales as a minimum or US $ 500,000 for importing material for production Financing programs with venture capital: reported annually. The Banco Nacional de Comercio Exterior At least 30% of the value of sales destined for (Bancomext) and Nacional Financiera (Nafin) may export to benefit tax exemption corresponding to temporally participate as minor stockholders in import of machinery and equipment. (during the the investment projects of enterprises with validity of the program) foreign capital stock. Once the project progresses Systemize the inventory processes, registering the the development bank retires from the society, entrances, decreases and leaves. selling its stock to founding shareholders for the agreed price in the initial agreement or sell to High export enterprise (ALTEX): a stricter third parties. version of IMMEX with more benefits and state and Prepared by: Juan Pacheco federal governmental supports. De la Paz, Costemalle - DFK, SC Amended: January 2011 Promotion for specific productive sectors. (PROSEC). Imports of raw material, machinery and equipment, packs and crates, fuel, and spare parts with no payment of VAT and less amount of duties. (advalorem) without the obligation of export the final product. Drawback: reimbursement of custom duties paid by production material imported for production of merchandise destined for sales abroad or required by export enterprises.. To benefit with this system, the taxpayer should file the corresponding application before a year has elapsed after the import of material for production and within 60 days after the goods were exported.This document is provided as a general overview of matters to be considered when setting up an overseas business inMEXICO. It is essential to take advice on specific issues. No liability can be accepted for any action taken or not takenarising from the information providedConsultoría •Administración •Fiscal •Legal •Auditoría • TecnologíaFor further please contact: De la Paz, Costemalle - DFK México+52 (55) 3686 2400 Ext. firstname.lastname@example.org