Doing Business in Mexico

Source: INEGI

Government Composition:

• Federal Republic divided into 31 individual states and a Federal District.
• The president is elected for six years and cannot be re-elected.  The president shares power with a bicameral Congress, which is made up of the Senate and the Chamber of Deputies.
• Main political parties: PAN, PRI and PRD

Social Composition:

• Predominantly catholic
• Drug trafficking remains a main social problem, as does immigration.

Economic Outlook:

• With the North American Free Trade Agreement (NAFTA) between Mexico, the U.S. and Canada, and the ratification of 33 other free trade agreements, Mexico is moving quickly to join the free trade world.
• Mexico’s geographic location, neighboring the United States and situated between Europe and Asia, makes it an ideal location for global trade.

• The U.S.-Mexico Trade Balance was US$406 billion in 2010, the highest number in the history of commercial relations between the two countries.

Source: Data from the U.S. Trade Representative

Source: Data from the U.S. Trade Representative

Investment Relationship

Over the past 12 years, the U.S. has accounted for more than half of the total Foreign Direct Investment (FDI) in Mexico, with investments of more than US$136 billion.

Source: Secretariat of Economy

The following are basic steps for opening a business in Mexico. To obtain more detailed and tailored information, please contact us.

1. Determine your Business Structure

Your company’s business structure will determine which operations you are allowed to perform in Mexico and, among other liabilities, the amount of taxes you will have to pay.

Types of business classifications:

• Stock Corporation (Sociedad Anónima). The benefit of S.A. incorporation is that it limits the liability of investors and shareholders. There is no upper limit to the amount of shareholders.

• Limited Liability Partnership (Sociedad de Responsabilidad Limitada). This is similar to a stock corporation in its bylaws and regulation by the Mexican government. Foreign investors often use this type of entity since it is considered to be a partnership for U.S. tax purposes.

• Civil Partnership (Sociedad Civil). The S.C. is the most common type of organization for professional service providers. It is taxable in the same way as a corporation.

• Civil Association (Asociación Civil). For charitable or nonprofit organizations that have non-commercial aims.

• Branch (Sucursal). Branches must be incorporated with bylaws, proof of full incorporation of the foreign entity and a certificate of good standing.

2. Determine Tax Responsibilities

Following incorporation, you must apply for and receive a tax identification number known as the Registro Federal de Contribuyentes (RFC) from the Tax Administration Service (SAT). This can generally be done at the time of incorporation with a notary public or directly with the SAT. (www.sat.gob.mx)

3. Obtain Licenses and Permits

Every business needs at least one federal, state or local license or permit to operate. Contact us to find out which licenses and permits apply to your company.

4. Comply with Business Employer Requirements

Employees in Mexico must be registered with the Mexican Institute of Social Security (IMSS), which is a government healthcare provider. Registering employees with IMSS automatically registers them with INFONAVIT, an employee housing fund. (www.imss.gob.mx)

5. Apply for a Business Visa

The FM3 is the long term non-immigrant visa in Mexico, and it is required for any foreign businessperson who wants to reside in Mexico and work on a permanent basis. This visa is valid for a period of five years. If you plan to ultimately apply for Mexican citizenship, you will need to have a FM2 visa. The National Institute of Migration (INM) is the organization in charge of issuing visas in Mexico. (www.inm.gob.mx)

Source: “Doing Business in Mexico 2011” The World Bank Group.

The most important piece of advice Americans doing business in Mexico should remember is that, in Mexico, business is as much about personal relationships as dollars and cents.

• Take the time to develop personal relationships with your business partners.
• If invited to a home, giving a gift is seen as polite.
• Make eye contact; yet, be aware that Mexicans may not make direct eye contact for long when in conversation. This should not be seen as an offense.
• Expect a more relaxed and flexible attitude towards time.
• Make small talk. It is a good way to show your interest in the personal relationships you need to establish.
• Research your negotiating partner and the company.
• Consider that negotiations are usually lengthy.
• Be patient. Mexicans generally avoid saying ‘no,’ preferring to say ‘maybe’ or ‘we’ll see.’
• The appearance of materials and presentations, regardless of content, is considered extremely important.
• Be sure to bring people of equivalent status to important negotiations.  A high ranking member of a Mexican company will feel insulted if asked to deal with a lower level manager.
• Call Mexicans by their title. Common titles include Licenciado (the title of a professional such as a lawyer or someone with a Bachelor’s or Master’s degree), Ingeniero (engineer) and Doctor.

Don’ts:

• Be offended if your meeting does not start on time or if you have to wait.
• Expect a meeting to end on time if there is still business to discuss; this is regardless of previous engagements.
• Arrive at the exact time stated on the invitation for a social gathering or event. Half an hour late is an appropriate time for guests to arrive.

Importing and exporting can be complicated and confusing whether your company is in Mexico or the United States. NAFTA has helped to simplify and improve procedures; however, there are still improvements to be made.

When working out of Mexico, there are four basic steps to import or export your products. Once you determine the product you will be importing or exporting, you will need to:

1. Subscribe to the National Importers Register (Padrón de Importadores) or the National Exporters Register (Padrón de Exportadores)* on the Tax Administration Service (SAT) website (http://sat.gob.mx/). Contact us for detailed steps.
*Only alcohol and tobacco exporters must register. If your export product is not included in that category, you can skip step 1.

2. Secure the services of a licensed customs broker to represent you and handle necessary procedures.
NOTE: A customs broker is not necessary when the value of the merchandise being imported is less than US$3,000 and is being carried by an international passenger. In such a case, you would only have to pay the customs taxes at the Mexican border.

3. Comply with the regulations and restrictions listed in the Import/Export General Tax Law (Ley de los Impuestos Generales de Importación y Exportación). Your customs broker can assist you in understating tariff and non-tariff restrictions. (http://www.diputados.gob.mx/LeyesBiblio/ref/ligie.htm)

4. Pay foreign trade taxes to the Treasury Secretariat (Secretaría de Hacienda y Crédito Público, SHCP).

Sources: Aduanas México, Secretaría de Hacienda y Crédito Público http://www.aduanas.gob.mx/aduana_mexico/2008/importando_exportando/142_10068.html