While Mexico is a competitive country for investments at an international level thanks to its many opportunities, localization, several international treaties, macroeconomic stability, size and strength of its internal market, it can be very hard to incorporate a business in the country.
The process of incorporation contains many steps with strict rules. The process can take a long time if you don’t understand the local regulations and policies.
1. Choose the type of entity
The first step to incorporating a business in Mexico is deciding if the business will be a Mexican entity, a branch or a representation office. Understanding the kind of corporate governance and what types of activities the business will be doing, can help with the decision of the type of entity they need, or if a branch or a representation office will be better. It is also important to decide if a person will physically be in Mexico for the incorporation or if they will assign the process to an expert in Mexico which can assist and make the process much easier.
2. Choosing a name
If the incorporation of an entity is the final decision (a branch and a representation office are an extension of the foreign company in Mexico), it is time to decide what the name of your business will be. It is important to come up with three choices to request to the Ministry of Economy. This process can take anywhere from three days to a week for them to tell you if the name is already taken or if it is approved.
3. Sending in documents and bylaws
If the Mexican entity will have foreign shareholders, there are many documents needed to formalize the incorporation. Some of the documents need to be notarized and apostilled or legalized, (depending if the country has entered into The Hague Convention) in order to be effective in Mexico. The role of a notary in Mexico differs greatly than in many other countries. In other countries, a notary will be a witness and also sign a document. In Mexico, a notary is an experienced lawyer who passes a very hard exam in order to be entitled to act as a Public Notary.
If someone in Mexico will be assisting with the incorporation and will act on behalf of the foreign shareholders, a specific Power of Attorney (PoA) is prepared and sent in order to be signed by the Shareholder or its representative(s), which will have to be notarized and apostilled in order to be effective in Mexico.
While all the information is being formalized, the bylaws can begin to be drafted. In Mexico, all corporate entities need to have bylaws. The Articles of Incorporation, will be added according to the bylaws (and included in the same public deed) specifications. It is mandatory that the bylaws of any company be notarized. After the documents are signed and submitted, this completes the legal process of incorporation. The timeline to finish this step can vary depending on the when the signed, notarized and apostilled original documents are received. Whenever the notary receives everything, signing the incorporation should take less than 10 business days.
4. Get a Tax ID
Your newly incorporated company needs a Tax ID number to conduct business in Mexico. Foreign shareholders must note that a Tax ID needs to be requested by a Mexican resident or citizen only. By knowing this in advance, the correct person will be granted the PoAs to get the Tax ID. If this is not thought out before, then the shareholders will have to hold a meeting to pass a unanimous resolution granting PoAs to a Mexican resident or citizen to get the Tax ID. Without the Tax ID number, all further mandatory registrations like, registering before the Foreign Investments Registry, applying to opening a bank account or issuing invoices, will not be possible.
The person who is acting on behalf of the company will go in person to the Tax Authority with the Articles of Incorporation to request the Tax ID. This step can also be fulfilled by the notary, however the representative has to go to the notary´s office to sign the request of the Tax ID, which is faster and easier. Finally, it is very important to take into consideration that in order to get the Tax ID, the business must have a physical office in Mexico which needs to be evidenced by an authorized proof of domicile. This is one of the hardest parts of incorporation since there are very few documents that the Tax Authority and other governmental authorities accept.
5. Get a bank account
Newly incorporated companies need to have a Mexican bank account since taxes can only be paid by Mexican banks. Foreign banks do not have the platform used by the Tax Authority to receive tax payments. This process can only take place after the business has already received the Tax ID and the process can take 1.5 to 3 months to be set up.
This content was previously posted on the TMF Group’s website.