Starting a Business in Mexico: A Guide For Foreigners

Last updated on July 28th, 2023 at 01:36 pm

Mexico is a great place to start your business because of its strategic location and current macroeconomic conditions.

Starting a business to manufacture in Mexico can be a great idea. The country is next to the United States, giving it logistical advantages. 2023 is the perfect moment for manufacturing companies to get established in Mexico. Firstly because of the trade war that’s going on between the US and China. Secondly, because of the disruptions in supply chains. And, thirdly, because of the rising cost of fuel and logistics. You can start manufacturing fast using a shelter service in Mexico or explore contract manufacturing and let an expert do it.

Mexico is located right next to the US, and the US is the largest economy in the world. Therefore, both countries have developed a manufacturing synergy that seems to be getting stronger. Throughout the years, American companies have started nearshore operations in Mexico. Specifically, to lower their Manufacturing costs, labor being the highest one. 

It all started at the northern border. Imagine having a manufacturing company in San Diego, California. Let’s say you make shoes. You pay USD 7.25 per hour to your workers. Then you realize that about 20 miles away, in Tijuana, people charge USD 17.24 for the entire day! That is the northern border minimum wage in Mexico in 2023, by the way.

In 2006, the Mexican government developed a program to promote this synergy; the IMMEX program. When a company enrolls in the IMMEX program, commonly known as a maquiladora, it can import raw materials without paying taxes as long as they export the final product. This is an excellent incentive for manufacturing companies.

Due to this program, many international companies were established in Mexico in various industries. Therefore, a highly skilled workforce developed in Mexico, specifically in car manufacturing, aerospace, medical devices, and electronics. 

But it is not just manufacturing that the Mexican workforce is known for. Nearshoring software development to Mexico is also a great idea. The country is one of Latin America’s top digital & creative economies. Guadalajara, for example, hosts companies like Cisco, Oracle, and Intel. This city has grown to be known as the Mexican Silicon Valley, basically because of the vast talent pool that has developed in it. So if you have a digital business like IT or software development, Guadalajara may be a great option.

About This Guide

We created this guide to give clarity to anyone thinking about starting a business in Mexico. We divided the guide into seven chapters. The first chapter discusses foreigners’ three options for starting operations in Mexico. The second chapter discusses Mexico’s legal system and overviews the most important legal aspects of incorporating a company.  The third chapter discusses the requirements and procedures of buying a shelf company. The fourth chapter briefly overviews the legal aspects of incorporating a company in Mexico and details a step-by-step process with estimated time frames to do it. The fifth chapter discusses a Mexican company’s accounting and tax compliance obligations. The sixth chapter overviews Mexican labor law and how it affects day-to-day operations in a company. The seventh chapter discusses immigration and foreigners’ options to live in the country.

We certainly hope you find value in this guide. We make an effort to keep this guide updated. So if you feel there is something we should add to it, please leave a message in the comments.

Enjoy!

Table of Contents

Options To Start Operations In Mexico

If you wish to start operations in Mexico, you have three different ways; the one you choose will depend directly on your business model and the size of your operation. We will arrange these options according to how fast you can start, from fastest to slowest. 

 

Employer Of Record (EOR)

The fastest way to start operations in Mexico is through an Employer Of Record (EOR). With this service, another Mexican company recruits and employs your workers, then invoices every month for the entire payroll plus a fee. Essentially, it is a three-sided contract between the employees, the EOR, and you (or your company abroad) where:

  • Your company maintains a direct relationship with the employee, allocating him work tasks and managing their performance.
  • As the one responsible for legal employment, the Employer Of Record oversees the operational side, such as payroll, taxes, benefits, etc., ensuring compliance with all Mexican legal regulations.
  • The employee, the third party to the agreement, fulfills all their work obligations for your company. 
 

Employer Of Record Timeframe

Timeline to starting a business in Mexico through Employr of Record

Pros 

  • Quickly expand your business and “test” the waters.
  •  EOR takes care of all benefits administration required by law.

Cons

  • You may feel less in control.
  • Harder to instill a company culture.

If you wish to know more about our EOR service, you can check out our Employer of Record Service page or schedule a meeting with one of our account executives. 

 

Buying a Shelf Company

The second fastest way to start a business in Mexico is by purchasing a shelf company. A shelf company is a company that has had no activity. It was created and left with no activity or “put on the shelf,” hence its name. The company can then be sold to someone who wishes to start a company in Mexico without going through all the procedures of creating a new one. As we will explain later in this chapter, Mexico’s legal system is bureaucratic and slow for business standards, so this option has become quite popular. Essentially, you will buy the equity stock from the current owners. To do this, you will sign a purchase/sale agreement. Once this is done, the current owners transfer corporate control to you by celebrating a shareholders’ meeting and announcing you are the new owner. 

This may be an oversimplification. But it is a lot faster anyways.

Shelf Company Purchase Timeframe

Starting a business in Mexico through the purchase of a shelf company.

 

Pros 

  • You can get incorporated fast.
  • You don’t deal with the administrative hassle of getting the tax I.D. and opening the bank account.

Cons

  • It’s more expensive than regular incorporation

Incorporating A Company 

The third way to start operations in Mexico is by incorporating a legal entity. This would be the natural way to start operations; however, it has a minor setback that many of our clients tend not to like: it’s a slow process

Handwritten signatures are essential in Mexico’s legal system, so many activities to get a business open in Mexico require a legal representative’s physical presence. Besides, you are bound by the meetings assigned to you by the authorities, so there is no way to move faster. If you were given appointments in two months, you can only wait and be there on time. 

If you have time to plan and accommodate the timeframes, this can be your way to start operations.

 

Incorporating A Company Timeframe

Starting a business in Mexico from the ground up

 

Pros 

  • You get a fresh and clean company.

Cons

  • It can take a long time to get the company ready to operate.

Starting A Business In Mexico: A Legal Overview

Starting a business in Mexico means you must comply with the Mexican legal system. This system is different than the one used in the United States. The U.S. legal system is based on Common Law, which has a more dynamic approach that gives more weight to judicial decisions. Mexico, on the other hand, has a legal system known as Civil Law. This system originated in the Roman legal tradition and had a lot of influence from the French Napoleonic Customary Law. 

Therefore, Mexico’s legal system is very formal and bureaucratic. And Americans may find it slow. Legal procedures can indeed get pretty convoluted. But don’t worry; we are here to help.

In Mexico, the legal figure of the Notary Public is crucial. Although there are public notaries in the U.S., the figure in Mexico has much more weight and importance. In Mexico, a notary public is a law expert into whom we, the people (and the government), invest our trust (the word in Spanish is closer to “faith”). As a result, many legal acts need to happen in front of them (physically). We call this “formalizing” or “protocolizing.” Notaries public formalize almost every meaningful legal action that you perform in Mexico. If you purchase land or real estate, you must formalize it before a notary public. If you open a business in Mexico, you must formalize the articles of incorporation before a notary public, and so on.

Opening a business in Mexico is not hard. But, as a foreigner, the path you have to follow may not be obvious. But don’t worry; this guide will walk you through all the steps to start your business in Mexico. It will show you all the legal and administrative aspects you must consider.

 

Can I Start a Business in Mexico as a Foreigner?

Sure you can! Foreigners can own 100% of a business in Mexico. Therefore, there is no need for a foreigner to partner with a Mexican citizen.

This is clearly stated in Article 4 of the Mexican Foreign Investment Law; let us see the critical part.

Foreign investment may participate in any proportion in the capital stock of Mexican companies, acquire fixed assets, enter new fields of economic activity or manufacture new lines of products, open and operate establishments, and expand or relocate existing ones, except as provided in this Law.

Foreigners don’t need a visa to start a business in Mexico. You don’t need to set foot in Mexico to open your business; it can be done through a Power Of Attorney (POA). All you have to do is sign a POA (we sent you the draft), get it apostilled (A way to make it internationally valid), and send it to us. As a result, we can start your business in Mexico on your behalf. However, if you want to work for your Mexican business, you must obtain an immigration visa.

That said, some economic activities are restricted to foreign investment.  These activities are subject to maximum foreign participation limits.

Mexican Economic Activities Restricted To Foreigners

Like most countries, Mexico has some economic activities reserved for the state. Article 5 of the Mexican Foreign Investment Law enlists them. 

Economic Activities Reserved To The Mexican State

  1. Petroleum and other hydrocarbons;
  2. Basic petrochemicals;
  3. Electricity;
  4. Nuclear energy generation;
  5. Radioactive minerals;
  6. Telegraphs;
  7. Radiotelegraphy;
  8. Post office;
  9. Issuance of banknotes;
  10. Coinage of currency;
  11. Control, supervision, and oversight of ports, airports, and heliports; and
  12. Any others expressly indicated in the applicable legal provisions.

These activities cannot be performed by foreigners nor Mexican citizens.

There is another set of activities, stated in Article 6 of the Foreign Investment Law, that Mexican citizens can perform but are restricted to foreigners.

 

Mexican Economic Activities Restricted To Foreigners

  1. Domestic land transportation of passengers, tourism, and cargo (excludes courier and parcel services).
  2. Retail trade of gasoline and distribution of liquefied petroleum gas;
  3. Development banking institutions, under the terms of the law of the matter; and
  4. The rendering of some professional services (stated in the applicable laws).

Foreigners cannot participate in these activities and companies in any way. Nor through trusts, agreements, or any mechanism that grants them control. There are, however, some legal mechanisms for foreigners to invest in these activities with limited corporate rights as long as the National Commission of Foreign Investments approves it. Also, there are some activities with specific regulations for foreigners. These are stated in Article 7 of the Foreign Investment Law.

 

Mexican Activities With Special Regulations For Foreigners 

Foreign investment may participate in the following activities according to the following percentages.

  1. Up to 10% in:
    1. Production cooperative societies.
  2. Up to 49% in:
    1. Manufacture and commercialization of explosives, firearms & ammunition.
    2. Printing and publication of newspapers for exclusive circulation in Mexico.
    3. Series “T” shares of companies that own agricultural, livestock, and forestry lands.
    4. Fishing in freshwater, coastal, and the exclusive economic zone (excluding aquaculture). 
    5. Management of ports (Air, Sea, Land).
    6. Port services of pilotage to vessels.
    7. Shipping companies engaged in the commercial operation of vessels for inland navigation (with some exemptions).
    8. Supply of fuels and lubricants for vessels and aircraft and railway equipment
    9. Broadcasting.
    10. Domestic air transportation service.

And finally, there is a set of activities in which, if foreigners wish to participate with more than 49%, they need to get approval from the National Commission of Foreign Investment. These activities are stated in Article 8 of the Foreign Investment Law.

  1. Port services to vessels to carry out their inland navigation operations, such as towing, mooring of lines and launching;
  2. Shipping companies dedicated to the operation of vessels exclusively in deep-sea traffic;
  3. Companies holding concessions or permits for public service aerodromes;
  4. Private preschool, primary, secondary, high school, middle school, higher, and combined education services;
  5. Legal services;
  6. Construction of pipelines for the transportation of oil and its derivatives;
  7. Drilling of oil and gas wells; and
  8. Construction, operation, and exploitation of railroads are general means of communication and provision of public railroad transportation services.

Legal Representative

Foreigners can own 100% of a company’s equity in Mexico. However, you will need a person representing the company to operate. This person can be a foreigner or a Mexican citizen. However, if he is a foreigner, he would need to obtain his Mexican residency visa, his Mexican tax I.D. and his Unique Population Registry Code (CURP) to be able to represent the company. You must start looking for this person when you begin your expansion if you wish to establish a legal entity.

 

 

 

 

Starting A Business In Mexico: The Legal Vehicle

There are many legal entities to start a business in Mexico. However, 98% of the time, it boils down to two options. The Sociedad Anonima, similar to the U.S. Corporation (Corp.), and the Sociedad the Responsabilidad Limitada, similar to the U.S. Limited Liability Company (LLC). In some cases, like lending companies and fintech, there are other options. If you believe starting your business in Mexico requires a complex structure, contact us. We will advise which legal entity fits better according to your needs. 

 

Sociedad Anonima: The Mexican Corporation

One way of starting a business in Mexico is to incorporate a Sociedad Anonima. This is the most common Mexican legal entity. It is the Mexican Corporation, the equivalent of the U.S. Corporation. There is no restriction to the number of partners, and you can increase or decrease equity as you please (within limits established in the by-laws, of course). And the most critical part, shareholders have their liability limited to their stock interest in the company. Awesome. Check out our article on Sociedad Anonima to see if this type of company fits your needs.

 

Sociedad Anonima Characteristics
  • Owners are called shareholders
  • It can have an unlimited amount of shareholders.
  • The shareholders have their liability limited to their stock interest in the company.
  • The Board of Directors or Sole Administrator manages the company
  • May increase or decrease its capital stock
  • Shares are transferable and can be traded
  • A Statutory Auditor is mandatory
Sociedad Anonima Requirements
  • No minimum capital requirement
  • A minimum of two shareholders is required
  • Minimum of one Director (Sole Administrator)
  • A fiscal address
  • Appointment of a statutory examiner, a third party who supervises operations and represents the interests of the shareholders.
  • Mandatory shareholder annual meetings
Stocks In A Sociedad Anonima

SA is a stock corporation. This is probably the most well-known legal entity type worldwide. These companies issue stock shares, which are the shareholders’ property titles. Stock shares in Mexico have the same legal requirements that many years ago. So up to this day, they look like this. 

Example of a Mexican stock share
The coupons at the bottom are rippable coupons to claim your dividends at the end of the year.

Sociedad de Responsabilidad Limitada: The LLC in Mexico

Another way to start your business in Mexico is by incorporating a Sociedad de Responsabilidad Limitada. The S. de R.L. is a Mexican LLC. Just as in the S.A., partners have their liability limited to their investment in the company. This type of partnership has become popular among foreign companies, particularly those who want to reduce their tax liabilities in the U.S. Besides, since a Statutory Auditor is not mandatory, its management is more straightforward.

 

S. de R.L. Characteristics
  • Owners are called partners.
  • Partners have their liability limited to their investment 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 R.L. Requirements
  • There is no minimum capital requirement
  • A minimum of two partners
  • Maximum of 50 partners
  • Minimum of one Director (Sole Administrator)
  • A fiscal address
  • Mandatory shareholder annual meetings
 

Every Mexican company needs a legal representative

Incorporating A Company In Mexico

If you know which legal entity suits your business, we can jump into starting your business in Mexico.

The following are the steps:

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

Choose Your Business Name

Firstly, the Mexican Ministry of Economy must authorize your company’s name. Therefore it is best to come up with 4 or 5 name options and list them in order of preference; with this list, the Notary Public files for the name registration. Indeed, they may all get accepted. But they may also get rejected. Hence, it is best to try registering a few in one go. It doesn’t matter if many get approved. Since the registration process takes about a week, this helps us save time.

Conversely, if you go one by one, it may take a long time. Take into account that this is not your brand or commercial name. Instead, it’s just the legal name of your company. Hence, you don’t need a lot of creativity. For example, many people combine their names and last names’ first syllables.

 

Choose The Governing Body

The Governing Body may be a Board of Directors with at least two persons or a Sole Administrator. You could also appoint a secretary, treasurer, and president, depending on the size of your operation. Once you have elected the governing body, ask each for ID and proof of address. You will need it later on.

 

Shareholders’ (Partners’) Information

The company’s shareholders may be either individuals or other companies.

 

Individuals

If the shareholders are to be individuals, the only thing required is their full name, passport, and proof of address. They may travel to Mexico or incorporate through a power of attorney. If they travel to Mexico, they must state that the primary purpose of the visit is to perform business activities. They do this when they arrive in the country.

If someone represents them, this person must present an apostilled power of attorney and a copy of his passport.

 

Other Legal Entities

The Signing Officer must sign if the shareholders are to be other companies. He may travel to Mexico or incorporate through a power of attorney. Just like with individual shareholders. And it is also essential that he states the purpose of the visit as business activities.

For the legal representative, all you need is his full name, passport, and proof of address. If someone represents them, this person must present an apostilled power of attorney and a copy of his passport.

For the company, you will need the following documents:

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

It is essential to know that since 2022, Mexico’s Federal Fiscal Code has been amended. This amendment introduced new obligations for Mexican companies regarding the information that companies need to document concerning their Beneficial Owners. This information forms part of your accounting and needs to be physically kept at the company’s registered address.

Article 32-B Quater of Mexico’s Fiscal Code stipulates what Mexican law considers a Beneficial Owner. They are, in essence, the individuals behind corporate structures. This means that if another legal entity, i.e., a company or trust fund, is to be a shareholder of the Mexican company, the Notary Public will need to identify every shareholder in that company.  And, if one of the shareholders in that company is another legal entity, all of the shareholders of that entity need to be identified as well, and so on.

Article 84 M of the Federal Fiscal Code specifies what is considered an infringement of Article 32- B Quater. It states very clearly that if you fail to identify and document the information of a company’s Beneficial Owners, keep this information updated, and present it to the authority on time, you are infringing that article.  Now let’s take a look at the fines. 

Article 84 N of the Federal Fiscal Code discusses the fines for the infringements mentioned in article 84 M. I will write them here converted to USD at today’s exchange rate (and rounded).

  1. $77,000 – $100,000 per Beneficial Owner if they are not identified and appropriately documented.
  2. $40,000 – $50,000 per Beneficial Owner for not updating their information appropriately.
  3. $25,000 – $40,000 per Beneficial Owner for not presenting the information to the authority in time.

This can add up to a lot of money. You can be charged one million dollars if the company has 10 Beneficial Owners.

To make things worse, notary publics and anyone intervening in the incorporation of a company is accountable for gathering and documenting this information. So, naturally, things are moving relatively slowly because everyone is scared of the enormous fines charged. A notary public who charges USD 2.5k for incorporating a company does not want to risk getting a one million dollar fine. So many prefer to pass on the incorporation rather than take the risk if the Beneficial Owners are not easy to identify.

Identifying Beneficial Owners may sound simple, but in some cases, it can be a real problem. Think about a public company. It can have hundreds of thousands of shareholders. And many of these shareholders are trust funds with another set of hundreds of thousands of shareholders. In these cases, it is impossible to identify every one of them. Hopefully, this problem will be solved shortly, but that’s the reality as of the end of 2022.

 

Incorporation Before A Notary Public

Remember the notary public? Well, now it is time to meet him. You should already have the name registered with the Ministry of Economy. And you should have gathered all the documents needed to open up your company. Now the Notary Public will make it official. He will help you draft a constitutive act containing the company’s articles of incorporation and bylaws. This document includes all the general aspects of the company: company name, business objective, type of company, administration, duration, etc. The company must issue registered share certificates and record the shareholders in the Company Stock Registry Book.

Here is what your incorporation deed will look like.

Example of the incorporation deed of a Mexican company

 

Public Property And Commerce Registration

Every company established in Mexico must be appropriately registered in the Public Property and Commerce Registry. It exists to maintain a public record of merchants. The Notary Public usually does this after the incorporation deed has been signed. 

 

Leasing Of A Registered Address

According to  Mexico’s Federal Tax Code, virtual addresses are not allowed in Mexico. The law states that the registered address has to exist physically, and you should have your corporate books and accounting at that address. So regardless of your business model, you must lease a registered address. Their price is around US 50 to 100 per month. 

 

Federal Tax Payers Registration

Now you fully incorporated your company. The next step is to go to the Secretaria de Administracion Tributaria (SAT), the Mexican IRS. The legal representative of the company does this. You designated him in the constitutive act, the document of incorporation. In Spanish, he will obtain the company’s Federal Tax Identification Number, Registro Federal de Contribuyentes (RFC). You should keep this number close because you will need it for any transaction you make. In the same meeting, the legal representative will obtain his electronic signature to act on behalf of the company. This electronic signature is a series of digital files and a password. It is essential to understand that this is a personal electronic signature, and if you change legal representatives, the new one will have to go to the tax authorities to get his own.

To obtain the Tax Id, your legal representative must present the following.

  • The incorporation deed stating his faculties in the company
  • The leasing agreement as proof of address 
  • A copy of his ID and the appointment 

Open A Corporate Bank Account

The legal representative contacts a bank and opens a bank account. The process is the same as in any country; they will ask for the tax ID, the company’s proof of address, his ID, and other documents depending on the bank. 

 

Social Security Mexican Institute Registration

The last step is registering your business in the Social Security Mexican Institute, or Instituto Mexicano del Seguro Social (IMSS). It doesn’t matter if you are the only employee in your company. The process is relatively simple; if you wish for us to write an article on how to do it, please leave a comment at the bottom.

 

Corporate Books In Mexico

Once your company has been incorporated, the notary public will give you your company’s corporate books. If he does not, then you would have to buy your own. Corporate books in Mexico are physical books with sequenced sheets of paper that, by law, companies must fill and update. 

These books are part of your company’s accounting; you should keep them at your registered address if you get an audit one day. Probably only 5% of companies in practice comply with these obligations, but it is always best to have everything in order. Let’s see what these books look like. 

 

An example of a Mexican company's corporate books.

 

The corporate books of a Mexican company consist of the following.

  • Shareholders’ Registration Book
  • Shareholders’ Meetings Minutes Book
  • Changes In Stock Capital Book

Shareholders’ Registration Book

Mexican companies must have a physical book to identify each shareholder thoroughly. 

 

Shareholders’ Meetings Minutes Book

By law, companies in Mexico need to have an annual ordinary shareholders’ meeting. In this meeting, they will approve the company’s financial statements and take appropriate decisions to continue its operation. These meetings must be registered in minutes or notes explaining the decisions taken. Then, these minutes are appended to the Shareholders’ Meetings Minutes Book. 

 

Changes In Stock Capital Book

You may have noticed the term CV follows almost every company name. CV is a contraction for Capital Variable, which means Variable Stock Capital.  This means the company can increase or decrease capital stock as it sees fit. The most common example would be adding a new shareholder who contributed X amount of money to the company. Every time there is an increase in capital stock, you should register it in this book. You don’t necessarily need to formalize these changes before a notary public, but it is a good practice. Here is why. 

Whenever you need to prove something in a Mexican court of law, you need “date certainty.” This is the ability to prove that something happened at a particular time. He stamps this with a date when you formalize something before a notary public. And, this date, since it was stamped by the notary public into whom we have invested our trust, is perfectly valid in a court of law.  

 

Equity Legal Reserve 

Although some exemptions may apply, by law, companies in Mexico must create an asset account called “Legal Reserve.” This account is a fund to help a company with any financial contingency that would force it to default on payments to third parties (including the government). Article 20 of the General Law of Commercial Corporations and Partnerships states this. This legal reserve aims to help companies respond better to their liabilities. 

Mexico’s Labor Law: What You Need to Know

If you are starting a business in Mexico, you probably will need to hire employees. The Mexican Federal Labor Law, which has its basis in 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. In the last section, we discussed payroll from a tax perspective; now, let’s discuss the legal aspect of employment. 

Labor conditions were a pretty big issue back in the day. It is one of the reasons for the last Mexican Civil War. The labor conditions back then were not exactly fair. Because of this, when they rewrote the constitution in 1917, they designed it to protect employees by giving them considerable legal rights and benefits. This is a good thing, of course. But it leads to bad practices.

Mexican workers have the right to form unions freely to defend their rights. This is established in the Mexican Federal Labor Law. This has led to the formation of large labor union organizations that harness a lot of power. All companies in Mexico must be prepared to negotiate with unions, especially manufacturing companies.

According to the law, a Mexican laborer performs a service in a subordinate way to another person or entity. Because of this broad definition, if a working 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. Otherwise, the company may be deemed as the employer. And here’s why that’s a problem. 

 

Termination and Severance Pay

In Mexico, a company must have a valid reason to terminate its work relationship with an employee. Otherwise, the termination is deemed wrongful. This leaves us with three different options when a working relationship ends. 

  • Voluntary Resignation. If an employee quits his job, he is entitled to the payment of his prorated vacations and Christmas bonus. This is the amount accumulated that year up until the moment he resigned. We call this the “basic settlement.” If he/she worked for over 15 years in the company, he/she is entitled to an “antiquity premium.” This is 12 days of salary for every year worked.
  • Justified Termination. If there is a valid reason for the termination, the severance package is the same as a voluntary resignation. It is composed of the basic settlement and antiquity premium, if applicable.
  • Wrongful Termination. If the termination of an employee is unjustified, the employee is entitled to the following. (1) Three months of his salary. (2) 20 days of salary for every year worked. (3) The basic settlement and antiquity premium, if applicable.
 

One common lousy practice in Mexico is for employees to ” hunt” for severance pay. Let’s simplify things by saying that a wrongful termination makes the employee three months of salary. So some bad employees start a job, behave during the probation period, and then try to get fired. These employees have connections with low-time lawyers with whom they split their profits. So it can become a problem.   

One way to prevent this is by clearly drafting your company’s internal work regulation and registering it at the city’s Conciliation and Arbitration Board.

 

Internal Work Regulation

If you wish to terminate a relationship with an employee (fire him) because you believe it is justified and he is not behaving correctly, you must prove this. For this, companies have an internal work regulation document as a guideline for employees’ behavior at work. For example, if you wish to establish a dress code, you will state it here. Otherwise, your employees could show up to work in a swimsuit and flip-flops without this being wrong. Article 423 of the Mexican Labor Law specifies what this regulation must include.

This document will help you and your corporate lawyers to build a stronger case against a potential labor lawsuit. And for it to be valid in court, you must have the document approved and registered at your local Conciliation and Arbitration board.

 

Employment Agreement in Mexico

The beginning of a good work relationship is the employment agreement. The law presupposes a contractual agreement if a subordinate working relationship exists. Because of this, it is essential to have a well-drafted written contractual agreement specifying the nature of the relationship. If, for example, a contract does not specify a termination, it is assumed 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 National Minimum Wage Commission is in charge of setting Mexico’s minimum wage. We have two different minimum wages; the general minimum wage and the northern border area minimum wage, which is higher.  The general minimum wage for 2023 is $207.44 pesos.

 

Working Hours

According to the law, Mexican laborers can work a maximum of 48 hours a week if they work a day shift (6 am to 8 pm) and 42 hours a week if enrolled in a night shift (8 pm to 6 am). There can be a hybrid with 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

Article 67 of the Mexican Labor Law states that every working hour must be paid double if a Mexican laborer works overtime. Also, 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

We have created an article separating the mandatory employee benefits in Mexico from the ones that are optional but could give your company a plus. Here we will see an overview of the most important ones.

 

Holidays in Mexico

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

Date Holiday

Explanation

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
November 20 Revolution Day Commemoration of Mexico's Civil War
December 12 Guadalupe's Virgin Day Celebration of the appearance of the Virgin Mary in Mexico
December 25 Christmas Day


Vacations in Mexico

Besides the mandatory holidays, employees who have worked in the company for one year or more are entitled to 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, the vacation period increases by two days for every five years working for the company.

There is also a mandatory vacation premium of 25% of the 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.

It works as follows: 

Continous Employment in the Company Vacation PeriodVacation Premium
0 to 1 yearZero
1year1225%
2 years1425%
3 years1625%
4 years1825%
5 years2025%

Christmas Bonus (Aguinaldo)

By law, you must pay your employees a Christmas bonus equal to or higher than fifteen days of their salary. It must be paid before 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. A worker must have worked for the company for at least one year to be entitled to this bonus.

 

Major Medical Insurance

By law, workers must be registered with 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 a female employee is expecting a child, they are entitled to 12 weeks of Maternity leave. This is divided into six weeks before the birth of the child and six weeks after. After the child is born and women go 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 cannot work because of the delivery. If the period is extended, she is entitled to 50% of the daily social security contribution salary for up to 60 days. They are entitled to return to their job as long as no more than a year has passed since the delivery date.

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

They cannot:

  • Work night shifts or extra hours
  • Work under sanitary contingencies 
  • Perform physically exhausting tasks 
  • Do hazardous or unhealthy labor. This is understood as handling dangerous materials, heavy physical labor, or anything that may jeopardize her or her child’s health. 

Moving to Mexico: Immigration, Visas & Work Permits

When starting a business in Mexico, sending an expatriate to manage and guide the company is typical. 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 your business, coming to Mexico and working is different. This guide will give you an overview of the Mexican immigration system and how it affects expatriates and their families.

The General Population Law and the Migration Law are the Mexican laws that establish and regulate the rights and obligations of foreigners in Mexico and their immigration statuses. Like in any country, some permits and visas are more challenging to obtain than others.

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

  • Non-immigrant: someone who comes to Mexico for some time and then departs. This can be a tourist, visitor, or student.
  • Immigrant: someone with a permit to live in Mexico long term. 

The Ministry of Interior is the government office 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 situation.

 

Non-Immigrants

Visitor Permit

If you come for leisure or business, don’t plan to stay longer than six months (180 days), and 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, Forma Migratoria Multiple or FMM, and give it to the migration officer at the port of entry. The airline usually distributes this among the passengers if you come by plane. 

When you give your filled-out FMM to the immigration officer, he will hand you back a piece. You should keep this 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 be delayed when returning to Mexico in the Future. Check out this article for fees, permit extensions, and other questions.

This 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

If you hold a passport from a country that is listed here, you are not that lucky. You require a tourist visa. It’s not the world’s end; you must 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 will allow you to perform the same activities.

 

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

Immigrants

Temporary Resident Visa

A temporary resident visa allows you to live in Mexico for up to 4 years, with the 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 resident status. It will allow you to come in and out of Mexico as you please. There are several categories of temporary resident visas, according to what you plan to do in Mexico. 

This visa allows foreigners to work abroad and receive payment outside of Mexico, but you can get a work permit with an add-on. If you have a job offer in Mexico, the company or person you will work with needs to apply for a work permit on your behalf.

It is a good idea to consider that you need to apply for this visa outside of Mexico. Only in scarce circumstances can you get it while being in the country. 

 

Temporary 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
  • Documents to probe one of the following:
    • Economic solvency
      • Bank account with a monthly average of USD 28,000 or a 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 partner’s legal status
          • Birth certificate, ID, or passport if a Mexican citizen
          • Passport and visa if a foreigner
    • Scientific research in Mexican waters
    • Title Deeds of property in Mexico
    • Proof of investments in Mexico

Permanent Resident Visa

This is the equivalent of an American green card. It 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). Suppose you are sure that you want to stay in Mexico for good or eventually become a Mexican Citizen. In that case, you should start to develop your strategy to get a Permanent Resident Visa. Although to get a Permanent Resident Visa, you must legally have lived in the country for at least five years, so you will need to begin with your temporary residency.

 

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
  • Documents to probe one of the following:
    • Economic solvency
    • Being a retiree
    • Family bonds

Naturalization

Naturalization means that you become a Mexican citizen. This is the furthest you can go regarding migration status, so it is the hardest to obtain. To apply for citizenship in Mexico, you must already be a permanent resident unless you have family ties or marry a Mexican citizen. Therefore, you require five consecutive years of legal residency before you can apply.  

The reality is that most foreigners can live a happy life in Mexico without becoming citizens. In most cases, permanent residency is enough. Here are the benefits of becoming a citizen over a permanent resident.

  • The right to vote 
  • Buying property in restricted areas  (can be done through a trust fund if you are a foreigner).
  • No more administrative issues with immigration offices

Conclusion

Starting a business in Mexico can be a very lucrative endeavor, but it’s not all sunshine and rainbows. The moment you incorporate a company in the country, it incurs legal obligations that need to be duly fulfilled if you don’t want to face fines and penalties. 

I hope you enjoyed this article; if you know someone that may benefit from reading it, please share it with him. If you still have questions about how to start a business in Mexico, please leave them in the comments below.

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Roberto Cornejo
Roberto Cornejo

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