Company Formation in Mexico
As a neighbouring country and member of the North American Free Trade Agreement (NAFTA), Mexico is a natural market for U.S. exporters. Mexico is the third largest trading partner of the United States, and represents the second largest export market of U.S. products and services. Since its enactment in 1994, the North American Free Trade Agreement (NAFTA) bolstered the strong manufacturing industries on both sides of the border, facilitating an active exchange in parts and components along supply chains for various sectors, including: automotive, aerospace, consumer appliances, electronics, and medical devices.
Advantages of Incorporating Business in Mexico
Tax Advantages – Corporations often gain tax advantages, such as the deductibility of health insurance premiums paid on behalf of an owner-employee; savings on self-employment taxes, as corporate income is not subject to Social Security, Workers Compensation and Medicare taxes; and the deductibility of other expenses such as life insurance.
Transferability of Ownership – Ownership in a corporation is typically easily transferable.
Raising Capital – Capital can be raised more easily through the sale of stock. Additionally, many banks, when providing a small business loan, want the borrower to be an incorporated business.
Mexico’s individual income tax rates for 2012 are progressive, from 1.92% to 30%
Mexico’s corporate tax rate for 2012 is 30%. The corporate rate will be reduced to 29% in 2013.
An alternative minimum tax, AMT, of 17.5% applies to income on cash flow basis.
Capital gains of companies are added to the regular income. Gains from sale of securities in the Mexican stock exchange are tax exempt.
Sale of the principal residence is also tax exempt subject to certain terms.
Losses are carried forward up to ten years. There is no carry back of losses.
Types of Entities
Corporation: The great majority of businesses in Mexico are in the form of an SA. This is what is known in common-law jurisdictions as a stock corporation. The SA has separate juridical personality. It must have at least the statutory minimum capital divided into transferable shares. Shareholders have limited liability. There must be a minimum of two shareholders. The minimum capital required being MP$50,000 (fifty thousand Mexican pesos).
Limited Liability Company: A limited liability company also has separate juridical personality. This entity must have a minimum of two (2) shareholders and a maximum of fifty (50). A minimum of MP$3,000 is necessary to incorporate an LLC. The shares can only be transferred by prior approval of the majority of the shareholders.
General Partnership: This is a commercial company with at least one general partner and one or more limited partners. The liability of the general partner is unlimited with respect to the obligations of the entity, while that of the limited partners is limited to their capital contribution. Limited partners cannot participate in the management of the company.
Partnership Limited by Shares: Similar to the previous category, this type of company is unique in that the shares of stock they own limit the members’ contributions.
Joint Venture: A JV is not ordinarily disclosed to third parties. It is formed by a written agreement that requires neither registration nor public notice. The active associate is personally liable for the debts of the joint venture, whereas the contributing associate is liable only to the extent of his contributions. Although a contract is normally written, it need not be recorded at the Public Registry of Commerce. A joint venture cannot do business under a company name but must use the name of the active associate.
Civil Company and Civil Associations: Civil companies and associations are non-profit organizations formed by several individuals with the purpose of achieving a common goal. The most common partnerships of this type are charities, professional associations and scientific, cultural and religious institutions.
Branches of Foreign Entities: A foreign investor may open a branch operation rather than set up a separate Mexican subsidiary. However, a more practical approach is to establish a Mexican corporation with foreign capital. A branch must be registered with the Public Registry of Commerce after obtaining authorization from the Foreign Investment Commission (FIC) and other government agencies. Representative (non-trading) offices may be set up simply by notifying the FIC.
Sole Proprietorships: The difference between an individual enterprise or sole proprietorship and a corporation is that the stockholders in the latter have limited liability, whereas in the former an individual’s liability is unlimited.
It takes as less as 9 days to set up a business in Mexico.