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Whether you are creating a new business in Mexico or expanding your current operations, it’s very important to choose the correct Mexican business entity that meets your business needs and goals. Therefore it’s crucial to understand what business entities are available in Mexico, how they each work and what advantages or disadvantages they may have for your business.

What business entities are there in Mexico?

There are a multitude of business entities you can work on, all of which have their own pros and cons. It’s important to understand their individual benefits if you are an entrepreneur trying to expand. It will totally work and provide a great range of results.

  • Mexican LLCs the liability of the partners is limited to their contributions, should have a director and two shareholders, all of which can be outside the country. There needs to be a legal representative that’s from Mexico however. There’s no low limit for the capital, however the recommended approach is to go for MXN 3000 at least, and 50% of the capital must be paid at the incorporation. You can use an LLC in most cases since it can be created by a foreign company.
  • A Mexican stock corporation can have a minimum of MXP 50000, out of which you have to pay at least 20%. On top of that, you need to have 2 shareholders and a director, but they don’t have to be from Mexico.
  • The branch office is allowed to sign contracts with suppliers from Mexico, and also receive income from locals and invoice them. This type of entity is very important because it can work great for sectors that have a very high capital requirement. The main company is responsible for all branch liabilities, which is something to keep in mind.
  • Representative offices are only allowed to perform non-commercial activities. These can include things like promoting the parent company or just doing market research. If you don’t want to invoice clients in Mexico and deal with the local tax, then you can opt for this approach and promote your foreign services and products.

What should you know about registering a branch in Mexico?

Ideally, if you are a business that wants to expand to Mexico, you want to do that through a branch. You can also create an LLC. If you create a branch, you have unlimited liability, however there’s no minimum share capital. You also don’t have a director limit; however you are required to have at least 1 shareholder in a situation like this.

Another thing to keep in mind here is the fact that you must have a resident legal representative, just like in the case of an LLC. You still have to pay the 30% corporate tax rate no matter if you have an LLC or a branch.

Incorporation in Mexico

  • First, you will need to send all the necessary details regarding your company. The law doesn’t have any restrictions when it comes to shareholders being Mexican only, so foreigners are allowed. You can use incorporation services for this type of task. You can contact us and let us help you move onward with the process.
  • Then you must request the company name. You can provide up to 3 company names that can be used. Make sure that you come up with creative names. The process of requesting a company name will take anywhere from 3 to 5 day. Once it’s completed, you will receive a certificate with the approved name.
  • Prepare the draft articles of incorporation. After the company name is acquired, then you create a draft with the incorporation documents. This is when you want to figure out who will be the accountants or administration that acquires the FIEL from SAT and who will pay taxes.
  • After the incorporation documents are reviewed, then they need to be signed. In case one or more shareholders can’t be present, there are adjacent solutions.
  • Lastly, the company gets registered with the Public Registry of Commerce and it will also be included in the National Registry of Foreign Investment. You will also receive help with getting the Mexican tax ID (RFC) and then the company can start operating properly.

How can you register for a branch in Mexico?

  • You must obtain your own Federal Taxpayer Registration (RFC or Tax ID) Number. Then you also must get the electronic signature for the Tax Administration Service. This can take up to 45 days in total, starting with the time after the documents were apostilled/legalized and fully notarized.
  • You also need to register with the National Registry of Foreign Investment and the Economy Secretariat.
  • The Economy Secretariat will decide the branch establishment within 90 working days. Any payments made to the Economy Secretariat are not refundable, even if the results are not in your favor.
  • It’s mandatory to have a Mexican address in order to start the process.
  • In case the Economy Secretariat rules in your favor, then you will be offered a foreign legal entity. You can work in Mexico, but only at the address offered in the beginning.
  • A power of attorney will be needed in case you can’t represent the company physically.

How to register for VAT in Mexico?

If you supply taxable products and services in Mexico, then you will be liable to pay VAT as well. The standard is 16%, but there are products where you have VAT exemption like insurance, financial services, immovable property or land and many others.

Any of the processes explained above can give you VAT number (RFC) this will allow you to do business in Mexico as a legal company.

Do you need a local tax representative for VAT registration? Yes, he will be the one that will help you register for VAT. As we mentioned above, you are expected to charge 16% VAT for every sale you do in Mexico.

Filing the VAT returns

It’s important to understand that collecting and charging tax is only one part of the process when it comes to compliance. You also need to file returns and pay what you are owing to the government. Foreign businesses are required to file their tax returns on a monthly basis.

What should you include in the VAT invoices?

  • Currency
  • Business name and address
  • VAT number for your business
  • Invoice date and sequencing number
  • Buyer name, address and VAT number
  • VAT rate and amount per item
  • Final amount once you add VAT

Conclusion

Choosing to register as an LLC or a branch in Mexico depends on a variety of factors that need to be carefully examined in order to set-up your business for success in Mexico. This is where Mextax Accounting Services can help and guide you through the entire process in order to simplify it, save you time and costs. Our team of Mexican accounting experts has created several different solutions in order to streamline this process and we are ready to assist you every step of the way. Contact us today for more information!

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