Prior to 1993, establishing a business in Mexico in some economic sectors was a non or limited propostion for foreigners.
Prior to Mexico’s Foreign Investment Act of 1993, there were significant portions of the nation’s economy that were closed to fully foreign capital. Today, however, the vast majority of economic activities that take place in Mexico are open to the participation of businessmen and women from other nations. This fact has been cleary demonstrated by the Mexican government’s recent opening of its energy sector to foreign participation. In order to take advantage of opportunities that exist as a result of the growth of both Mexico’s expanding export economy, as well as its growing internal market, having the appropriate knowledge and counsel as to what is involved in establishing a business in Mexico is required.
Parties that begin the process of investigating the options for establishing a business in Mexico will quickly learn that the mechanisms of organization most frequently chosen by foreign investors for the purpose of initiating a Mexican presence are the “SA” and the “SA de CV” entities. According to Deloitte Touche Tohmatsu Limited, “the SA most closely resembles the public limited company or corporation.” The prestigious international business consultancy also goes on to note that, “Foreign investors with wholly-owned subsidiaries that want added flexibility in increasing capita have favored the SA de CV.”
In Mexico, in addition to the SA and SA de CV, establishing a business in Mexico can be done through another common used entity called an “SRL,” or a “Sociedad de Responsabilidad Limitada,” which most closely translates into limited liability company in English. The Sociedad de Responsabilidad Limitada or SRL, has become popular over the years among foreign companies that, in particular, want to reduce their tax liabilities in their home countries (the United States, in particular).
Although some streamlining of the process still has to be achieved, establishing a business in Mexico in the form of a local corporation can usually be accomplished within a month’s time, or, in some instances, a bit more. Certain variables factor into the timeframe required to get underway, not least among which are the nature and the complexity of the business activity or activities that will be undertaken by the foreign investor. Establishing a business in Mexico requires that a permit to be secured from the country’s Ministry of Economy, and that the company be entered into the Mexican Public Registry of Commerce.
Furthermore according to information published in 2014 by Deloitte Touche Tohmatsu Limited, other requirements for the incorporation of a business entity in Mexico include the requirement that at least two shareholders must appear before a notary public to sign incorporation papers.” The incorporation papers must include:
- the names an nationalities of the company founders
- the company domicile;
- the firm’s purpose and duration;
- a breakdown of its capital composition and a statement of the contribution and value of the founders’ contributions;
- a description of administrative organization
- the names of all directors, management staff and supervisors.
The purpose of this blog post is to serve as an introduction to the process of establishing a business in Mexico. Deloitte’s 2014 publication entitled, “Taxation in Mexico 2014: Reach, Relevance and Reliability” is a comprehensive document on all subjects related to establishing a business in Mexico that addresses not only starting up operations in Mexico, but, also, issues dealing with taxation, labor environment, banking and financing and more. Readers are also encouraged to tap into the business advisory services that Tecma offers as a part of its Mexico consulting activities.