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Economía Internacional y México este 2021

4 Jan , 2021  

Economía Internacional, Mexico, 2020, Susana Muñoz, Chinese Desk, 2021

VTZ preparó una serie de publicaciones para comenzar 2021 relacionados con el webinar “Experiencias 2020, Expectativas 2021“, este post sobre el contexto de la Economía Internacional y México en el 2021 fue preparado por Susana Muñoz.

Susana Muñoz,Chinese Desk, Hong Kong , Mexico
Susana Muñoz

Efectos Económicos Internacionales de la Pandemia COVID en el 2020

A finales del 2020 vimos que solamente los países asiáticos han podido contener el impacto económico de la pandemia. El pasado mes de octubre, el Fondo Monetario Internacional publicó su World Economic Outlook, la tercera edición del año, con los pronósticos sobre la economía y para el crecimiento económico del 2020 y 2021.

Perspectivas Internacionales: Decrecimiento en la Economía

Las noticias son muy negativas, tenemos un decrecimiento económico en EE.UU. de -4.3%, la zona Euro en donde se espera un decrecimiento económico de -8.3%, otras economías avanzadas como Japón -5.3%.

El pronóstico para Latinoamérica obviamente es bastante malo, más porque México y las naciones de Latinoamérica siguen en la segunda ola. Esto implica que no habrá apertura económica por lo menos durante el primer semestre del 2021. Entonces, la perspectiva de las economías Latinoamericanas pintan un poco complicada.

Economías de Asia: La Excepción

Por otro lado, las economías asiáticas emergentes, en este caso China, Taiwán y Vietnam, son las únicas economías del mundo en las que se espera que haya crecimiento económico en el 2020.

En ese sentido, vemos que Asia es la región que está mejor librando la crisis y que está empujando la economía a nivel mundial. Esto no sólo porque países asiáticos han logrado controlar el nivel de contagio y abrir las economías de manera gradual o temporal, sino que también porque los gobiernos han anunciado ya varias rondas de paquetes de rescate económico. 

Medidas de Rescate o Alivio COVID en Asia

Entre las varias medidas de los países asíaticos, tenemos diversos subsidios al empleo, condonaciones de impuestos y de pagos de seguridad social, electricidad, agua, drenaje, así como subsidios a los sectores de turismo, aviación y menudeo. También se han anunciado incentivos para las exportaciones, apoyos económicos para el desempleo, estas medidas de alguna forma, les permite mantener la economía a flote y controlar el desempleo y, por lo tanto, les va a permitir una mejor recuperación en el 2021, cuando esperamos que ya se pueda controlar la pandemia, a través de las vacunas o cuando termine la segunda oleada de COVID.

Tendencias de Política Comercial Internacional en Asia

Otro aspecto relevante es que, a pesar de la pandemia, Asia ha podido mantener su agenda económica durante este año y sigue apostando por una mayor integración económica, a diferencia de EE.UU., Latinoamérica y la Unión Europea, que son regiones con agendas económicas y comerciales muy diferentes. Asia le está apostando a la integración incluso con China, lo vimos recientemente con el anuncio de la firma del RCEP, este mega tratado de libre comercio. 

Ejemplos muy claros Japón, que además de ser parte del TIPAT o CPTPP también firmó RCEP, y también está negociando un acuerdo de libre comercio con Corea y China. Está muy claro que la guerra comercial ha afectado los intereses de Japón en China porque tiene muchas inversiones importantes en China, lo cual ha limitado sus exportaciones a EE.UU.. 

Los EE.UU. probablemente va continuar con su agenda comercial. Esto está empujando a empresas manufactureras que están ubicadas en China para que se trasladen a Vietnam o a otros países del sureste de Asia. Vietnam estrenó un nuevo tratado de libre comercio con la Unión Europea y con Inglaterra; Camboya que también acaba de anunciar su tratado de libre comercio con China, además del tratado de libre comercio que ya tienen en el marco de ASEAN con China. 

Turismo, Comercio Electrónico y Tecnología

También, las burbujas de viaje que está implementando Asia que están permitiendo reactivar el sector turismo, y particularmente los viajes de negocios. Hay una mayor promoción a las actividades de cooperación en tecnología e industrialización; en esta línea, el tema de la economía digital ha sido el gran ganador de la pandemia. Tenemos mucho intercambio, mucha cooperación en lo que se llama Fintech, servicios en línea, logística y, obviamente, esto dará lugar a muchos productos y servicios para el mercado asiático.

Impacto en la Economía Mexicana 2021

Al final, ¿esto cómo nos afecta a nosotros en México?

Definitivamente, la pandemia ha detenido muchos planes de inversión que había hacia nuestro país. Se pensaba que con la entrada en vigor del T-MEC iba llover la inversión extranjera en México y, desafortunadamente, no ha pasado así porque de alguna forma nos quedamos en medio de la pandemia y sin brazos en el exterior que nos pudieran ayudar a promover el país como un destino de inversión. Hay muy pocas posibilidades de viajar y mucho menos posibilidades de interactuar y promover nuestro país, por lo menos, hasta el segundo semestre del 2021.

México tiene muchas ventajas competitivas. Sin embargo, aún tenemos que hacer un esfuerzo enorme de promoción económica que nos permita explicarle a la gente, a los inversionistas extranjeros, realmente cuáles son las ventajas de invertir en nuestro país, de qué forma pueden beneficiarse de todos los tratados de libre comercio que tenemos y la apertura económica y comercial de México.

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Doing Business in Mexico, English

Doing Business in Mexico: A Guide

24 Aug , 2020  

Invest in Mexico, Doing Business in Mexico 2020, Mexican Law Firm, Guide, Foreign Investment Guide, Doing Business Ranking

In line with our objectives, VTZ Law Firm has developed a Doing Business in Mexico Guide with a strong focus on foreign investment in manufacturing activities. It is our goal as trusted advisors and business facilitators to guide foreign investors, providing insights in a concise manner.

Why Doing Business in Mexico?

Before the coronavirus outbreak, economists predicted that Mexico was heading to be the seventh economy of the world in 2050.[1] Mexico would be growing at a 3.5% annual average rate over the next three decades, a growth rate superior to that of developed economies. Mexico’s size of the economy, demographic, sound macroeconomics, stable public finances, as well as recent amendments to strategic economic sectors have contributed to a better economic performance according to the OECD.[2]

Today, Mexico is one of the most attractive foreign investment destinations. Besides being the 15th largest economy in the world, Mexico is a “free market” economy that is opened to international trade and foreign investment. As a result, Mexico has a highly diversified economy, modern industries, and a developed financial market. This is the result of a shift from protectionist towards liberal economic policies since the beginning of the 1990s, particularly, with the North American Free Trade Agreement.

Needless to say, there is still much work to be done to improve the general conditions of life for Mexicans, as well as for the business environment. For instance, the World Economic Forum identifies Mexico’s five most problematic factors for business: corruption, crime and theft, inefficient government bureaucracy, tax rates, and tax regulations.     However, there is hope. In recent years, business facilitation measures have been in the political agenda as well as tackling corruption, which is now more relevant than ever as a result of Mexico’s modern free trade agreements (FTAs). In fact, it is clear that Mexico’s competitiveness relies on its extensive FTAs network as a pivotal force for its economic development.

Therefore, the United States-Mexico-Canada Agreement (USMCA), which entered into force in July 2020, will continue to consolidate the country as an attractive business destination as long as Mexico successfully implements said agreement.

Mexico is living a historic moment. The political map changed significantly following the general elections held in July 2018. Mexico’s president, Andrés Manuel López Obrador (AMLO), and his party, the National Regeneration Movement (Morena), have continued the trend to promote, for instance, free trade agreements, but they have also adopted new and controversial policies. For instance, Mexico’s investment and trade promotion agency, PROMEXICO, was extinguished as result of “austerity” measures.

Vázquez Tercero & Zepeda (VTZ) seeks to fill that void and promote Mexico as a business destination for international companies and foreign investors in an honest and concise manner. This is why VTZ has developed Doing Business in Mexico 2020, which is divided into seven chapters:

1. Why Invest in Mexico?

2. Foreign Investment

3. International Trade Policy

4. Trade Policy for the Manufacturing Industry

5. Creating a Company in Mexico

6. Taxation in Mexico

7. Labor & Migration

In these executive guides, VTZ aims to help and to provide insights regarding relevant legal topics on business, trade, tax, and labor for potential investors, that seek to reap the best out of Mexico and the manufacturing industry.

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[1] PWC, The World in 2050, 2017 p 6.

[2] OECD, Towards a Stronger and More Inclusive Mexico, p 1

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Doing Business in Mexico, English

Why Invest in Mexico?

24 Aug , 2020  

Invest in Mexico, Doing Business in Mexico 2020, Mexican Law Firm, Guide, Foreign Investment Guide, Doing Business Ranking

Our first chapter of Doing Business in Mexico, Why Invest in Mexico?, will serve as an introduction providing a general overview of the current economic and business environment.

VTZ Law Firm analyzes Mexico’s doing business rankings and economic indicators –positive and negative– from the World Bank and the World Economic Forum.

Also, we summarize trade and foreign direct investment statistics with a strong focus on the manufacturing industry, land in Mexico for industrial purposes, and security considerations.

  1. Mexico in Competitiveness Rankings
    1. 1 Positive Economic and Business Indicators in 2019
    1. 2 Negative Economic and Business Indicators in 2019
  2. Trade and Investment in the Manufacturing Sector
  3. Land in Mexico for Industrial and/or Manufacturing purposes
  4. Security Considerations
  5. Mexico in Brief

1. Mexico in Competitiveness Rankings

Although Mexico is not one of the most competitive countries in the world, Mexico is the second Latin American most competitive economy according to the World Economic Forum (WEF) and the World Bank (WB). WEF’s Global Competitiveness Index 2019, a yardstick for policymakers, analyzes 12 “broad” pillars that shape an economy of a country. Meanwhile, the WB’s Doing Business gathers information regarding the regulatory environment and how it impacts in local firms, reporting 10 key indicators.

Doing Business in Mexico World Bank ranking 2019, how to do business in Mexico, mexican lawyer

1.1 Positive Economic and Business Indicators in 2019

WEF’s Global Competitiveness Index 2019

Mexico stands out in macroeconomic stability (41st) and market size (11th) pillars, which are very relevant indicators to invest or do business in Mexico. This is no surprise as Mexico’s inflation has been controlled, around 3% to 4% per year; its GDP has had a stable growth, about 3%, in the last decades; and, its public debt has been properly managed.

Needless to say, inflation has had few spikes, notably in 2017, as a result of the liberalization of energy goods; and, despite having the second largest market of Latin America (124 million people), Mexico has a low GDP per capita or purchasing power.  

Furthermore, Mexico also stands out in the following specific indicators: budget transparency (6th), energy efficiency regulation (30th), renewable energy regulation (30th), road connectivity (22nd), airport connectivity (15th), liner shipping connectivity (34th), electricity access (% of population) (2nd), debt dynamics (36), trade openness (27), ease of hiring foreign labor (48),  financial stability (30), cluster development (36), among others.

WB’s Doing Business 2020

Mexico is ranked in 60th place overall, out of 190 economies, and is one of the top business-friendly environments in Latin America, only behind Chile that ranks in the 59th position. Mexico’s top three topics or indicators are getting credit (11th), resolving insolvency (33), and contract enforcement (43rd).

As a result of strong legal rights in relation to collateral laws (securities) as well as a robust credit reporting system, Mexico outperforms most economies in getting credit. Mexico also has a decent performance in the resolving insolvency and contract enforcement indicators, particularly, due to time to carry out a dispute in a court (under certain assumptions) and strength of insolvency framework index. 

1.2 Negative Economic and Business Indicators in 2019

WEF’s Global Competitiveness Index 2019

Unsurprisingly, Mexico underperforms in the Institution and Labor Market pillars of the WEF’s Global Competitiveness Index 2019. Although serious legislative steps have been made on security, corruption, and “regulatory improvement”, Mexico continues to rank particularly low in a handful of matters that fall under the Institution pillar such as security (138th), burden of government regulation (116th), judicial efficiency (116th), judicial independence (103rd), as well as incidence to corruption (116th). 

Insecurity is a concern not only for foreign investors. We note that the new administration has pushed for constitutional and legal reforms that have overhauled security bodies, the attorney general’s office, and powers to the Tax Authority (SAT, acronym in Spanish) against tax evasion schemes. The Financial Intelligence Unit (UIF, acronym in Spanish) has been tackling high profile individuals and companies that are allegedly involved in laundering money or in corrupt practices.  

As for the Labor Market pillar, Mexico underperforms in redundancy costs (e.g. severance of labor contracts) (103rd), as well as labour tax rates (116). Needless to say, Mexican Labor Law has undergone a significant overhaul as a result of USMCA’s Labor Chapter, which seeks to protect collective labor rights. However, neither redundancy costs nor labor tax rates (i.e. a state tax) were addressed in such reform.   

WB’s Doing Business 2020

Known to have a complicated tax environment, Mexico is ranked in the 120th position out of 190 economies in the Paying Taxes topic of WB’s Doing Business 2020. Under normal circumstances, a company would have to pay six taxes throughout the year, namely corporate income tax, value-added tax, security social contributions, payroll tax, property tax*, and vehicle tax*.

Despite a low number of tax payments as compared to other jurisdictions, Mexico’s tax environment is poorly ranked especially due to (1) total tax and contribution rate and (2) the post-filing index. For instance, Mexico’s statutory tax rates for the corporate income and VAT, which are the most time consuming and prone to tax audits, are set at 30% and 16% respectively. Furthermore, VAT refunds or income tax corrections take a considerable amount of time and effort.

Mexico’s also underperforms in Starting a Business (107th). Though starting a business is discussed in the ChapterCreating a Company in Mexico, the process to incorporate a company appears, in its face, straightforward in Mexico. According to the guide, a non-foreign entrepreneur has to complete eight procedures to incorporate a company and to have all registrations in order; however, a significant practical hurdle is that concerning to the company’s registration before SAT.

Likewise, the number of procedures and time are factors that negatively affect Mexico’s score in Getting Electricity (106th), meanwhile the number of procedures, cost, among other matters, influence Mexico’s negative performance in Registering Property (105th).

2. Trade and Investment in the Manufacturing Sector

Mexico’s foreign direct investment (FDI) and international trade are, to a great extent, attributable to the established manufacturing sector, which convinces foreign investors to invest in Mexico. According to UNCTAD’s World Investment Report 2020, Mexico is the 14th  country with most FDI inflows in the world in 2019. In sum, Mexico is a top FDI destination.

UNCTAD, FDI, Top FDI Inflows, Top 20 host economies, 2018 and 2019
Source: UNCTAD

As noted by the WEF, Mexico has a strong cluster development. This feature explains why almost half of Mexico’s FDI inflows are related to the manufacturing sector.

Investment Inflows in the Mexican Manufacturing Sector

The top five manufacturing sub-sectors that have attracted investment from 1999 to 2019 are (1) transport equipment (e.g. auto), (2) beverages and tobacco, (3) chemical, (4) computer, communication, and measurement equipment, and (5) the food industry

For instance, FDI in the transport equipment (or auto sector) has amounted to 79,053 million USD since 1999, which represents 21% of Mexico’s total foreign direct investment inflows as noted in the table below:  

Foreign Direct Investment in Mexico 2020, Mexico, Manufacturing

Mexico has different levels of industrialization. In fact, most of the manufacturing sector has established itself in the north and the center of the country. For instance, the (passenger) auto industry and the OEM (Original Equipment Manufacturers) are located in the States as indicated in the image below.

OEMs in Mexico, Promexico, Auto Industry in Mexico, Foreign Investment, International Trade, Foreign Investment

International Trade and Manufactured Goods

Establishing itself as an important manufacturing hub, Mexico is an economy with a significant presence in international trade. Mexico ranks in 12th place among world economies in both exports and imports, its trade balance amounts to 916 billion USD in 2019. The World Trade Organization describes Mexico as:

“a ‘buyer’ in GVCs and therefore has a significant rate of GVC backward participation, standing at 36 percent in 2015. The economy imports inputs mostly from the United States and China to produce its exports.”[1]

Mexico’s main exports include (1) manufactured goods, (2) fuels and mining products, (3) agricultural products that amount a total of 461 billion USD.

Trade Balance, Mexico, Exports, Manufactured goods

Mexico’s Export Destination in 2019

Mexico Exports, Trade Balance, International Trade, 2019,

In 2019, Mexico exported 461 billion USD. Unsurprisingly, Mexico’s main export destination is USA exports amounting to $371 billion USD, followed by the European Union $24 billion USD, Canada $14 billion USD, and China $7 billion USD%.

Mexico’s Origin of Imports in 2019

Mexico Imports, Trade Balance, International Trade, 2019,

As for import data, US imports amount to 205.733 billion USD, China 83.052 billion USD, European Union imports amount to 51.237 billion USD, Japan 17.963 billion USD, and Korea 17.649 billion USD

Comparing the US-China trade relations, US exports more goods in value to Mexico than to China. For instance, US exports to China amounted to $106 billion in 2019. 

Land in Mexico for Industrial and/or Manufacturing purposes.

Land in Mexico may be purchased or leased for industrial purposes. Needless to say, Mexican law has restrictions as to the ownership of land when, for instance, it is located in the northern border strip or near the coastline (see our Foreign Investment Chapter)…..

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For more information about VTZ Law Firm services, visit our website or contact us info[@]vtz.mx!

Security Considerations: Does it Affect Decisions to Invest in Mexico?

Mexico limps from security-related matters that affect its competitiveness indicators significantly, which may affect decisions to invest in Mexico. We cannot turn a blind eye on this fact, and foreign investors normally pose the question:

How risky is Mexico?

The American Chamber of Commerce in Mexico (Amcham), which we are members, published…

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[1] World Trade Organization, World Trade Statistical Review 2019, pg. 43

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Doing Business in Mexico, English

Foreign Investment in Mexico: A Guide For Foreigners

24 Aug , 2020  

Foreign Investment in Mexico, Foreign Direct Investment, FDI, Mexican Lawyers, how to do business

Our second chapter of Doing Business in Mexico, Foreign Investment, will provide a general overview of the rules and restrictions on foreign capital in Mexico.

This chapter includes the following sections:

  1. Foreign Direct Investment in Mexico in Numbers
  2. General Context of Foreign Investment Law in Mexico
  3. Prohibited Economic Sectors
  4. Economic Sectors with Restrictions
  5. Foreign Investment Reviews in Mexico?
  6. Foreign Investment and Real Estate in Mexico
  7. International Investment Agreements
    1. Bilateral Investment Treaties
    2. Free Trade Agreements with Investment Chapters
    3. Mexico’s Investor-State Dispute History and Record
    4. Considering IIA when Investing in Mexico?
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1. Foreign Direct Investment in Mexico in Numbers

Mexico is an open economy that embraces foreign investment. According to foreign direct investment statistics from 1999-2020, almost half of Mexico’s FDI comes from the USA, followed by Spain, Canada, Japan, and Germany. 

For more information on FDI inflows per country, see Appendix 1- Table: Top FDI Inflows per Country.

Foreign Direct Investment in Mexico, Mexican Lawyers, Mexican Law Firm, VTZ,

Interestingly, China is a major exporting capital country in the world. In fact, Chinese investment in Latin America and the Caribbean has had a sharp increase in the last years. However, that has not been the case in Mexico. Chinese investment in Mexico only represents around 0.2% of the total investment in Mexico, according to official statistics of the Mexican Ministry of Economy.

As for economic sectors, FDI inflows have focused mainly on the manufacturing sector, followed by financial services, international trade, mining, construction, transportation, and hotel industry. For more information on FDI inflows per the economic sector, see Appendix 2- Table: Top FDI Inflows per Country.

Mexico, Foreign Direct Investment, FDI, Economic Sectors, Manufacturing Industry

In this chapter, VTZ will provide an overview of the foreign investment restrictions applicable to economic sectors and real estate, the role of the authorities regarding investment authorizations, and the Bilateral Investment Treaties. 

2. General Context of Foreign Investment Law in Mexico.

As a general rule, foreign investment is authorized without restrictions in the territory of Mexico, unless the Law expressly includes a limitation. In other words, Mexico does not have a special zone where foreign investment rules are more “flexible” as investment promotion policies because it has adopted a “negative list” approach that applies throughout its territory…Read More

3. Prohibited Economic Sectors.

From a practical standpoint of view, the Law expressly prohibits foreign investment in “ten” general economic sectors that are classified as “activities reserved to the Mexican State” or “activities reserved to Mexicans”…Read More 

4. Economic Sectors with Foreign Investment Restrictions

The Foreign Investment Law provides the following ownership interests limitations or caps to foreign investors in Mexican enterprises that may not be exceeded directly or indirectly in the following regulated activities:…Read More 

5. Foreign Investment Reviews?

Mexico has foreign investment reviews in place, but they differ from those carried out in other jurisdictions. United States, Canada, and China, for instance, have foreign investment reviews that are triggered by “national security” concerns. National security concerns… Read more

6. Foreign Investment and Real Estate

The transfer of real estate ownership is subject to several conditions, including where the property is located, the land regime, and the buyer’s legal nature and nationalityRead More 

7. International Investment Agreements

Mexico has a large network of International Investment Agreements, either in the form of a Bilateral Investment Treaty or as an Investment Chapter in a Free Trade Agreement.

An Individual or company, qualifying as an investor, and their “investment” in Mexico may benefit from international protection provided that he or she is from a State that is a party to an international investment agreement with Mexico and that the investment qualifies as such under the relevant agreement….Read More 

7.1 Bilateral Investment Treaties

7.2 Free Trade Agreements with Investment Chapters

7.3 Mexico’s Investor-State Dispute History and Record

7.4 Considering IIA when Investing in Mexico?

Thank you for your interest and for visiting our website, to continue reading please fill out the form below.

For more information about VTZ Law Firm services, visit our website or contact us info[@]vtz.mx

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Doing Business in Mexico, English

International Trade in Mexico

24 Aug , 2020  

Our third chapter of Doing Business in Mexico, International Trade, will provide a general overview of ton Mexican International Trade Policy considering international context, as well as customs aspects.

This chapter includes the following sections:

  1. Mexican International Trade Policy and Customs
  2. Tariff Policy
    1. MFN Tariffs or Duties
    2. Preferential Tariffs in Free Trade Agreements
      1. CPTPP
      2. USMCA
      3. New EU-Mexico Agreement
    3. Duty Deferral, Drawback and Preferential Tariffs in Trade Instruments
      1. IMMEX
      2. Trade Promotion Instruments
      3. PROSEC
        1. Eight Rule
        2. Free Trade Zones in Mexico
    4. Other Taxes affecting imports
      1. Customs Processing Fee
      2. Value-added Tax
      3. The Special Tax on Production and Services
      4. The Tax on New Motor Vehicles
  3. Non-Tariff Barriers
    1. Import Prohibitions
    2. Licensing System
    3. Other Non-Tariff Barriers on Imports
    4. Import Quotas
    5. Exports Tariff & Non-Tariff Export Barriers
  4. Recent Changes to Mexican Trade Policy
  5. Customs
    1. Customs Brokers and Customs Agencies
    2. Single Customs Window
    3. Requirements to Import and Export in Mexico
    4. Special International Trade Registries
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1. Mexican International Trade Policy and Customs Law

As a member of international organizations and Free Trade Agreements, Mexico has, to a certain extent, a predictable trade and customs policy. Mexican laws on customs and trade are normally compatible with international rules. The President and his ministers are not only in charge to apply these laws, but they also have powers to regulate international trade and customs, including emergency actions.

Since the inception of the World Trade Organization and the North American Free Trade Agreement, Mexico’s trade and customs legal framework has not been subject to a substantial overhaul; seldom reforms particularly to the customs law have occurred from time to time.

However, Mexico is currently embracing modern free trade agreements, such as the Comprehensive and Progressive Transpacific Partnership (CPTPP) or USMCA, that have and will bring certain legal changes in intellectual property, de minimis, e-commerce, etc.  

Needless to say, trade and customs programs or regulations are subject to frequent changes that seek to adapt to new trends, risks, or policy objectives. Mexico has in place, for instance, duty deferral and tariff reduction programs that allow manufacturing or export-oriented industries to be more competitive. However, such programs are subject to strict government controls.

2. Tariff Policy

Mexico is a party to the World Customs Organization and to the International Convention on the Harmonized Commodity Description and Coding System (HS Convention).

As a result of the sixth amendment to the HS, Mexican congress discussed a new law that replaced its General Import and Export Tariff Act (LIGIE, acronym in Spanish), i.e. Mexico’s Harmonized Tariff Schedule. The Ministry of Economy conducted an exhaustive review and proposed to compact or unfold tariff items for statistical purposes into 10 digits that will be called Commercial Identification Number, instead of an 8 digit tariff item (known as fracción arancelaria). The new General Import and Export Tariff Act was published on July 1, 2020.

2.1 MFN Tariffs or Import Duties

Mexico’s average WTO bound tariff is 35%, and duties rates vary from 0% to 100%. According to Mexico’s most recent Trade Policy Review (2017), the average MFN tariff on agricultural and non-agricultural products was 14.3% and 4.6%, respectively. The General Import and Export Tariff Act establishes the import tariff or “General Import Tax” (Impuesto General de Importación, or IGI) as well as the export tariff “General Export Tax” (Impuesto General de Exportación, or IGE).

….

2.2 Preferential Tariffs in Free Trade Agreements

Mexico has an extensive network of Free Trade Agreements (FTAs) with 50 countries and is also a party to regional agreements within the framework of the Latin American Integration Association (ALADI).

Mexico Free Trade Agreement, USMCA, NAFTA, TLCAN, TMEC, Alianza del Pacífico, Pacific Alliance, European Union, CPTPP, International Trade, FTAs, Mexico, Mexican Law Firm, Mexican Lawyers, WTO, Top Mexican Lawyers

The main FTAs and trade agreements to which Mexico is currently a party are as follows:

  • United States–Mexico–Canada Agreement (USMCA).
  • European Union-Mexico Free Trade Agreement, which is in the process of being modernized.
  • Comprehensive and Progressive Transpacific Partnership (CPTPP) in force between Australia, Canada, Japan, Mexico, New Zealand, Singapore, and Vietnam; Brunei, Chile, Malaysia, and Peru have not yet ratified the FTA.
  • Pacific Alliance with Colombia, Chile, and Peru.
  • FTA with Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.
  • FTA with the European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland).
  • FTA with Israel.
  • FTA with Uruguay.
  • FTA with Japan.

….. Read more

3. Duty Deferral, Drawback and Preferential Tariffs in International Trade Instruments

Long before NAFTA came into existence, Mexico had into effect duty deferral policies that allowed manufacturing companies, known as maquiladoras, to import goods, such as raw materials, parts, containers, etc., without paying import duties. The maquiladoras had to use said imported goods in the production of exported manufactured goods and, in turn, they could temporally import said goods and defer customs duties.

Eventually, NAFTA introduced drawback provisions to promote the use of regional goods and “to reduce the incentive for third countries to use a NAFTA country as an ‘export platform.” Article 303 NAFTA, replicated in article 2.5 USMCA, introduced a general prohibition on refunding or exempting customs duties owed on non-originating goods imported into the territory of a party.

In essence, these provisions have as a purpose to avoid double ‘taxation’ on non-originating materials that are used as an input in the production of a finished good subsequently exported to another NAFTA or USMCA party.

Thank you for your interest, if you wish to continue reading please fill out the form below or contact us.

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Doing Business in Mexico, English

Taxation in Mexico: A Guide

24 Aug , 2020  

Taxation in Mexico, income tax law, corporate tax rate, withholding tax, mexican lawyers, mexican accountants, Mexico City, Guadalajara

Our sixth chapter of Doing Business in Mexico, Taxation in Mexico, will provide a general overview of the main Mexican taxes focused on foreign individuals and/or legal entities, including rules on permanent establishment, tax withholding, among other tax obligations.

This chapter includes the following sections:

  1. Overview: Main Taxes in Mexico
  2. Residents and non-residents in Mexico for tax purposes
    1. Tax Residents in Mexico
    2. Non-Tax Residents in Mexico
  3. Income Tax in Mexico
    1. Individuals and the Income Tax
    2. Companies and the Income Tax
      1. Tax incentives
        1. IMMEX
        2. Tax Incentives for the Northern Border Region
    3. Foreign Residents Earning Income from Mexican Sources of Wealth
  4. Value-Added Tax in Mexico
    1. VAT and Exported Goods and Services
    2. VAT and Imported Goods and Services
    3. VAT refunds
  5. Obligations of Foreign Shareholders in Mexican Companies to Register in the Federal Taxpayer Registry
  6. Tax Treaty

Taxation in Mexico

As noted in Chapter 1 – Why Invest in Mexico? Mexico is a Federation made up of 32 States, and each State, in turn, is made up of municipalities. The Mexican constitution establishes the jurisdiction for each level of government and, thus, different taxes apply. Federal taxes are the primary level of taxation in Mexico, while States and municipal (local) taxes are more limited. Needless to say, States and municipalities, to a great extent, receive budget allocations from federal taxes that are collected within their borders.

The Tax Administration Service (SAT, acronym in Spanish) is the relevant government body or agency in charge of collecting federal taxes as well as surveilling compliance.

At a local level, States and Municipalities have their own treasuries that enforce their local Tax Law. However, the Federal government and a State government may enter into tax coordination agreements, whereby the State is entitled to audit and collect federal taxes.

Overview: Main Taxes in Mexico

The main federal and local taxes in Mexico are the following:

 Federal taxes

  1. Income Tax (ISR, acronym in Spanish): The corporate income tax rate is 30%, individuals are subject to income tax rates ranging from 1.92% to 35%.
  2. Value Added Tax (IVA, acronym in Spanish): The standard rate is 16%, and 0% rate is applicable in certain activities.
  3. Tariffs or Import duties (See Chapter 3 – International Trade Policy)
  4. Special Tax on Production and Services (IEPS, acronym in Spanish): The tax may be expressed as a percentage, ranging from 3% to 160%, specific, or a compound tax.
  5. Social Security: An employer is subject to social security taxes that can represent between 25% and 30% of the employee’s salary.

 Local taxes

  1. Taxes on Real-Estate or Land: The States have in place a Property Acquisition Tax. The buyer of a house, land, building, apartment, or any type of real-estate property is responsible for paying said tax. The applicable tax may vary from State to State, but the average is a 2% rate. However, the Property Acquisition Tax may reach 6.5% on the sale price in some states.
  2. Payroll Tax: States have in place the Payroll Tax on wages and other expenditures that derives from an employment relationship. The tax rate may vary from State to State, but such tax normally amounts to 2% and 3% on the wage paid.

Taxation in Mexico For Residents and Non-residents.

Foreigners are individuals or entities that are normally subject to the tax law legislation of another country for reasons such as nationality, address, place of residence, or business, among other criteria. Mexican Tax Law, however, establishes a set of rules whereby a foreign individual or entity is considered as a resident –for tax purposes– in Mexico (hereon referred to as “tax resident”).

Residents in Mexico

The individuals, whether Mexicans or foreigners, that have their home in Mexico are tax residents. Furthermore, an individual without a home can still be a tax resident when, for instance, his or her “place of professional activities” is located in Mexico or more than 50% of his or her annual income comes from Mexico.

As for legal entities, a company incorporated in Mexico is a tax resident. Foreign entities are tax residents when their main place of business or corporate address is in Mexico.

Non-residents in Mexico

Individuals or legal entities that are non-residents may, under certain circumstances, be subject to Mexican taxes. For instance, a foreign individual or entity is subject to Mexican taxes when he or she has a “permanent establishment” in Mexico or obtains income from any source of wealth located in Mexico. A permanent establishment, in general terms, is any business place where activities are partially or totally developed or where independent personal services are offered. The law lists examples of permanent establishments in Mexico, including the following:

  1. Branches;
  2. Agencies;
  3. Offices;
  4. Factories;
  5. Installations;
  6. Mines; and
  7. Any place where exploration, extraction or exploitation of natural resources activities are carried out;

We highlight that the previous list is non-exhaustive. A foreign resident may, nevertheless, establish a permanent establishment when it has a representative or non-independent agent in Mexico.

Income Tax in Mexico

Depending on the “tax-residency” status, the income tax may apply to all the income or the income attributable to the permanent establishment or source of wealth as follows:

  1. Residents in Mexico’s income is subject to the income tax in its entirety, regardless of its origin or source.
  2. If a non-resident has a permanent establishment in Mexico, the income attributable to the permanent establishment is subject to the income tax.
  3. If a non-resident has a source of wealth in Mexico, the income attributable to the source of wealth is subject to the income tax. In Section 6.3.3, we will discuss this aspect in greater detail.

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English, News

VTZ in the Day of China

14 Jan , 2020  

Inversión china en México, intercambio comercial México-China, EEUU, Canadá y China, Día de China en la Secretaría de Economía, oportunidades de negocio México-China

Mexico’s second trading partner: China

Yesterday, the 13th of January,  the Ministry of Economy organized the “Day of China”, where the Minister, Graciela Marquéz, said that Mexico is a fertile ground for the Asian giant’s capital. The Minister of Economy commented that the Mexican government seeks to increase exports to China, since “it is probably the most attractive market in the world.”Inversión china en México, intercambio comercial México-China, China, Día de China en la Secretaría de Economía, oportunidades de negocio México-China, inversión,

The Chinese ambassador to Mexico, Zhu Qingqiao, also attended to the event and gave a speech about the relevance and role of China in the world economy, noting that “in the last 5 years China’s average contribution to economic growth world is over 30%. Currently, the Chinese economy is moving from accelerated growth to a much better quality. ”

The Mexican ambassador to China, José Luis Bernal, said that before the end of the year one of the large Chinese automotive companies will establish a production plant in our country. The Mexican ambassador to China stressed that the automotive company will join two other companies that seek to have a commercial presence in Mexico, a company that also manufacture electric cars.

Chinese Desk in Mexico – VTZ

Chinese Desk, Inversión china en México, intercambio comercial México-China, China, Día de China en la Secretaría de Economía, oportunidades de negocio México-China, Susana Muñoz, Chinese Desk de VTZ, industria automotriz, maquiladora, Adrian Vazquez, Dora Luz, Emilio Arteaga Vazquez, Mariana Rivera

Dora Luz, Adrian Vazquez, Mariana Rivera, Emilio Arteaga

VTZ participated in the “China Day”, where it promoted its Chinese Desk among the Chinese business sector, a project that seeks to be the contact point for Chinese individuals and companies that seek to do business in Mexico. We prepared a presentation that was delivered to the Minister of Economy and the Ambassador of China in Mexico:

Chinese Desk,Inversión china en México, intercambio comercial México-China, EEUU, Canadá y China, Día de China en la Secretaría de Economía, oportunidades de negocio México-China, Susana Muñoz encabeza el Chinese Desk de VTZ, inversión china en la industria automotriz

 

Chinese Desk,Inversión china en México, intercambio comercial México-China, EEUU, Canadá y China, Día de China en la Secretaría de Economía, oportunidades de negocio México-China, Susana Muñoz encabeza el Chinese Desk de VTZ, inversión china en la industria automotriz

Our Chinese Desk is directed by Susana Muñoz, who will be our main contact with businesses in China and Asia. Ms. Muñoz is based in Hong Kong and has extensive experience in business opportunities, trade, investment promotion, product development, and economic and market research in Mexico and China.

In addition, Karla Loyo collaborates in our Chinese Desk. Ms. Loyo has worked in government agencies, such as the Mexico-China Chamber of Commerce and Technology, the Mexican Chamber of Commerce in Hong Kong, among others. This project is also supported by our managing partner, Adrián Vázquez, and junior partner, Emilio Arteaga, as well as all the team of VTZ.

VTZ thanks the Business Council for Foreign Trade, Investment and Technology, A.C. (COMCE) for providing a space to promote our Chinese Desk.

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