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Starting a Business in Mexico: The Ultimate Guide

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Mexico is a great place to start your business. If you have a manufacturing business, Mexico is one of the largest manufacturing economies in the world and, therefore, has a lot of advantages. Since we are located right next to the US, both countries have develop a synergy throughout the years in which American companies come to establish in Mexico to lower their Manufacturing costs. The Mexican government, in response, has developed government policies to promote this synergy and increase foreign investment. As a consequence, a highly skilled workforce has developed in Mexico in a great number of industries like car manufacturing, aerospace, medical devices and electronics. 

And is not just manufacturing that Mexican workforce is known for. If you have a digital business like IT, software development, animation, graphic design or digital marketing your are in for a treat. Mexico is one of the top digital & creative economies of Latin America. Here’s a brief history of how this came to be. Mexican creativity is known worldwide and Guadalajara, a city that hosts companies like Cisco, Gameloft, Intel, Oracle, HP, Dell and IBM has grown to be known as the Mexican Silicon Valley because of the huge pool of talent that has developed in it.

One of the greatest advantages that Mexico has is the proximity to the US. Besides being a good idea for companies to move a part of their operation to the country in order to lower their operational cost, there are a set of advantages for one-man companies, SME’s and even retired professionals that would like to start a business. In this article you can find the unbiased opinion of an American retiree.

Use the table of contents below to navigate through the guide:

1. Opening a Business in Mexico: A Legal Overview

The Mexican Legal System

There is a difference between the legal system used in the United States and the one used in Mexico. The US’ legal system is Common Law, a system that gives more weight to judicial decisions. In simple words, Common Law is a more dynamic system in which judge’s interpretation of the law modifies the law itself. Mexico, on the other hand, has a legal system known as Civil Law, which has its origin in the Roman legal tradition and a lot of influence from the french napoleonic Customary Law. You can take a look at the general structure of Mexico’s legal system here. Although one really important thing has changed. Today, the constitution and the international treaties to which Mexico is subscribed have the same hierarchy.

Mexico’s legal system is very formal and bureaucratic. This is not necessary a bad thing because it helps prevent frauds like identity theft but sometimes things can get pretty convoluted. One thing that is important to know is the legal figure of the Notary Public. Although there are Public Notaries in the US, the figure in Mexico has a lot more weight and importance. In Mexico, a Public Notary is a law expert of good reputation in which the people and the government trust and assigns a great deal of responsibility. 

Pretty much every important legal act that you perform in Mexico, such as buying land or real estate, has to be done before a Public Notary. This is known as notarize. When opening a business in Mexico, the Certificate of Formation / Articles of Incorporation need to be performed before a Public Notary.

Can I Start a Business in Mexico as a Foreigner?

This one is easy: Yes, you can. Foreigners can own 100% of a Mexican corporation or acquire stock in an already established one. Foreign natural persons and foreign legal entities alike can own a Mexican business. There is no problem with that. You don’t even need an immigration visa to start a business in Mexico. However if you would like to physically work at your Mexican business, you will need to obtain an immigration visa and, if you don’t, you would need a resident legal representative.  

You don’t even need to set a foot on Mexico to open you business if you don’t want to. Isn’t that awesome? All you need is a power of attorney, proof of ID and proof of address. You just need to get this documents apostilled (A way to make it internationally valid), send it to someone in Mexico and they can do it on your behalf.

Opening a business in Mexico is not hard but, as a foreigner, the path you have to follow may not be obvious. That’s where the ultimate guide to starting a business in Mexico comes in. This guide will walk you through all the steps necessary to start your business in Mexico and all of the legal and administrative aspects you must take into account.

Types of Legal Entities in Mexico

There are many legal entities that a company can use as a business vehicle in Mexico. Some are meant to protect farmers and agriculture, some can have a mix of limited and general partners et cetera. However, for practical purposes, it all boils down to two main partnerships. If you believe that the requirements of your business are very specific, get in touch with us and we’ll advice which one fits better according to your needs. 

SA de CV: The Mexican Corporation

This is the Mac Daddy of Mexican legal entities. It is the Mexican Corporation; the equivalent to the US Corporation. There is no restriction to the number of partners and you can increase or decrease equity as you please (within the limits established in the by-laws of course), that’s the dream. And, the most important part, Shareholders’ liability is limited to their stock interest in the company. Awesome. If you plan to grow your company a lot and have an IPO someday, this is the vehicle for you.

SA de CV Meaning

SA de CV means Sociedad Anonima de Capital Variable. It is the Mexican Corporation. Basically SA de CV means that it is a corporation formed by a group of shareholders for commercial purposes with the intention to make profits.

SA de CV Characteristic
  • The shareholder’s liability is limited to their stock interest in the company
  • The directors are fully liable for the administration of the company
  • May increase or decrease equity
  • Capital stock is transferable and can be traded publicly (after the corresponding filings)

SA de CV Requirements

  • Minimum capital stock of MXN $50k (20.0% paid at the time of incorporation)
  • Minimum of two stockholders
  • Minimum of one Director
  • Resident legal representative
  • A domestic address
  • Appointment of a statutory examiner, a third party who supervises operations and represents the interests of the shareholders.
  • Mandatory shareholder annual meetings

S de RL: The LLC in Mexico

Sociedad de Responsabilidad Limitada de Capital Variable. That’s a long name. The last part means that you can increase or decrease equity so it’s a good thing. The Sociedad de Responsabilidad Limitada is the equivalent of US’ Limited Partnership. Just as in the other one, partners liability is limited to their partnership interest in the company. The minimum capital stock requirement for this one is MXN $3k, from which only half needs to be paid at incorporation (we are talking less than $100 dollars). This type of partnership has become popular among foreign companies; in particular, those who want to reduce their tax liabilities in the US. This type of company is viewed for US tax purposes as a partnership.

S de RL Meaning

With this one it is quite a literal translation. Sociedad de Responsabilidad Limitada means quite literally Limited Liability Partnership.

S de RL Characteristics
  • Partners’ liability is limited to their partnership interest in the company
  • Directors will be fully liable for the administration of the company
  • No requirement to appoint a statutory examiner
  • Shares in the company must not be freely transferable and cannot be traded publicly
S de RL Requirements
  • Minimum capital stock of MXN $3k (50.0% paid at the time of incorporation)
  • Minimum of two partners
  • Maximum of 50 partners
  • Minimum of one Director
  • Resident legal representative
  • A domestic address
  • Mandatory shareholder annual meetings

2. The Steps to Open Your Business in Mexico

So let us jump right to it. Once you have gotten your documents in order, learn a little bit about the legal system in the country and chosen the legal entity that best suits your business, you are ready to start the process and ride a roller coast of bureaucratic emotions.

You can use the following guide to navigate through the steps:

  1. Choose your Business Name
  2. Choose the governing body
  3. Shareholders information
  4. Incorporation before a Public Notary
  5. Federal Tax Payers Registration
  6. Public Property and Commerce Registration
  7. Open a Corporate Bank Account
  8. Social Security Registration

1. Choose Your Business Name

Sounds simple enough, however the Mexican Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores) needs to authorize it. The best way to do this is to come up with two or three names and list them in order of preference. With this list you file for a Permit of Incorporation for the company. Remember, this is not your brand or commercial name. It’s just the legal name of your company. You don’t really have to brainstorm a lot or get really creative, most people use a combination of their name’s and last name’s first syllables.

2. Choose The Governing Body

The Governing Body may be a Board of Directors with a minimum of two persons or a Sole Administrator. Typically, the Governing Body elected is a Board of Directors with a President, Secretary and Treasurer. Once elected, start gathering the ID and proof of address of each. You will need it later on.

3. Shareholders' (Partners') Information

The company’s shareholders may be either natural persons or legal entities. If they are natural persons and travel to Mexico for the incorporation, it is important that at arrival they state that the main purpose of the visit is to perform business activities. If they are represented by someone else, the representative needs to present a fully apostilled power of attorney and fully apostilled copy of the documents.

Natural Persons

If the shareholders are to be natural persons, only their full name and passport is required.

Legal Entities

If the shareholders are to be legal entities, it gets a little trickier. The following documents are required:

  • Certificate of Formation / Articles of Incorporation (dully apostilled)
  • Certificate of Legal Standing
  • Bylaws (dully apostilled)
  • Appointment of Signing Officer / Representative with Power of Attorney (dully apostilled)
  • ID of Signing Officer or Representative with Power of Attorney
  • TIN (Tax Identification Number)

4. Incorporation Before A Public Notary

Remember our friend the Public Notary? well now it’s time to go meet him. By now you already have the Ministry of Foreign Affairs permit and have gather all of the information necessary to open up your company. Now the Public Notary will make it official. He will help you draft a constitutive act which contains the articles of incorporation and bylaws of the company. This document includes all the general aspects of the company: company name, business objective, type of company, administration, duration, et cetera. The company must issue registered share certificates, and the shareholders must be registered in the Company Stock Registry Book.

The Company’s initial capital must be paid in full if contributions are paid in kind. If paid in cash,  you can pay a minimum of 20% (of MXN $50k) if it is a “S.A. de C.V.” or 50% (of MXN $3k) if it is a “S. de R.L.” 

5. Federal Tax Payers Registration

Once the company is fully incorporated, the next step is to go to the Mexican IRS, which is called Secretaría de Administración Tributaria (SAT). This has to be done by the legal representative of the company that was designated in the constitutive act, the document of incorporation. He will be provided with the company’s Federal Tax Identification Number which is known as Registro Federal de Contribuyentes (RFC). You should keep this number close because you will need it for pretty much any transaction you make.

6. Public Property and Commerce Registration

Every company established in Mexico needs to be properly registered in the Public Property and Commerce Register. It exists to maintain a public record of merchants. For this process you will require to present:

  • The document of incorporation (Constitutive Act) 
  • The Federal Tax Identification Number (RFC)
  • The power of attorney of the legal representative to act on behalf of the company.

7. Open a Corporate Bank Account

You can do this before the Public Property and Commerce Registration with a document from your Public Notary but it is really important that you perform that step, otherwise they will close it. The legal representative may open the bank account and the process is pretty much the same as in any country. Here’s a good article about it and you can find one with different bank reviews and a lot of tips here.

8. Social Security Mexican Institute Registration

The last step is to register your business in the Social Security Mexican Institute, or Instituto Mexicano del Seguro Social (IMSS). It doesn’t really matter if you are the only employee in your company. This is mandatory since you need to make contributions to your social security account. Be careful because you may get fined if you don’t do this in a timely manner.

4. Moving to Mexico: Immigration, Visas & Work Permits

It is a common thing when a foreigner opens a company in Mexico to send an expatriate to manage and guide the company. Sometimes, the owner wants to come and manage the business himself. In either case, there are some legal aspects to take into account. Even though you may start a company from abroad, to come to Mexico and work is a different story. In this guide we will give you an overview of the Mexican immigration system and the status of expatriates and their families. For a more comprehensive guide on the subject check out this link.

The General Population Law and the Migration Law are the Mexican laws that establish and regulate the rights and obligations of foreigners in Mexico as well as their immigration statuses. If you are interested, you can purchase both of this laws in English here. Like in any country some permits and visas are harder to obtain than others.

For starters let us understand the status of a foreigner in Mexico. A foreign in Mexico can be:

  • Non-immigrant: someone who comes to Mexico for a period of time and then departs. This can be a tourist, visitor or a student.
  • Immigrant: someone who has a permit to live in Mexico long term and plans to obtain the permanent residency. This can be a a professional, a freelancer, a family member, an athlete or artist.
  • Migrant: someone who has acquired permanent residency in the country.

The Ministry of Interior is the government office in charge of granting foreigners visas and permits. Now that we know the different statuses for foreigners in Mexico, let us look at the different types of Visas and Permits they may apply for, according to their status.

Non-Migrants

Visitor Permit

If you come for leisure or business, don’t plan to stay longer than 6 months (180 days) and you have a passport from a country that’s in this list of countries that don’t require a visa to enter Mexico, then you are in luck. All you need to do is complete the Visitors permit form, known as Forma Migratoria Multiple or FMM, and give it to the migration officer at the port of entry. If you come by plane, the airline usually distributes this among the passengers, however, since you are the type of person that’s always prepared and planning ahead, you will download beforehand in this link. But, if you are more the  improvise-as-you-go type, you can get it at the port of entrance too.

When you give your filled FMM to the immigration officer he will hand you back a piece of it. You should keep this piece of paper safe because you are supposed to deliver it to immigration services once you leave the country. If you don’t do it, you may get delays when coming back to Mexico in the Future. For Fees, permit extensions and other questions, check out this article.

This type of permit allows you to do things such as tourism, volunteering or studying. If you have a business or have business partners in the region you can attend business meetings. The only thing you cannot do is work. 

Visitor Permit Requirements
  • Passport 
  • FMM filled with your information

Tourist Visa

Now if you hold a passport from a country that is listed in here, you are not that lucky. You require a tourist visa. It’s not the end of the world, you just need to contact the nearest Mexican consulate and request a tourist visa. Same as with the visitor permit it will allow you to stay in the country for up to 180 days and it will allow you to perform the same activities.

Tourist Visa Requirements
  • Passport (valid for at least 6 months after you enter the country)
  • Two passport size photos
  • Proof of economic solvency that may be either:
    • Letter of employment (with salary)
    • Title deeds
    • Bank statements with monthly average of USD $2k
    • International credit card with a limit of at least USD $1k
  • Fee Payment of USD $36.00

Immigrants

Temporary Resident Visa

Temporary resident visa, allows you to live in Mexico for up to 4 years, with option of renewal at the end. The first time you apply for this visa, it will be issued for one year. After the year has passed you can renew it for longer (up to 4 years).

It is a long-term temporary permit that gives the holder the status of resident. It will allow you to come in and out of Mexico as you please. There are several categories of the temporary resident visa, according on what you are planning to do in Mexico. 

This type of visa allows foreigners to work in Mexico if your are receiving your payment outside of Mexico. If you have a job offer in Mexico, the company or person for whom you will work, needs to apply for the visa.

Now, it is a good idea to take into account that you need to apply for this visa outside of Mexico. Only in really rare circumstances you can get it while being in the country. So you should plan before coming to Mexico if you are staying for more than 6 months. But don’t worry, that is what this kickass page is here to help you with.  

Temprary Resident Visa Requirements
  • Valid Passport or ID
  • Photo
  • To be a citizen in the country in which you are applying or be able to prove your legal status
  • Fee Payment of USD $220.00 
  • Documents to probe one of the following:
    • Economic solvency
      • Bank account with monthly average of USD $28,000 or monthly income of USD $1,750.00
    • Family bonds​​​​​​​
      • Married or living with a Mexican citizen or a foreigner with a temporary or permanent visa
        • Marriage certificate
        • Proof of domestic partnership
        • Documents proving the partners legal status
          • Birth certificate, ID or passport if Mexican citizen
          • Passport and visa if foreigner
    • Scientific research in Mexican waters
    • Title Deeds of property in Mexico
    • Proof of investments in Mexico

Migrants

Permanent Resident Visa

This is the Cadillac of visas. It’s the equivalent of the American green card. It basically means that you can stay in Mexico as long as you’d like and you can work or do whatever you please (as long as it’s legal, of course). There is no need for you to start applying for a temporary resident visa and later on apply for the permanent one. It’s not like steps in a ladder. You can apply to the permanent visa from the beginning. But, as you can see by the requirements, the permanent visa is harder to get. If you are like really sure that you want to stay in Mexico for good or eventually   become a Mexican Citizen, you should start to develop your strategy to get a Permanent Resident Visa from the beginning.

Permanent Resident Visa Requirements:
  • Valid Passport or ID
  • Photo
  • To be a citizen in the country in which you are applying or be able to prove your legal status
  • Fee Payment of USD $
  • Documents to probe one of the following:
    • Economic solvency
    • Being a retiree
    • Family bonds

Mexico's Labor Law: What you Need to Know

Mexican Federal Labor Law, which has its basis on the article 123 of the Mexican Constitution, is the law that establishes and regulates Mexico’s labor laws and anything related to employment in Mexico. The Mexican Federal Social Security Law takes care of social security. If you’d like to get this laws in English, you can purchase it here. In this guide we’ll explain the most important parts.

In this article we only talk about the legal aspect of employment. If you would like to understand how payroll works from the accounting and tax perspective check out this article.

Labor conditions were quite a big issue back in the day. It is one of the reason for the last Mexican Civil War. Apparently the labor conditions back then were not exactly fair. Because of this, the law is designed to protect employees by giving them considerable legal rights and benefits. This is a good thing in theory but in practice it leads to some bad practices.

Mexican workers have the right to form unions freely in order to defend their rights. This is establishes in the Mexican Federal Labor Law. This has led to the formation of large labor union organizations that harness a lot of factual power and legal power. Every company that establishes in Mexico needs to be prepared to negotiate with unions.

A Mexican laborer, according to the law is anyone who performs a service in a subordinate way to another person or entity. Because of this broad definition if a work relationship is not to be created between a company or person and a worker, such as freelancing or by project hiring, a well drafted service agreement specifying the nature of the relationship must be made.

Employment Agreement in Mexico

The beginning of a good work relationship is the employment agreement. The law presupposes that a contractual agreement exists if a work relationship is existent. Because of this, it is really important to have a well drafted written contractual agreement specifying the nature of the relation. If, for example, an agreement does not specify a termination, it is assume to be indefinite. 

In general a work agreement in Mexico should include the following.

  • Employee general information (Gender, age, nationality etc. )
  • Term of the employment
  • Wage and payment dates
  • Vacations amount
  • Working conditions
  • Location of the workplace

Minimum Wage in Mexico

Mexico’s Labor Law forbids that an employee gets paid less than the national minimum wage. Mexico’s National Minimum Wage Commission is in charge of setting Mexico’s minimum wage. They set a different minimum wage by geographical area. At the beginning of 2019, with the entrance of Andres Manuel Lopez Obrador; Mexico’s new president, the minimum wage in Mexico increased  to $102.68 Mexican pesos per day. This is roughly $5.13 US dollars with today’s currency exchange. At the same time, a new economic wage zone was created in the border area (roughly 15 miles from the US border). In this new area the minimum wage is $176.72 Mexican pesos, which is roughly $8.80 US dollars at today’s exchange.  

Working Hours

According to the law, Mexican laborers can work a maximum of 48 hours a week if they are working a day shift (6am to 8pm) and 42 hours a week if enrolled in a night shift (8pm to 6am). There can be a hybrid in which a maximum of three and a half night shift hours. This allows for a maximum of 45 hours a week. By law employees have the right to a 30 minute break every day and one fully paid day a week.

Overtime

If a Mexican laborer works overtime, every hour work has to be paid double. If the company requires more than 9 hours of overtime per week, every hour after the ninth one has to be paid triple. Working on Sundays entitles employees to earn an additional 25%.

Employee Benefits in Mexico

Holidays in Mexico

By law there are some mandatory holidays in mexico. The following table specifies them.

Date Holiday Comments
January 1st
New Year's Day
February 5
Constitution Day
Celebration of the Mexican constitution
March 21
Benito Juarez' Birthday
A national hero and former president of Mexico
Thursday before Easter Sunday
Holy Thursday
Commemoration Jesus' last supper
Friday before Easter Sunday
Good Friday
Commemoration of the crucifixion and death of Jesus
May 1st
Labor Day
May 5
Puebla's Battle
Commemoration of the Mexican Army's victory over the French
September 16
Independence Day
Celebration of Mexico's independence day
October 12
Day of the Races
Commemoration of the discovery of America
November 2
Day of the Dead
A day to honor relatives who passed away
Novemober 20
Revolution Day
Commemoration of Mexico's Civil War
December 12
Guadalupe's Virgin Day
Celebration of the appearance of Virgin Mary in Mexico
December 25
Christmas Day
Content

Vacations in Mexico

Besides the mandatory holidays, employees who have worked in the company for one year or more are entitled to a period of paid vacations once a year. The amount of days starts at six working days (meaning you can’t count weekends or holidays)  and it increases by two working days for every subsequent year the employee has worked for the company until a maximum period of 12 working days is reached on the fourth year. After the fourth year is reached, vacation period increases by two days for every five years working for the company.

It works as follows: 

  • After 1 year of continuous employment, an employee is entitled to a vacation of 6 working days;
  • After 2 years of employment, an employee is entitled to a vacation of 8 working days;
  • After 3 years of employment, an employee is entitled to a vacation of 10 working days;
  • After 4 years of employment, an employee is entitled to a vacation of 12 working days;
  •   When an employee is employed for a period of 5 to 9 years, he/she is entitled to a vacation of 14 working days;
  •   When an employee is employed for a period of 10 to 14 years, he/she is entitled to a vacation of 16 working days.

Article 76-79 of the Federal Labor Law.

There is also a mandatory vacation premium of 25% of salary. This means that employees earn an additional 25% during their vacation period. The idea behind this premium is for the employee to have some extra money to pay for his vacations.

Christmas Bonus (Aguinaldo)

By law you must pay your employees a christmas bonus equal or higher to fifteen days of their salary. It must be paid prior to the 20th of December . The idea behind this bonus is for people to have a little extra cash to enjoy the holidays. buy presents and such. For a worker to be entitled to this bonus he must have been working for the company for at least one year.

Major Medical Insurance

By law workers need to be registered in the Social Security Mexican Institute. However, this institute doesn’t exactly provide  the best medical attention. Therefore, although it isn’t mandatory, it is common for companies to offer private medical insurance policies to cover major medical expenses such as surgeries.

Maternity Leave

When an female employee is expecting a child they are entitled to 12 weeks of Maternity leave. This is divided in 6 weeks previous to the birth of the child and six weeks after. After the child is born and women are going through the nursing period, they are entitled to two, fully paid, special daily rest periods of 30 minutes, for nursing the child. The Mexican Social Security Institute pays for working mothers’ daily salary in full as a social security contribution. Maternity leave may be extended indefinitely if they are unable to work because of the delivery. If the period is extended, she is entitled to 50% of the daily salary of social security contribution for a period of up to 60 days. They are entitled to return to their job as long as no more than a year has gone by since the delivery date.

In addition to the maternity leave, there are a few restriction that apply to labor pregnant or lactating women can do, and they their salary, benefits, and rights should not be affected. They are pretty logical. 

  • They cannot work night shifts
  • They cannot work extra hours
  • They cannot work under sanitary contingencies 
  • They cannot perform physically exhausting tasks 
  • They cannot perform hazardous or unhealthy labor. This is understood as handling dangerous materials, heavy physical labor or basically anything that may jeopardize her health or her child’s health 

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Roberto Cornejo

Roberto Cornejo

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