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How to do
Business
in Mexico
GUILLERMO PÉREZ DIONISIO, CPAOctober 2012
1
OV
ERV
IEW This is a general
description of the main aspects a company or an individual might face when planning to initiate a business in Mexico. It is intended to provide the reader a background on the country as well as accounting and tax requirements.
2
Conte
nts
1.Country Profile
2.Business Entities
3.Accounting and auditing requirements
4.Taxation
5. Investment incentives
6.Labor
7.Highlights
8.Conclusion
9.Sources 3
1.Country Profile
1.1 Location• Mexico is located in the American continent and belongs to North America.
1.2 Population• 108 million
1.3 Language• Spanish. • English is also widely understood.
4
1.4 Geography • 1,970,000 sq. km. (1,224,000 sq. miles)
1.5 Economy• Gross domestic product was estimated at US $1,750,000 billion in 2012.
• Industrial production growth rate: 1.6%• Real growth rate: 4.1%.
5
1.6 Main Industries
• Petroleum, mining.• Tourism.• Food and beverages, tobacco.• Chemicals, iron and steel.• Textiles, clothing, motor vehicles; consumer durables.
1.7 Principal Trading Partners
4814
511
Imports United StatesChinaJapanEuropean Union
6
80
20
Exports
United StatesRest of the World
1.8 Political system• Federal democratic republic.
• 31 States, one Federal District.
1.9 Currency and exchange control.• The currency is Mexican peso.• Peso is freely converted in to any currency
1.10 Religion• Mainly Catholics 77%.
7
2. Business Entities
2.1 Stock Corporation (S.A.)• Most common type of business entity used in Mexico. • Shareholders only are liable for an amount up to the
value of their shares. • Must have at least two shareholders.• No minimum capital is required
8
2.2 Limited Liability Company (LLP)• Same limited liability as the stock corporation. • No minimum capital required.• At least two partners.
2.3 Civil Enterprise (S.C.)• Professional service providers, use this form of
corporation.• It has no minimum capital requirements. • There are no limits on the number of partners.
9
2.4 Branch
• Instead of incorporating an entity in Mexico, some companies choose to register their existing foreign company as a branch in Mexico.
10
However, the most common types of mercantile entities used by foreign and national investors in Mexico are the following:
• Limited Liability Company: A partnership with limited liability for all its members, in which social interests represent the capital.
• Stock Corporation: Entity similar to the US Corporation, its capital is represented by common shares.
Both Mexican legal entities provide limited liability to Shareholders and are subject to the same tax treatment under Mexican law.
11
2.5 Requirements for Stock Corporation and Limited Liability Company
• Minimum of two shareholders.• Transfer of an LLP social parts or any new admission
of new partners will require a partners meeting approval.
• Legal representatives.• Sole director or a board of directors.• Annual financial statements.• Variable capital can be established.
12
3. Accounting and Auditing Requirements.
• Shareholder and capital registry. • Books must be recorded in Spanish.• Shareholders minute’s book of meetings held.• With gross revenue exceeding 2,700,000 USD a
special fiscal report must be filed.
13
4. Taxation4.1 Income Tax (ISR)
IndividualsMexico's individual income tax rates for 012 are progressive, from 1.92% to 30%.
Personal annual tax rates 2012Income (USD) %
0.00076-457.9 1.92
457.9-3,886.53 6.4
3,886.5-6,830.23 10.88
6,830.23-7,939.84 16
7,939.84-9,506.16 17.92
9,506.17-19,172.57 21.36
19,172.57615-30,218.6
23.52
30,218.6 and over 3014
Corporate Tax• Mexico's corporate tax rate for 2012 is 30%.
The corporate rate will be reduced to 29% in 2013 and 28% in 2014.
15
4.2 Flat Rate Corporate Tax • 17.5% rate to income determined based on cash
flows.• Co-exists with Income Tax.
4.3 Value added Tax (VAT)• VAT consists of a 16% tax (reduced to 11% in the
borders and certain States) applied to each transaction.
4.4 Capital Gains/ Losses The concept of capital gains in Mexico does not exist.
16
4.5 State level Taxation• Transfer and acquisition of real estate, salaries,
wages and payroll.
4.6 Social Security• Medical attention, disability pension, retirement
pension and housing. • Rate of approximately 25% over the amount of
the salaries. • These contributions are Income Tax deductible.
17
4.7 Treaties to avoid Double Taxation Mexico has different treaties to avoid double taxation with its main trading partners.
1. Argentina
2. Australia
3. Austria
4. Belgium
5. Belize
6. Brasil
7. Canada
8. Chile
9. China
10. Colombia
11. Costa Rica
12. Czech Republic
13. Denmark
14. Ecuador
13. Finland
14. France
15. Germany
16. Greece
17. Indonesia
18. Hong Kong
19. Hungary
20. India
21. Ireland
22. Israel
23. Italy
24. Japan
25. Korea
26. Luxembourg
27. Norway
28. New Zealand
29. Netherlands
25. Panama
26. Peru
27. Portugal
28. Poland
29. Romania
30. Russia
31. United Kingdom
32. United States
33. Slovakia
34. Spain
35. Singapore
36. South Africa
37. Sweden
38. Switzerland
18
4.8 Withholding
• Mexico’s treaties generally apply different withholding rates, to interest 4.9-30%, royalties 10-30%, technical services fees 0-30% and none for dividends.
19
5. Investment Incentives
5.1 Subsidies• Negotiated directly with the State or
municipality where the investment will be made.
These may include, among others:• Discount on the land purchase price.• Reduction of State taxes
20
5.2 Tax incentives
• Entities dealing exclusively in agricultural, livestock breeding, forestry or fishing activities are exempt from income tax when their gross revenues do not exceed the limit established in the law.
21
6. Labor • 90% Mexican Workers required.• Sharing 10% of taxable income among workers.• Christmas Bonus • Mandatory holidays are: January 1, the first
Monday of February, the third Monday of March, May 1, September 16, the third Monday of November December 25, any elections day as determined by electoral authorities and December 1 of every 6 years.
22
7. Highlights
• México is the world’s eighth-biggest trading country and the largest in Latin America.
• It has a free market economy.• Cheap production and manufacturing costs.
Cheaper labor. (Comparable to China).
23
8. Conclusion
With a growing consumer market fuelled by macroeconomic stability, a strategic geographic location, renowned high-quality labor force, open trade and investment policies there’s no denying that investing in Mexico is a smart choice for financial growth.
If you’re interested in investing in Mexico, contact us for assistance at.
24
9. Sources
• http://espanol.doingbussiness.org/data/exploreeconomies/mexico/
• Taxation and Investment in Mexico 2012: Reach, relevance and reliability. UK. Deloitte Touche Tohmatsu Limited.
• Meyer, Michael C.; William H. Beezley, editors (2000). The Oxford History of Mexico. Oxford University Press. p. 736.
• Krauze, Enrique (1998). Mexico: Biography of Power: A history of Modern Mexico 1810–1996. New York, New York: Harper Perennial. p. 896.
• www.pwc.com/mx/db2011 25