Creating a Company in Mexico
Creating a Company in Mexico in 12 Steps
Creating a company in Mexico is quite straightforward. However, the precise steps for foreign investors are normally unknown.
In recent years, Mexico has changed its Company Law to facilitate the creation (or incorporation) of a company. As a result, Mexico relaxed requirements, reducing the days as well as the number of procedures to start a business, and, thus, has gradually improved its Starting a Business indicator of the World Bank’s Doing Business.
These are Mexico’s 12 steps toward creating a company.
Foreign Investment Restrictions
First things first, we strongly suggest reading the Foreign Investment Guide before you continue because Mexico prohibits or restricts foreign capital in certain activities or economic sectors. We even have a survey to preliminary assess whether foreign investment restrictions may apply!
Needless to say, most economic sectors are not subject to foreign investment controls or restrictions. Thus, this guide will focus on the “all other” activities or economic sectors that do not have foreign investment restrictions.
Step 0
Signing Your Power-of-Attorney
Are you planning to “shake hands” with your business partners in Mexico or will you delegate the tasks to your trusted advisor? If you are not coming to Mexico, well you need to sign a Power of Attorney.
If a foreign investor, as an individual, is not planning to sign the corporate deed personally in Mexico, the investor must sign a Power-of-Attorney (POA) in his country, naming his Mexican attorney or attorneys and listing their powers. We suggest that the POA should include the Tax Id of the individual and reference to the official IDs (such as the passport).
Once signed the POA, the foreign investor must either apostille or legalize his POA and, of course, send by express packaging services the document. The POA will have to be translated by an expert in Mexico.
If the investor is a foreign legal entity, said entity may have to provide a Power of Attorney and additional documentation depending on their residence to prove (1) its legal existence as well as (2) the powers of the legal representative signing the POA. For instance, the Legal Entity may provide the certificate of registration or business license, whereby it may also be noted who is the representative of the company. These documents have to be apostilled or legalized, and they will have to be translated by an expert.
Tax Authorities may expect some additional information regarding the shareholders of the foreign legal entity, which could be included in the POA.
The countries that are party to the Hague “Apostille” Convention are listed in the following link: Hague Apostille Country List.
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Step 1: Selecting the Type of Company
A foreign investor has to decide what corporate structure is the most suitable based on his relationship with the business partners, managers, the business activities or corporate purpose, international taxation, among other matters.
The types of companies in Mexico and which one is the best for your business? In this post, we will guide you through the LLC, Stock, and other companies.
Step 2: The Company Name
The foreign investor should provide at least three options for the name of the company. After submitting the online application, the Ministry of Economy will issue a decision approving and reserving one of the proposed names within three working days. The decision will be valid for about 4 months.
The attorney, through the Notary Public, should report to the Ministry of Foreign Affairs that the corporate bylaws include the “Foreign Capital Admission Clause”, which basically means that foreign investors may invest in the company.
The Ministry of Foreign Affairs should respond in no more than 5 working days. It is highlighted that additional steps or requirements may apply considering whether the corporate purpose or activity is subject to foreign investment restrictions.
Step 3: The Foreign Capital Admission Clause
Step 4: Signing the Corporate Deed and Bylaws
Once the bylaws are agreed, the investors and business partners may sign the corporate deed and bylaws before the Notary Public (or a Customs Broker). The Notary Public will have to use the signed corporate deed for the next step.
If a POA was granted, the investor’s attorney may sign on his behalf as noted step 0.
Step 5: Registering before the Mexican Tax Authorities
This is the most crucial step of all. Failing to register with the Mexican Tax authorities, your company will not be able to do business in Mexico.
Tax Representative
Your company will need a tax representative. In this sense, it is crucial to appoint a person who has a Mexican Tax Id and an electronic signature. Accountants are ideal tax representatives.
Tax Address
The company will need to provide proof of a tax address. This is why it is recommendable to retain an accounting firm that can meet this requirement.
Tax Appointment
Your tax representative has to request a tax appointment with the Mexican Tax Authority (Servicio de Administración Tributaria, or SAT) to register the company. The time to complete this step may vary from a couple of days to weeks due to available SAT’s time slots for appointments.
In the appointment, the representative will obtain the company’s Tax Id Number, known as RFC (Registro Federal del Contribuyente), and an electronic signature, known as e-firma.
Digital Tax Invoices
With the tax registration, the company can now issue “Digital Tax Invoices” when obtaining income from its commercial activities. SAT developed the Digital Tax Invoice to improve surveillance on taxpayer’s compliance; notably, every single Invoice has a single automated code. For more information on this matter, see the Tax Guide.
Frequently Asked Questions
Registering a Company at SAT
Can a Foreigner register a company before SAT?
Foreigners that do not have a temporal or permanent migratory status in Mexico, i.e. tourists, and do not have an RFC and e-firma will not be able to request an appointment and carry out the registration process of the company before SAT. The Individual’s RFC and e-firma are necessary to access and use the company’s RFC and e-firma, which in turn are necessary to file notices before SAT as well as to issue the Tax Electronic Invoice.
Does the company need a Tax Address?
Yes, and the SAT will deny registration of the company without proof of an address. Before requesting the rendezvous or appointment, the foreign investor and/or business partners must anticipate this issue in order to avoid setbacks.
Getting a Tax Address
The foreign investor and/or business partners may retain services of an accounting firm that may provide the “tax representative” and “tax address” service, as well as the traditional accounting services that the company will need once it is registered before the SAT.
A foreign shareholder or partner needs to register before the SAT?
If the foreigner is not a resident in Mexico and his or her activity in Mexico is sole as a shareholder or partner of the company, he or she can use a generic RFC. Hence, the foreigner does “not” have to pay taxes or file tax declarations in Mexico. However, Mexico has a withholding tax on dividends as noted in our Tax Guide.
Step 6: Registering the Corporate Deed in the Local Registry of Commerce
The legal representative of the company or the attorney should report back to the Notary Public. The Notary Public or the legal representative may proceed to register the company in the Local Registry of Commerce.
Upon conclusion of this step, the company “legally” exists. However, the company can execute agreements or transactions while the registration procedure is taking place. In such an event, the company’s representative or attorney-in-fact is personally liable for any agreement executed prior to the company’s registration in the Public Registry of Commerce.
Step 7: Registering the Company in the Ministry of Economy
Given that there is foreign capital, the legal representative must register the company before the Ministry of Economy’s National Registry of Foreign Investments (RNIE, acronym in Spanish).
Continuous Filing Obligations: The company may have to file quarterly reports and annual reports to the RNIE, under certain situations mostly related to movements in capital accounts, assets, and liabilities that exceed certain amounts, as well as changes in the corporate structure, corporate name, and tax address.
Step 8: Registering the Company Before the Mexican Social Security Institute
Before hiring employees, the legal representative shall register the company before the Mexican Social Security Institution (IMSS, acronym in Spanish). This submission simultaneously triggers the company’s application and registration before the National Worker’s Housing Fund Institute (INFONAVIT) and automatically creates the individual retirement savings accounts for the employees (known as Afore).
Step 9: Registering the Company Before the Tax Authority of the State
The legal representative shall register the company before the Local Tax Authority (e.g. the Ministry of Administration and Finance of Mexico City). As noted in the Labor and Tax Chapter, the company must pay a payroll tax depending on where the employees are located.
Step 10: Registering the Company Before the Local Authorities
Depending on the activity, the company may not have to register before local authorities depending on its location and activities. Depending on whether the activities have an “impact” on the local community (e.g. noise, parties, restaurants, hotels, night clubs, etc.) a permit or license may be required. If located in Mexico City, for instance, the company must file an online notice of the establishment of the business.
Step 11: Registering in the Mexican Commercial Information System
The Legal Representative must register the company in the Mexican Commercial Information System (Sistema de Información Empresarial Mexicano or SIEM).
Step 12 and Beyond
Complying with Corporate Obligations
The directors and managers of the company must have in order all corporate books, such as shareholders or partners register, ordinary or extraordinary meetings register, meetings or decisions of the board of directors, changes in capital, among other, as well as records regarding compliance with other legal obligations, such as taxes, foreign investment, etc.
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