Entrepreneurs and corporations looking to expand operations into Latin America must consider Mexico as THE destination. Let's see why.
Starting a business in Mexico offers links to an economy that ranks 15th largest in the world. In 2022, Mexico’s gross domestic product amounted to around 1.47 trillion U.S. dollars, highlighting that it's also one of the fastest-growing economies in the world. Moreover, Mexico has surfaced as a manufacturing economy under free trade agreements with the United States, Canada, and 44 other countries.
For these reasons and many more, setting up a company in Mexico gives you immense opportunities for business growth. This article examines the types, advantages, and cost of starting a business in Mexico and the legal requirements.
Types of Businesses to Start in Mexico
Mexico allows a variety of businesses and corporations that you can choose from. Each of them is unique in its own way. Based on your individualistic needs, you can choose from the following:
1. Sole Proprietorship (Persona Física)
A sole proprietorship is where the business is owned and operated by a single person. It’s one of the most common and straightforward types of businesses. With minimal setup fees and simplicity, it’s a preferred choice for solo entrepreneurs and small businesses.
2. General Partnership (Sociedad en Nombre Colectivo)
In a partnership, two or more individuals own and operate the business. They share decision-making and management responsibilities. Here, partners bear unlimited liability for the business.
3. Limited Partnership (Sociedad en Comandita Simple)
This setup combines both a general and limited liability partnership. Here, you have both active partners and passive partners. The former is actively engaged in day-to-day and other aspects of the business, and the latter contributes capital to the partnership but does not actively engage in the management or operation.
4. Stock Corporation (Sociedad Anónima, S.A.)
It’s a type of company that issues ownership shares in a company. Here, the company is owned by shareholders who own shares and have limited liability. However, this setup is a little complex and best suited for large businesses looking to attract investment or go public.
5. Limited Liability Company (Sociedad de Responsabilidad Limitada, S. de R.L.)
LLCs combine the simplicity of a partnership with some of the benefits of a corporation. Here, the partner’s assets are safe from the business liabilities and debts. Rather than shares, ownership is represented by participation. Typically, medium-size businesses pick this form of business.
6. Branch Office (Sucursal)
This is the apt choice for starting a business in Mexico as a foreigner. A branch office isn’t a separate legal entity. It’s an extension of a foreign company in Mexico where you can establish a presence and conduct business. However, entering the market with a branch office means you must comply with Mexican rules and regulations.
7. Franchise (Franquicia)
This business model involves agreeing with a franchisor to use their brand, business model, and support services as a franchisee. Here, you can leverage the established brand's business concept and name while overseeing the operations at your franchise.
8. Joint Venture (Joint Venture)
It is a joint venture when you start a business in Mexico by collaborating with a local or foreign partner to carry out business activities. This means that two or more companies or entities come together and put their combined resources, like effort and expertise, to work on a specific business activity, venture, or project.
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Advantages of Starting a Business in Mexico
Mexico is the second-largest economy in Latin America.
Its population of about 129 million makes it the 10th most populated country in the world. This and its proximity to one of the biggest consumer markets, the US, and trade links with Asia and Europe give businesses thriving opportunities.
Let's look at other factors that make opening a business in Mexico an excellent business move.
1. Free Trade Agreements
A sought-after reason for starting a business in Mexico is its nearly 13 free trade agreements (FTAs), giving the country ample access to more than 50 nations. This allows for quick expansion, eliminates trade barriers, reduces tariffs and duties, and makes importing and exporting more cost-effective.
Some of these include the United States-Mexico-Canada Agreement (USMCA), the Trans-Pacific Partnership, the EU-Mexico Trade Arrangements, the EFTA Free Trade Accords, and the Pacific Alliance Accord.
These agreements allow businesses to tap into the North American markets and beyond without experiencing significant trade barriers. They’re also meant to give businesses the confidence to enter the market and contribute to stabilizing the economy.
2. Growing Economy
Following Brazil, Mexico has the second-largest economy in Latin America.
From a business point of view, Mexico’s diverse economy is comprised of different industries, like agriculture, manufacturing, and services. The growing population, especially in the middle class, lets businesses connect with a vast consumer base. Moreover, in cities like Guadalajara and Mexico City, there’s been a growth in the startup ecosystem.
Such factors have contributed positively to making Mexico a great country for starting a business.
3. Qualified Personnel
Mexico focuses on many educational and vocational training programs to ensure the workforce is more adaptable and skilled. The country also invests in STEM teaching to create a highly educated and qualified workforce for growing sectors like technology, manufacturing, and engineering. This way, businesses have access to a more extensive talent pool.
Compared to other countries, hiring labor costs in Mexico are significantly lower. This is an added boon when considering the cost of starting a business in Mexico.
4. Thriving Industries
Mexico has several thriving industries, such as automotive, agriculture, tourism, technology, finance, manufacturing, and more.
In the automotive space, it’s the 7th largest auto producer globally, with several global car manufacturers having a significant presence in the country.
In agriculture, it is the top exporter of vegetables and fruits. In 2022, these exports hit a record high of $50.1 billion!
Post the pandemic, the tourism sector also saw a spike in 2022, welcoming over 38 million international tourists.
Sectors like technology and finance are fast-expanding industries.
Steps to Start a Business in Mexico
Starting a business in Mexico isn’t as complex if you follow a few key steps. Here’s what you need to do.
1. Market Research and Business Plan.
Conduct thorough research on the Mexican market, its industries, and the opportunities. Based on this, create a comprehensive business plan that outlines the concept, goals, mission, vision, growth, finances, and more.
2. Choose a Business Entity.
You can choose from numerous business types, as listed earlier. Again, based on your business idea, you can pick the right one for you.
3. Choose Your Location.
Mexico’s landscape is vast, and each region offers something unique. Based on your business idea, you can choose an apt location. For instance, Guadalajara has a flourishing digital economy. So, starting a business here may be a good idea if you provide digital services like SEO, marketing, eCommerce, etc..
4. Business Name and Logo.
Pick a suitable name for your business and ensure it’s available and follows the Mexican naming regulations. Also, get a unique company logo according to the name you decide. Register your business name with the Mexican Institute of Industrial Property (Instituto Mexicano de la Propiedad Industrial or IMPI).
5. Legal Documentation.
From registering the company to obtaining licenses, various steps are involved to get your paperwork in order. Ensure you comply with all of them to avoid any hiccups in the future. This may include all legal documents, like work permits, law compliance, etc.
6. Bank Account.
Open a bank account in Mexico for your business. This ensures your business account is separate from yours and helps with record keeping.
7. Employee Hiring and Training.
If you require a workforce, you must recruit and train new employees to ensure they’re adept at what you require. Ensure you also comply with all Mexican employment and labor laws during hiring.
Also Read: Cost of Hiring a New Employee
8. Launch and Marketing
Once you finish the set-up, it’s time to launch your business. Schedule the launch whenever you feel ready and start marketing your business. Marketing will also help you reach your target audience and acquaint them with your offerings.
Processes Involved in Registering a Business in Mexico
With registration, the process varies based on your business type. You can begin the registration process after you follow steps one to four in the above section. Here’s a general idea of how it works.
1. Apply for the Tax Identification Number
Apply for your tax identification number, locally known as Registro Federal de Contribuyentes (RFC), from the Mexican tax authority (Servicio de Administración Tributaria or SAT).
2. Register Your Business
Once you solidify your business idea, entity type, and location, you can choose a name and register your business. Depending on your business type, you will have to visit different departments to register. LLCs and corporations report to the Public Registry of Commerce (Registro Público de Comercio or RPC). In contrast, general partnerships and sole proprietors go to the Federal Taxpayer Registry (RFC) through the SAT (Servicio de Administración Tributaria).
3. Obtain Permits and Licenses
The licenses and permits you require vary based on your industry type and location. To ensure you comply with the country’s rules and regulations, you must verify the requirements with local municipalities and relevant government departments.
4. Social Security and Employee Registration
You must register employees you plan to hire with the Mexican Social Security Institute (Instituto Mexicano del Seguro Social or IMSS). Here, you will get access to the employer identification numbers (Números de Identificación Patronal or NIP).
Document Requirements in Registering a Business in Mexico
Here’s a general list of documents you would need when opening a business in Mexico and registering it.
1. Identification Documents: You need personal identification documents like passports for all owners and partners.
2. Address Proof: Address proof in the form of a rental agreement or utility bills.
3. Tax Identification Number (RFC): The document you obtain from the Tax Administration Service (Servicio de Administración Tributaria or SAT).
4. Proof of Legal Domicile: You must prove your domicile via property title or lease agreement for the applicable business.
5. Articles of Incorporation or Bylaws: LLCs or corporations need this document that is drafted and notarized.
6. Shareholder Agreements: If applicable, you need a shareholder agreement. This outlines each shareholder's responsibilities, rights, ownership percentage, etc.
7. Public Registry of Commerce Registration: A document that proves you have registered your business with this entity.
8. Permits and Licenses: You need specific permits and licenses for smooth operations.
9. Employee Registration: Register employees with the Mexican Social Security Institute (Instituto Mexicano del Seguro Social or IMSS) and keep the paperwork handy.
10. Tax Registration Certificates: Depending on your business form, you might require additional tax documents like value-added tax, etc.
11. Bank Information: You need bank account details like account number, etc.
Setting Up a Company vs. Partnering with an Employer of Record in Mexico
The table below compares starting a business in Mexico and partnering with an Employer of Record (EOR). You can choose what works best for you based on your individual needs.
Hire Talent in Mexico Compliantly
Starting a business in Mexico presents a growing economy with many opportunities. Its strategic location, dynamic industries, and trade agreements make it a sought-after destination for business.
However, the rules and regulations may be complex, and starting a business is time-consuming and expensive.
With Skuad’s EOR platform businesses can build teams globally in over 160 countries without setting up a local entity. The platform also ensures that you stay 100% compliant with local labor laws in the country you hire. With Skaud as your EOR partner, you can smoothly tap into global markets, including Mexico. Request a demo to get started.
1. Can a foreigner start a business in Mexico?
Yes, starting a business in Mexico as a foreigner is possible. Mexico has several different business entities from which foreign entrepreneurs can choose. But remember that the rules and regulations may vary from your home country. You need proper work permits for smooth operations.
2. How much does it cost to start a business in Mexico?
Starting a business in Mexico costs USD 1,000 to USD 5,000. However, this can vary based on location, type, size, registration fee, etc.
3. Do businesses pay taxes in Mexico?
Yes, businesses in Mexico are subject to various taxes like payroll taxes, VAT, income tax, etc. The exact taxes depend on the type of business, the activities, and more.