The Latin American market is one that many entrepreneurs and corporations are looking to expand into, and few nations offer a greater gateway than Mexico.
With close links to numerous South American countries and an economy that ranks in the global Top 15, this culturally rich territory offers a range of exciting opportunities to enterprising business owners.
Does Mexico welcome overseas businesses?
Mexico welcomes foreign investment, with the USA, Canada, Spain, and Germany having a substantial presence in the country. Corporate taxes are pretty high in Mexico, so you’ll need to assess if it would be fiscally prudent to operate in this territory, but you will likely be welcomed to do so by the authorities.
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What industries are most popular in Mexico?
Manufacturing, in all its forms, is the biggest industry in Mexico. Many USA-centric businesses operate south of the border due to lower salaries.
As a country of outstanding natural beauty, agriculture and tourism are also major components of the Mexican economy.
Overall, the following industries are likeliest to yield significant profits.
- Automobile manufacture, maintenance, and repair
- Aviation and aerospace engineering
- Construction and shipping of apparel and textiles
- Construction and shipping of consumer products
- Medical appliance manufacturer and maintenance
Is it easy to set up a business in Mexico?
There are multiple steps to setting up a business in Mexico. The process is as follows.
How to set up a business in Mexico
- Choose your location
Different territories in Mexico are closely associated with varying industries. Guadalajara, for example, is the heart of Mexico’s digital economy
- Choose your business entity type
Sociedad Anónima de Capital Variable (SA) is the most popular structure in Mexico
- Submit a request to register your business with the Secretaria de Relaciones Exteriores
This is the Mexican Ministry of Foreign Affairs. Suggest at least five business names and structures in order of preference
- Apply for a Clave Única de Registro de Población (CURP)
From the Secretaría de Gobernación (Ministry of the Interior). A CURP is a Mexican social security number
- Apply for a Registro Federal de Contribuyentes (RFC)
From the Servicio de Administración Tributaria (the Mexican tax office.) An RFC is your Mexican taxpayer number.
- Once your business is approved and you have the relevant documents, create a Deed of Incorporation
And have this signed, witnessed, and notarised by a Mexican Notary Public
- Register your business
With the Sistema de Información Empresarial Mexicano (SIEM), the Mexican equivalent of Companies House
- Register to contribute to the Instituto del Fondo Nacional de la Vivienda para los Trabajadores (INFONOVAT)
and Instituto Mexicano del Seguro Social (the Mexican social security office) once you make hires
- Open a local bank account for your business
You will need a domestic Mexican business bank account in order to trade easily
That’s it. It’s a lot of steps in the chain, but they should all be comparatively straightforward – especially if you team up with a local expert to help. Just bear in mind that Mexico is a Spanish-speaking nation, so English-language documents will be few and far between.
Can I run a business in Mexico while living overseas?
Yes, you can set up and operate a Mexican company without setting foot in the country. You will need to grant Power of Attorney to a local business to represent you, though. If you want to spend time in Mexico to oversee your business affairs, you’ll need the relevant visa and work permit.
Cultural considerations when running a business in Mexico
You’ll need to negotiate some cultural differences when looking to trade with Mexican business partners. Here are some insights into business etiquette in this nation to keep in mind.
- English is not widely spoken in Mexico, so unless you are fluent in Spanish, it is advisable to enlist the services of an interpreter.
- Personal relationships are hugely important when doing business in Mexico. Rather than approaching potential partners cold, arrange for a trusted third party to introduce you.
- Formality is likely to be the order of the day when you first start doing business in Mexico – use titles and surnames until invited to switch to given names and dress conservatively.
- Despite this formality, do not behave in a way that could be considered standoffish – Mexicans will expect a long, enthusiastic handshake, possibly even a hug and a kiss on the cheek.
- Once you have established a relationship, you will likely be invited to discuss business over lunch or dinner – sometimes in the family home of a Mexican counterpart. Dress as though this meeting is taking place in the boardroom, and bring flowers as a gift.
- Your Mexican counterparts will value the art of the deal, so when negotiating, leave yourself time and financial flexibility for haggling. Trying to rush an agreement through will be greeted with suspicion, as will accepting the first offer you’re made.
What business structures are supported in Mexico?
Here are the most common business structures used in Mexico.
| Type of Mexican business entity | What is it? |
|---|---|
| Actividad Empresarial | The idea of a “sole trader” is not recognised in Mexico, but an Actividad Empresarial is the closest equivalent. This is essentially a one-person business. |
| Sociedad de Responsabilidad Limitada de Capital Variable (SRL) | A limited liability company, which ensures that your personal and legal status as an individual is wholly divorced from your business affairs. |
| Sociedad Anónima de Capital Variable (SA) | A publicly traded company, with shares available for sale. This is Mexico’s most popular business model as it provides the greatest growth opportunities. |
You could also open a branch or your business if you prefer, but this is not common practice in Mexico, so opening a new subsidiary company may be more straightforward.
Taxation in Mexico
If you want to do business in Mexico, you must understand the taxation rules and regulations that will impact your bottom line.
What is the corporate tax rate in Mexico?
With a flat rate of 30% on all business entity types, Mexico has one of the higher corporate tax rates in the global economy. Thankfully, Mexico and the UK have a double taxation treaty in place, so you will not need to pay twice for any profit generated in Mexico.
What are the employee income tax brackets in Mexico?
All employees in Mexico need to pay income tax. Tax contributions for Mexican nationals break down as follows.
| Annual salary (MX$) | Income tax rate |
|---|---|
| $7,735 or less | 1.92% of salary |
| $7,735.01 – $65,651.07 | Flat fee of $148.51, plus 6.4% of salary |
| $65,651.08 – $115,375.90 | Flat fee of $3,855.14, plus 10.88% of salary |
| $115,375.91 – $134,119.41 | Flat fee of $9,265.20, plus 16% of salary |
| $134,119.42 – $160,577.65 | Flat fee of $12,264.16, plus 17.92% of salary |
| $160,577.66 – $323,862 | Flat fee of $17,005.47, plus 21.36% of salary |
| $323,862.01 – $510,451 | Flat fee of $51,883.01, plus 23.52% of salary |
| $510,451.01 – $974,535.03 | Flat fee of $95,768.74, plus 30% of salary |
| $974,535.04 – $1,299,380.04 | Flat fee of $234,993.95, plus 32% of salary |
| $1,299,380.05 – $3,898,140.12 | Flat fee of $338,944.34, plus 34% of salary |
| $3,898,140.13 or higher | Flat fee of $1,222,522.76, plus 35% of salary |
Income tax for non-residents – including people that live in Mexico but are yet to be nationalised – pay income on a simplified scale.
| Annual salary (MX$) | Income tax rate |
|---|---|
| $125,899 or less | 0% |
| $125,900 – $999,999 | 15% of salary |
| $1,000,000 or more | 30% of salary |
It is the responsibility of the employer to withhold income tax from an employee’s wages upon running a monthly payroll.
5% of an employee’s salary will be withheld from payroll each month and paid to the Instituto del Fondo Nacional de la Vivienda para los Trabajadores, known as INFONAVAT or the Mexican Workers Housing Fund, as well as a contribution to the Instituto Mexicano del Seguro Social.
How are taxes paid in Mexico?
The Mexican tax year mirrors the calendar year, running from January 1st to December 31st. All tax returns and associated payments must be filed with the Servicio de Administración Tributaria by April 30th of the following year.
Payroll and hiring employees in Mexico
Hiring the right talent can make or break a company. Ensure your Mexican business interests are staffed by the best possible talent.
Does Mexico welcome overseas talent?
Mexico is more welcoming of foreign talent than ever as an increasing number of international businesses trade in the country. However, it can still be challenging to import employees from overseas.
Mexico does not offer unemployment benefits to citizens that are not working. Hence, the authorities are understandably keen to ensure the local labour force has every opportunity to find work and maintain the nation’s impressively low unemployment rate.
Who needs a visa or work permit to work in Mexico?
Anybody that does not hold a Mexican passport will need a visa and/or work permit to work in Mexico. Non-Mexicans must apply for a resident visa from the Instituto Nacional de Migración (National Institute of Migration.)
A permanent residence visa will rarely be granted without some connection to Mexico, such as family members living in the country or proof of Mexican heritage. Most people will need to apply for a temporary residence visa, which could last from one to four years, and upgrade to a permanent visa once sufficient time has elapsed.
What employee benefits are compulsory in Mexico?
Employees of a Mexican business are entitled to the following benefits by law.
- Minimum of 6 days of personal holiday, incrementally rising each year until capped at 14 days after five years, plus seven federal public holidays that cannot be worked.
- A 25% bonus on top of salary, known as the Prima (Vacation Premium), payable when an employee takes a holiday.
- An Aguinaldo, or Christmas bonus, paid in December. This must be at least 15 days of salary, but many employers offer 20.
- 10% share of annual profits split between all employees aside from directors, payable by May 31st of the following year.
- Double pay for any overtime not covered by contracted working hours.
- 5% of a salary contributed to the Instituto del Fondo Nacional de la Vivienda para los Trabajadores, or INFONAVIT, to ensure Mexican employees can own a home.
- Social security contributions to the Instituto Mexicano del Seguro Social. These vary according to salary. The lower an employee’s wage, the higher the percentage you will need to pay.
In Mexico, employees that are too sick to work can take up to 52 weeks off at 60% pay. Employers are not responsible for this expense – employees will arrange their payments through the Instituto Mexicano del Seguro Social. You must keep the employee’s job open during their sickness period, though. Maternity leave (12 weeks) and paternity leave (5 days) are also paid by this body.
Employment law considerations in Mexico
Minimum wage in Mexico is MX$173 per day. If you pay your employee’s wages three times higher than the minimum wage, you will pay significantly lower contributions to the Instituto Mexicano del Seguro Social – 1.5% of wages, as opposed to 33.65%.
Mexican employees are protected by the Ley Federal del Trabajo, or Federal Labour Law. Mexico’s history is littered with abuses of the labour force, but this act has helped ensure that Mexican employees are treated fairly since 1917.
Over 90% of Mexican employees are unionised. Mexican employees are widely regarded as among the hardest working in the world, but ensure you stay on the right side of the Ley Federal del Trabajo to avoid conflict with a workplace union.
Cultural considerations when hiring employees in Mexico
If you wish to run a business in Mexico that relies upon the local labour force, ensure you understand some of the nuances you will encounter. These include:
- Hierarchy is everything in Mexico, and sitting at the top of the pyramid carries a lot of responsibility. Do not expect junior employees to make decisions or take initiative – you may be expected to take the lead and manage your team’s workload, while those lower down the totem pole will speak when spoken to.
- Mexican employees will respond well to being treated with respect and pliability. Offering flexibility in working hours to accommodate family commitments, or allowing the opportunity to work from home, will endear you to your team.
- Many Mexicans seek a friendly relationship with colleagues and superiors built on trust. English is rarely spoken, so if you can communicate with your employees in Spanish, you’ll find it much easier to get along and build a positive work environment.
- Mexican employees place huge value on family time and work/life balance. Do not ask your employees to work late unless you really need them, and certainly avoid asking them to work on Sundays unless you are prepared to damage morale. Many Mexican citizens are strict Catholics.
FAQs about setting up a business in Mexico
Still have questions or are seeking a swift answer to a basic query? Here are some of the most frequently asked questions about establishing a business in Mexico.
If you do not run into any logistical or administrative headaches, you should have a Mexican business entity up and running in less than a month – sometimes as little as two weeks.
Unlike most countries, a public company – known as a Sociedad Anónima de Capital Variable, or SA – is Mexico’s most popular business structure. If you want to maintain limited liability, open a Sociedad de Responsabilidad Limitada de Capital Variable, or SRL.
If an employee is sick and unable to work, their condition must be certified by the Instituto Mexicano del Seguro Social. This will entitle employees to up to 52 weeks of sick leave, paid at 60% of their regular salary. The employer will not need to finance this absence – the IMSS foots the bill.
The Instituto del Fondo Nacional de la Vivienda para los Trabajadores, or INFONAVIT, is a government scheme in Mexico to help employees own a home. As an employer, you must pay 5% of an employee’s salary to INFONAVIT each month. This company then acts as a mortgage lender for the employee once sufficient donations have been made, with mortgage payments deducted from a Mexican employee’s salary.
No, you can own and operate a Mexican business from overseas, as long as your business remains compliant with all aspects of Mexican law and a local business has Power of Attorney.
Employees pay 5% of their salary to INFONAVIT each month and an additional 1.7% to the INSS, with these contributions withheld at payroll. Employers pay 20.4% of an employee’s salary to the INSS, plus a surplus. This will be 33.65% of a salary if it is less than three times the national minimum wage, dropping to just 1.50% for higher earners.
Most employees in Mexico will expect to be placed on probation for one month, though senior roles can be extended to three months.
You may need to pay up to 1.5 times an employee’s salary to finance a new hire in Mexico once benefits and social security payments are considered. However, wages are pretty low in Mexico compared to many other western countries.
No minimum share capital is assigned by law to set up an SA or SRLA in Mexico.
Yes, a local business account will be essential to trade in Mexico successfully.
Most employees expect to work 40 to 48 hours per week in Mexico, with a flexible schedule running between 8am and 6pm, Monday to Friday.
As mandatory benefits are generous to Mexican employees, supplementary benefits are few and far between. However, private health insurance policies and pensions will always be well received, as will food vouchers and subsidised meals.
You can terminate an employee “at will” in Mexico, but only by offering a lump sum payment of three months’ salary unless you have an extremely compelling reason not to, such as gross misconduct or a serious breach of contract.
Holiday entitlement for employees in Mexico starts at 6 days and is capped at 14 days, rising incrementally over five years of service.
You could open a branch of your business if you have international brand recognition. You will need to apply for permission from the Comision Nacional de Inversiones Extranjeras and Secretaría de Relaciones Exteriores. Most people prefer to open a subsidiary company though, as branches are not common in Mexico.
You can run payroll from within your Mexican business, hire a local company specialising in payroll and HR to manage it, or run payroll from your UK head office if you are operating a branch.
The Instituto Nacional de Migración issues work permits in Mexico. Being awarded a permanent resident visa means that you can live and work in Mexico without restriction, but these are hard to come by for entrepreneurs. A temporary resident visa, coupled with a work permit, will allow you to live and work in Mexico for four years, after which you can apply for a permanent resident visa.