Foreigners Doing Business in Mexico

Last Update: September 6, 2024

Doing business in Mexico may be just what your company needs to prosper, with lower wages for skilled workers and lower transportation costs since Mexico is situated closer to the US and Canada, than, China or India for example. Location also ensures faster production turnaround time, not to mention ease of communication, and similar time zones.

Since, Mexico is a part of The North American Free Trade Agreement NAFTA, between Mexico, Canada and the United States there are many benefits to doing business in Mexico. NAFTA eliminates tariffs between the countries and has built in agreements and legal processes, with international rights for business investors.

Foreigners can own 100% of a Mexican corporation and open their business in Mexico. Mexico’s legal system and tax laws for businesses do not discriminate between foreigner-owned businesses or those owned by Mexican nationals. However, it’s important to note that in certain industries, Mexican law requires a minimum percentage of national investment. This means that while foreign ownership is generally unrestricted, there are specific sectors where the law mandates a certain level of Mexican participation.

Owning a business in Mexico can be a lucrative initiative, but make sure you have a Mexican law firm to represent you and your company, they will help you setup your business in Mexico, a law firm like MexLaw can provide important guidance through, creating a corporation, advising you on Mexican labor law, Mexico’s tax laws, and all red tape that goes along with doing business in Mexico.

Anyone who has begun the process of opening a business in Mexico can not stress enough the importance of using a lawyer, you will need to deal with all business aspects, zoning and building permits, taxes, environmental regulations, and even your own immigration status.

Business entity options in Mexico are similar to those in the rest of North America, including Public Limited Companies or Corporations (Sociedad Anónima (S.A.)). These entities must have fixed capital, but there is also the option of variable capital. This entity can have one or more board members and an unlimited number of shareholders. Only the Investment Promotion Public Limited Company (Sociedad Anónima Promotora de Inversión) is required to have at least two board members.

Limited Liability Company (Sociedad de Responsabilidad Limitadada (S.de R.L.) also, have fixed capital but there is the option of variable capital. This entity must have at least 2 partners, but no more than 50.

Sole Trader (Persona Física con actividad empresarial) refers to an individual conducting business under their own name for business and tax purposes.

Professional Service entities (Sociedad Civil (S.C.)) are designed for consultants, translators, lawyers, or accountants. No minimum capital is required. It is primarily for a group of professionals in a field or service that is not predominantly economically driven.

All these types of companies are required to have an accounting firm to ensure proper management and compliance with legal requirements.

Nonprofit entities (Asociación Civil (A.C.)) include charities, organizations, or Homeowner’s Associations (HOAs), not the administration companies.

The most common entities are corporations and limited liability companies. A professional legal team can help you assess which option is best for your business and which will provide the most operational benefits.

 

Mexico’s Labor Law

It is important to familiarize yourself with Mexico’s labour laws. Foreigners doing business in Mexico need to be cautious of their hiring practices and the  labour laws of Mexico. Mexico has strict labour laws in place to protect the employees, but a Mexican law firm can help you make sense of the labor laws of Mexico.

As an employer, it is in your best interest to hire a Mexican law firm like MexLaw to understand your rights and obligations, develop employee contracts, and adopt best practices for hiring staff. You’ll receive guidance on legal expectations to ensure a happy, productive workforce and avoid issues with the labor board.

All conditions and expectations must be documented in an employment contract between the worker and the employer, with the aim of ensuring the best interests of both parties.

Labor laws can change with each state and update without notice.

As in Canada and the US, there are many labor laws involving, child labor, discrimination, harassment, maternity leave, profit sharing, overtime, yearly wage negotiation, vacation days, and union regulations if applicable.

MEXLAW can assist you in managing employee hiring, helping your company resolve labor disputes and guiding you through Mexican labor laws and proper employee administration. Additionally, our sister company Mextax can provide payroll services to ensure your company complies with all regulations and avoids penalties.

It’s also crucial to familiarize yourself with Mexico’s tax laws, it is important that you have a reliable accountant in Mexico to help you deal with the different taxes and make sure you take advantage of tax breaks and deductibles.

Depending on the business you open, you may be required to pay corporate tax, tax on dividends, asset tax, value added tax, and payroll taxes. Mextax can provide accounting services for your business to help you get the most from your investment.