Do you want to start a business in Mexico as a foreigner? If YES, here is a complete guide plus legal requirements for starting a profitable business with no money in Mexico.
Okay, having provided an in-depth analysis of the 50 best small business opportunities in Mexico and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in Mexico. So put on your entrepreneurial hat and let’s proceed.
Why Starting a Business in Mexico?
Starting a business in Mexico is quite similar to starting a business in the United States of America. It is mostly a matter of careful planning and filing the proper documents. Even though the process of setting up a business in Mexico is quite similar to setting up a business in the United States, however choosing to start your business in Mexico does come with a lot of advantages.
Some of these advantages include lower-cost labor with a proven record for quality of production, as well as close proximity to the United States, making shipping costs cheaper.
As a matter of fact, Mexico is the easiest country in Latin America to start a business as its faster and much less complicated to do so. In some cases, it only takes a day and zero dollars to begin running your own company. Still, there are some steps that you must complete in order to comply with the Mexican rules and regulations established to help you begin.
Here are the steps you can take in order to start a business in Mexico.
Starting a Profitable Business in Mexico as a Foreigner – A Complete Guide
1. Have the right business idea: in order the start a business anywhere, the very first step is to have a solid and workable business idea. It is best to set your eyes on niches, products or services that you already have some sort of experience in. Building a business in a field where you have no previous knowledge or experience is going to be a lot tougher.
You need to know whether or not your great idea can actually be a business. How do you know? Unfortunately, you don’t always know; some entrepreneurs have invested their life’s savings into a concept that couldn’t actually be a business.
To determine whether your business idea is viable, it helps to take a step back and look at the concept objectively. You should ask yourself the following questions;
- Does the market for this product exist and is there enough demand for it?
- Will your potential target market pay for your service or product? You have to bear in mind that at times, people will not embrace a product even if it is cheaper because they like to stick with what they know and are familiar with.
- Is your potential target market already paying for something like your offering? Do you honestly believe they’ll switch to your product or service?
- How will you determine your offering? Will you provide everything for everyone or will you decide on a niche product or service that you offer to a select target market?
The aim of asking all these questions is to do a sort of reality check. You don’t want to invest time and money into a business that isn’t viable. Your business needs a worthwhile potential target market because if you don’t have any customers, your business isn’t going to make any profit.
Do some background research into your potential target market and determine if they will make a feasible customer base for your business.
2. Determine the type of business structure to go for: There are several options when it comes to establishing your business in Mexico. With very few exceptions, all of these corporate structures can be used by foreigners as well as Mexican citizens. Some of them include;
- Sole trader/ proprietorship
- Limited liability stock corporation (S.A, or S.A. de C.V)
- Limited liability corporation (S. De R.L.)
- Partnership (general SNC or limited SCS)
- Branch of an already established business
If you go for a sole proprietorship, you will have to take on all the liability of your business personally. You must register your activities for tax purposes, as a ‘persona física con actividad empresarial’.
The S.A. structure is like a public limited company, with fixed capital. If you want this structure but with variable capital, then the S.A de C.V offers this option. This is a common choice for entrepreneurs coming to Mexico to start a business. There’s a minimum capital requirement but this doesn’t have to all be paid initially, and shareholder liability is capped at the amount they invest.
Limited liability corporations are also popular with foreign investors, and again limit the tax and debt liability faced by their founders. This type of business must be founded by at least two people and is taxed at corporate tax rates.
Partnership structures in Mexico are similar to elsewhere in the world. You can choose a ‘general partnership’ in which the partners take on full liability, or a ‘limited partnership’ in which tax and debt liability is capped. In either case it’s important to have the partnership agreement drawn up properly to ensure that you get the maximum benefit from this structure.
Choosing your company structure is an important step, and it’s a good idea to take legal advice to make sure you make the right choices for your enterprise.
3. Write a business plan: when you have conceived an idea for your business, you should then draw out a road map in the form of a business plan. Among other things, it should state your business goals, how to attain them, financing needs and marketing plans. It may also contain background information about the organization or team attempting to reach those goals.
A business plan does not have to be very long, it just has to contain the essentials of your plan, and you can be expanded as the business grows. The focus of your business plan may also change over time depending on your use for it. For instance, if you intend to use it to raise funds then you’ll have to focus very carefully on the management, financial aspects and growth potential of your company.
4. Register your company name: This can be done online and shouldn’t take more than a couple of days. The website for registration is in Spanish, so getting local help, or working through your notary might make the process run smoother.
Your notary will then draw up the deed of incorporation, which will be prepared in Spanish. This document holds all the important details of your business, such as the names and addresses of shareholders, the business you intend to carry out, and the company name.
Usually the description of your business activity is worded deliberately loosely to allow for your business to grow and evolve over time without requiring changes to be made to the register. All of the company founders will then need to sign the deed of incorporation in front of the notary. Each will provide:
- Proof of ID and right to be in the country (such as a passport and valid visa)
- Proof of address (usually a recent utility bill)
The notary will then register the business with the local authorities, and retain a copy of the deed of incorporation for reference.
Finally, you’ll need to register with the National Business Information Registry which is controlled by the Department of Trade. If you’re a foreign business owner without Mexican residence, then you might also need to register with the Department of Trade Foreign Investment Register. Your notary will be able to advise you about the necessity of this step.
5. Drafting the Constitutive Act: when you have received an approval from the SRE and know for sure the applicable Business Structure, the Constitutive Act must be created. This document is the one that gives life and stipulates all the general and basic aspects of the company: company name, objective, type of company, administration, duration, et al.
6. Registration before the Tax Administration Service (SAT): When the Constitutive Act is created and legalized, the next step is with the Tax Administration Service, the Mexican equivalent to the IRS. From this register, the Tax Identification Number is obtained, which contains the Federal Taxpayer Identification Number (RFC).
7. Registration in the Public Registry of Property and Commerce (RPPC): next, you will have to come before the Public Registry of Property and Commerce in the state and city where the company will be registered, to state your business’ purposes, objectives and commercial goals. For this process, the presentation of the Constitutive Act, the RFC and the power of attorney that allows the legal representative to carry out actions for the company, is required.
After that, you will have to subscribe your business to the Mexican Institute of Social Security, even if it is a company in which only the employer exists as the only worker, since it will be necessary for him to make his personal contributions to his Social Security accounts. Also, if you have not done it in time, you may be liable for a fine by the IMSS.
8. Registration before the other required Government offices: Depending on the type of business activity you specialize in, you may be required to register to different government institutions, the most common being: Ministry of Health, Secretariat of Ecology and Environment, Mexican Institute of Industrial Property, et al. At this point you must also fill out all municipal or state permits that are required in the geographical area in which you seek to establish.
9. Legal obligations and responsibilities: As the owner of the business, you or another one of the named directors will need to register with the tax authorities (SAT). This can be done at your local office, where you must present your photo ID and visa, a certified copy of the deed of incorporation, and proof of the address of your business (such as a utility bill).
Some types of business in Mexico must obtain a permit to trade legally. If you’re serving the public directly (in a shop or restaurant for example) then you might also have to register your enterprise with the local government.
If your business is where you intend to employ people, then you will need to register with the Mexican Social Security Institute (IMSS) and the National Workers Housing Fund (INFONAVIT). This can be done at the branch of the IMSS closest to the place your business is registered.
Once you’ve registered, you can use the IMSS online systems to conduct most of your business online. However, the website is provided only in Spanish so you may need to find a friend or translator to help you.
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