Pursuant to the Mexico’s Code of Commerce (Código de Comercio), foreigners are free to carry out regular acts of commerce, subject to the applicable treaties between a foreigner’s home country and Mexico. Foreign trade, however, is subject to Mexican Legislation. Companies legally incorporated abroad, or that may have an agency or branch in Mexico, may also exercise acts of trade, subject to Mexican laws concerning such entities and the jurisdiction of the Mexican courts.
Incorporating a Company
Companies incorporated in Mexico are regulated by the Mexican General Law of Mercantile Corporations (Ley General de Sociedades Mercantiles) and the Mexican Code of Commerce (Código de Comercio). They may also be subject to comply with other legislation depending on their individual business activities.
The main requirements to incorporate a company in Mexico are the following:
- The company’s name must be approved by the Ministry of Economy. This process may take up to 2 weeks and is free of cost and it’s recommended to have 3 different options to ask them to the authority.
- The type of company must be selected. The two main types of companies are the Sociedad Anonima and the Sociedad de Resposabilidad Limitada.
This company requires two or more shareholders, their liabilities for the company’s acts are limited to the payment of their issued stock shares according to their capital contribution.
The stock shares are negotiable, and the shareholders must subscribe at least one share in order to incorporate the company.
There are no minimum capital requirements, however at least MXN 1.00 per shareholder must be subscribed, it is common practice for the stock to be MXN 50,000.00.
The company’s incorporation must be formalized either before a notary public, public broker, or by public subscription.
The administration of the company may be conducted by a Sole Administrator or by two or more members of an Administrative Board.
A Statutory Auditor must be named by the company, which will mainly audit and supervise the actions of the Administrative Board of.
“Sociedad de Resposabilidad Limitada”
This is an entity, similar to a limited liability company, which is made up of two or more partners, who may be natural or legal persons, and are only liable for the company’s acts up to the payment of their respective equity participations in the company.
The corporate capital shall be divided in non-negotiable equity participations, which can be of different value or class, but always shall be of one Mexican peso or its multiples.
At the point of incorporation of the company, the corporate capital shall be subscribed and paid up to at least 50% of the value of each equity participation.
There is a maximum of 50 partners.
The incorporation of the company may only be formalized either before a notary public or a public broker. It cannot be by public subscription.
The administration of the company may be conducted by one or more General Managers.
Both types may be also constituted as “de Capital Variable”, which means that they have variable capital stock and, subject to their by- laws, it may be decreased and increased without the need to make any formal amendments to the company’s by-laws.
When a foreign person or corporate entity acts as a shareholder or a partner in the incorporation of a Mexican company, the company’s by- laws are required to state that:
“according to the provisions set forth in the Mexican Constitution and in the Mexican Foreign Investments Law, any foreigner who acquires a share or partnerships interest in the company, shall by this simple fact be considered as a Mexican with respect to same, and it shall be understood that said foreigner agrees to not invoke the protection of his/its government, under penalty, in the event of a breach of this agreement, of the loss of said share or interest in favor of the Mexican Nation.”
The object of the company must be defined. The by-laws shall define all the activities which the company shall engage in.
The company’s administration and appointment of members must be defined and listed.
The documentation required from foreign shareholders or partners (natural persons) to formalize the incorporation of a company includes passport, migratory form issued by the Mexican National Institute of Migration, a Single Population Register Code (“CURP”) issued only for residents in Mexico and a proof of address. Information such as place of birth, nationality, occupation, and marital status also needs to be provided.
The documentation required from foreign Shareholders or Partners (le- gal persons) includes their deed of incorporation, appointment of a legal representative, proof of identity, and proof of tax ID.
All documents should be duly certified with an apostille stamp and translated into Spanish, if they are in a different language, by an official translator.
The public deed of incorporation must be registered with the Mexican Registry of Public Commerce. This may take up to 15 business days.
The company is required to be registered with the Mexican Federal Tax Registry to obtain its tax identification which is required to perform any acts of commerce. This process depends entirely on the workload of the Mexican Tax Authority and previously was done in a span of time ranging from one day upto a week, however due to COVID-19 related measures, a prior appointment must be scheduled to carry out this process. Appointments can take up to a month to schedule depending on availability.
Company’s Social Obligations
According to the provisions set forth in the Mexican General Law of Mercantile Corporations (Ley General de Sociedades Mercantiles), any company incorporated in Mexico shall mainly comply with the following:
- General Shareholders’ Meeting / General Partners’ Meeting. This is the supreme ruling body of the company, and its resolutions will define the company’s operations as well as impact the decisions of the company. The meeting shall meet at least annually to approve the administration’s annual report, the financial statements of the company and the results of the past year. The meeting will also ratify the administration of the company. The meetings may be Ordinary or Extraordinary, according to the company’s by-laws.
Corporate Books. The company shall have at least the following:
- A record of the shareholders’ or partners’ meetings to include the resolutions adopted in such meetings.
- A shareholders’ or Partners’ Registry to record the general information of the proprietors of the stock shares and equity participations.
- If it is constituted as a variable capital company, to record any in- crease or decrease in capital movements.
The company shall file before the Mexican Tax Authority monthly declaration statements of its operations as well as its annual declaration before March 31st, for the payment of any applicable taxes.
Fernando Antonio Treviño Núñez, Rivadeneyr Treviño de Campo
Mariana Vazquez Arroyo
All new entities that are incorporated as mercantile or civil companies must be incorporated by a notary public and registered with the following authorities:
|Authority||Who does the procedure?||When?|
|a)||RPPC||Public Registry of Property and Commerce||The Notary Public||On incorporation|
|b)||SAT||Federal Tax authority||The Notary Public||On incorporation|
|c)||RNIE||National Registry of Foreign Investment||The Legal Representative||Within 40 days of incorporation|
|d)||IMSS||Mexican Institute of Social Security||The Legal Representative||When the company decides to hire employees|
|f)||State||Local Tax authority||The Legal Representative||When the company decides to hire employees.|
There are no setting-up costs in terms of taxation in Mexico, except for a small fee of USD 100 that has to be paid to the Public Registry of Property and Commerce.
National current benefit taxation
Corporate income tax
Companies and branches (of foreign companies) that do business in Mexico, must pay an income tax of 30% from their taxable profits.
Trade tax (local profits tax)
There is no local profits tax in Mexico.
Value Added Taxes (VAT)
VAT is a consumption tax, which is considered to end up being absorbed by the final consumer as part of its cost when the invoice is paid.
VAT paid to suppliers of goods or services is considered credited in the month in which the payment of the corresponding invoice is made, provided that the expense that gave rise to this is considered deductible for income tax purposes.
Taxpayers pay to the tax authorities the difference between the transferred VAT (effectively charged to customers) and the credited VAT (effectively paid to the suppliers of goods and services). This must be paid on a monthly basis.
The general VAT rate is 16%. There is, however, also a 0% rate applicable to but not limited to:
- Alienation of: animals, except for those that are used as pets at home;
- Non-industrialized vegetables;
- Patent medicines;
- Food products (with some exceptions);
- Ice and water; fertilizers, pesticides, herbicides and fungicides;
- the provision of the following professional services: Loans to farmers and ranchers, grinding and crushing of corn or wheat, pasteurization of milk, those provided to hydroponic greenhouses, water supply for domestic uses, among others;
- the export of goods or services.
The following operations are considered exempt from VAT include but are not limited to:
- Transfer of ownership of soil;
- Constructions fixed to the floor or destined for or used for the home;
- Books, newspapers and magazines;
- Used furniture, except for those sold by companies;
- Lottery tickets, raffles, draws or gambling;
- Shares and social ownership;
- The provision of the following professional services: commissions derived from mortgage loans; fees of fund managers for retirement; teaching; doctors and hospitals; public land transport of people; those provided to members of associations and unions as normal consideration for their fees.
The provision of the following professional services: commissions derived from mortgage loans; fees of fund managers for retirement; teaching; doctors and hospitals; public land transport of people; those provided to members of associations and unions as normal consideration for their fees.
In the case of international air transportation, 75% of the cost of the ticket is considered exempt and 16% will be paid as VAT over the remaining 25%.
Property transfer tax
There is a transfer tax that has to be paid at the moment that proper- ties are sold that ranges from 0.5% to 4.565% depending on the state in which the asset is located.
Treaties for the avoidance of double taxation
Mexico has signed 59 Treaties for the avoidance of double taxation according to the model of the agreement drawn up by the Organization for Economic Cooperation and Development (OECD) and used by the vast majority of developed countries:
|England||Malta||United Arab Emirates|
|Finland||New Zealand||United States of America|
The negotiated rates for withholding taxes in all chapters of the treaties are generally much lower than those established in Mexican tax legislation and in some cases, there are no taxes to be withheld.
(National withholding taxes, international tax exemption option)
The company that pays dividends must keep a record of profits that have been taxed in a special account, known as CUFIN (Net Tax Profit Account). If dividends are distributed form a source other than the CUFIN, the distribution is subject to a 30% income tax.
Individuals, whether residents in Mexico or not, will be subject to an additional 10% income tax on dividends or profits distributed by companies’ resident in Mexico. Companies must withhold this tax at the time of
paying those dividends or profits. This additional income tax of 10% is considered to be final.
Dividend payments made by a Mexican company to another company, whether or not resident in Mexico, will not have tax withheld as long as they come from the CUFIN, which is considered to have already paid the corresponding taxes.
Tax treatment of losses
Tax loss is equal to the difference between gross income for the fiscal year and the deductions authorized by this under the Income Tax Law, when deductions are greater than income.
Tax loss incurred in one fiscal year may be carried forward against the tax profit of the ten following years until it is depleted.
When in a given year, the taxpayer fails to carry forward its tax loss from previous years, even though the taxpayer could have done so in accordance to the Income Tax Law, the taxpayer will forfeit the right to do so in subsequent years, for up the amount that could have been deducted.
The amount of the tax loss will be updated to recognize the inflationary effects, following specific rules established in the Income Tax Law.
The right to carry tax losses forward pertains exclusively to the tax- payer that suffered the losses and may not be transferred to any other person or entity, even as the result of a merger.
In case of a spin-off of companies, the tax loss carryforwards against tax profits must be divided between the original company and the companies spun-off following specific rules established in the Income Tax Law.
In the event of a merger, the merging entity may carry forward the tax loss it has at the time of the merger only against tax profits corresponding to the same business lines as those in which the loss was incurred.
Employer obligations (salary taxes, social security)
All employers are obliged to withhold wage tax & social security from payments to employees and to pay this to the tax authorities on monthly basis.
It is the employer’s responsibility to withhold and pay the correct amount of wage tax and social security.
Employers provide at least the following benefits to their employees:
- A Christmas bonus for the duration of 15 days;
- Vacations for the duration of six days for the first year of service, increasing by two days for each year of service completed until reaching 12 years, then continuing to increase by two days for every 4 completed years. The holidays are to time off and do not necessarily have to be paid, subject to the right to a vacation bonus;
- Vacation bonus: 25% of the pay that would be owing if the individual had been at work;
- Official holidays;
- Social security.
Hiring employees in Mexico entails the following costs:
- Social Security
This is a tripartite tax (government, employer and employee). The employer cost varies depending on the employee’s salary. The higher the salary of the employee is, the lower the quota to be paid will be. Generally, the cost to employers ranges from 10% to 30% based on salary.
- Housing Fund
5% on the salary base for contribution. As Social Security, salary for this concept cannot be higher than USD 112.00 per day.
- Payroll Tax
This varies depending on the state where the employee is working and can range from 0% to 3% without establishing maximum salaries.
SPC CONTADORES Y ABOGADOS, S.C.
Av. Colonia de Valle # 528-303
Colonia de Valle
Delegación Benito Juárez
03100 Mexico, D.F.
Tel. +52 55 5543 1588/8590 8253/ 8590 8254
Fax +52 55 5543 1596
mx Arturo Sam Jr.