Doing Business in Mexico, English, News

Alliott Global Alliance | Together as One in Mexico with VTZ

8 Jun , 2021  

Alliott Global Alliance, VTZ, Mexico, International Legal Services, International Tax, Doing Business in Mexico

Vázquez Tercero & Zepeda (VTZ) is a proud member of Alliott Global Alliance, an international alliance of independent accounting, law, and specialist firms. VTZ joined this international alliance in 2020.

Supporting clients in 80 countries across the world

VTZ is the sole law firm member in Mexico of Alliott Global Alliance (‘AGA’), a leading multidisciplinary alliance of independent accounting, law, and specialist firms.

Together as One

Our membership of Alliott Global Alliance, which has 290 offices in 80 countries, enables VTZ to place our clients with trusted, vetted professionals across the world with whom we can coordinate their international needs.

Moreover, Adrian Vázquez, our managing partner, was appointed as a member of the Advising Committee of Latin America.

International Services and Collaboration

By working in close collaboration with our AGA colleagues across the world, we will ensure our clients can navigate complex tax, legal, financial and regulatory issues. Whether our clients are taking their first step into a new market or expanding their cross-border operations, AGA professionals make the world smaller and businesses stronger.

AGA member firm services will help our clients to apply the right strategies that will reduce their costs and maximize growth opportunities.

Alliott Global Alliance: Expanding our reach

Wherever in the world our clients need help, their business will be
handled with the same high standards they expect from VTZ.

The Alliance’s Service Promise Agreement also ensures our clients’
business will be treated on a priority basis by our colleagues across the globe. With expertise and knowledge of local language and culture, member firms respond expeditiously to each other’s
client enquiries or requests to be referred, often within hours,
and certainly within one working day.

Alliott Global Alliance, AGA, Offices, Countries, International Network,

Alliott Global Alliance is not just global or international. We are One.

The alliance’s member firms are rich with talented and highly experienced professionals who know their jurisdictions, practice areas, clients, and alliance colleagues.

The reach of the alliance extends deep into Europe, Africa, the Middle
East, North America, Latin America and the Asia Pacific. Alliance professionals are more than just colleagues or members; we are a kinship of professionals.

AGA member firms are among the leading independent firms in their jurisdictions. Their expertise lies in representing a range of corporate clients, including middle-market private companies, public companies, private equity and venture capital firms, individual investors and entrepreneurs on a local, regional and global scale.

Selected clients served by AGA member firms include:

Air France-KLM, Alitalia, Astex Pharmaceuticals, British Airways, Calloway Golf, Carl Zeiss, Crabtree & Evelyn, Credendo, Croda International Plc, Douglas Cosmetics, Ericsson Telecommunications, Fossil, HILTI Hungaria, Konica Minolta, LeMaitre, Lufthansa Group, Mango, MindMed, Prada, Rolls Royce Group, Sélection Retraite, Shire Plc, Simoco, STS Aviation Group, TATA, Toni & Guy, Uber Hellas, Volvo.

More information:

Client-Business-Brochure_VTZ

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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.

Susana Muñoz and Karla Loyo, members of our Chinese Desk, wrote the following summary for Doing Business Mexico.

The Economy and Free Trade Agreements

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.

¿What happen with the Mexican Promotion Investment Agency (PROMEXICO)?

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.

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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

The Manufacturing Industry in Mexico

24 Aug , 2020  

Manufacturing Industry in Mexico, IMMEX, VAT, IVA, Duty Deferral, Authorized Economic Operator, International Trade, Customs, Mexican Lawyers

Our fourth chapter of Doing Business in Mexico, Policy for the Manufacturing Industry in Mexico, will provide a general overview of the programs that promote the Mexican manufacturing industry, including the requirements and benefits to obtain various programs.

  1. Mexican Policy for the Manufacturing Industry
  2. What is the IMMEX Program?
    1. IMMEX Options
    2. IMMEX Benefits
    3. IMMEX Obligations
    4. Grounds for Suspension and/or cancellation of the IMMEX Program
    5. Tax Aspects: Income Tax and Value Added Tax
    6. Corporate Matters
    7. International Trade Matters
  3. Comprehensive Certification Company Scheme
    1. VAT/IEPS Certification
    2. General Requirements to Obtain VAT/IEPS Certification
    3. VAT/IEPS Certification Benefits and Requirements
    4. Authorized Economic Operation Certification
    5. Authorized Economic Operator Requirements in Mexico
    6. Benefits of Authorized Economic Operator
  4. Sector Promotion Program (PROSEC) and Eight Rule
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Mexican Policy for the Manufacturing Industry

The export manufacturing industry represents one of the most important pillars of Mexico’s economy. Once characterized for being in the northern border, the manufacturing industry has spread and established itself as well in the center of the country. As noted in Chapter 2 – Foreign Investment, about half of foreign investment inflows are destined for the manufacturing sector.

Within the manufacturing industry, the automotive sector is the most economically important, followed by the food, chemical, and basic metal sectors. The success of the automotive industry is largely explained by the integration of supply chains that began with the entry into force of the North American Free Trade Agreement (NAFTA). As noted in Why Investing in Mexico? Mexican manufacturing exports have left behind agricultural, extractive, and oil exports, which for many years were the most important in the Mexican economy.

During the economic crisis due to the COVID-19 pandemic, Mexico is committed to the opportunities offered by the USMCA so that the maquiladora industry can innovate and add more added value to manufactured goods.

As explained in the following lines, Mexico has created different international trade promotion policies specifically designed for the manufacturing industry. These policies aim to facilitate international trade operations, create economic incentives, and provide legal security for export manufacturing companies. At the same time, international trade promotion policies have contributed significantly and positively to the Mexican economy, attracting foreign investment, creating industrial clusters, and jobs.

The IMMEX Program: What is the IMMEX Program?

The IMMEX Decree is a duty-deferral government program that provides benefits to authorized companies that engage in the manufacturing or maquila operation scheme in Mexico, including import-export. In essence, the IMMEX Program grants administrative facilitation measures and tariff incentives to manufacturers, and foreign-owned companies may also access income tax incentives. The companies must be “residents” in Mexico to access the IMMEX Program per the provisions of the Federal Tax Code and the Income Tax Law.

Notably, IMMEX companies are authorized to introduce goods under the temporary importation customs regime, deferring (avoiding) the payment of import duties or the General Import Tax (known as IGI in Spanish acronym), and where appropriate, antidumping and countervailing duties. The purpose of these benefits is to create an attractive regulatory framework for the export-oriented manufacturing industry; in other words, IMMEX companies can carry out manufacturing activities with temporarily imported goods in a low tax or tariff environment, but upon the condition that the imported goods are exported after submitted to production or some service.

Many foreign investors benefit from the IMMEX Program because it allows, for instance, to manufacture or repair products in Mexico preserving the company’s cash-flow and using excellent and low-cost labor.

The Ministry of Economy and the Ministry of Treasury have joint responsibility for issuing the IMMEX authorization. However, the Ministry of Economy is the authority in charge of issuing the IMMEX authorization or certificate to a company (hereon referred to as “IMMEX company”), while the Ministry of Treasury has to approve the company prior said authorization is issued. Besides, an IMMEX company may access extra tax benefits such as the VAT/IEPS Certification issued by the Mexican IRS (known as SAT, in Spanish). For more information on the VAT/IEPS Certification, see Section 4.2.1. 

IMMEX Options

Depending on the planned operations or activity, a company may apply for the following five IMMEX options:

IMMEX IndustrialThe Industrial IMMEX is the most common type of IMMEX option, and it is granted to a company that uses imported materials and carries out an industrial manufacturing process or transforms goods for export.
IMMEX Holding CompanyThis modality is like the industrial modality, but it is for an industrial group that carries out the industrial process. The IMMEX program is granted to a  certified company, called the “holding company”, and one or more companies that are integrated into the manufacturing operation and controlled by the holding company. 
  IMMEX Services  This modality is for a company that performs services for the process of producing goods for export or carries out export services.
IMMEX  Accommodation (or Shelter)This modality is for Mexican firms that offer maquila (or tolling) services to foreign companies, while the foreign companies will provide the technology and inputs without operating its own IMMEX company. In other words, the IMMEX Shelter company will import the technology, raw materials, and components supplied by the foreign company and will carry out the industrial activities according to a contract; the finished or semi-processed products are exported to the foreign company.
IMMEX TertiaryThis modality consists of a certified IMMEX company, that due to lack of appropriate infrastructure, carries out a manufacturing process through third parties registered under its IMMEX Program.
More information Trade Policy Review Mexico (2017)

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Doing Business in Mexico, English

Creating a Company in Mexico: A Guide

24 Aug , 2020  

Creating a Company in Mexico, Guide, Doing Business in Mexico, Mexican Lawyer, Mexican Law Firm,

Our fifth chapter of Doing Business in Mexico, Creating a Company in Mexico, will provide a general overview of the process to incorporate a company as well as information on company types in Mexico, including some tax-related comments. Furthermore, other business legal structures are explained.

This Chapters includes the following sections:

  1. Creating a Company in Mexico: the 12 Steps to Create a Company with Foreign Capital
  2. Traditional Types of Companies in Mexico
    1. Mexican Stock Company
    2. Limited Liability Company
    3. The Variable Capital Regime
    4. Other Types of Companies
      1. The Simplified Company
      2. Stock Investment Promotion Company (SAPI)
  3. Other Business Structures
    1. Branch in Mexico
    2. Joint Ventures in Mexico
    3. Trusts
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How to Create a Company in Mexico?

In recent years, Mexico has changed its Company Law to facilitate the creation of a company. As a result, Mexico relaxed requirements, reduced the days as well as the number of procedures to start a business, and, thus, has improved its Starting a Business indicator of the World Bank’s Doing Business 2020.[1]

According to this study, 8 steps are necessary to create a company in Mexico, but under the assumption that only Mexicans are involved. In that sense, a company with foreign capital is subject to additional steps as noted below.

Before reading this chapter, we strongly suggest reviewing our Foreign Investment Chapter because Mexico prohibits or restricts foreign capital in certain activities or economic sectors. Needless to say, most economic sectors are not subject to foreign investment controls and, thus, we will focus on the “all other” activities or economic sectors that do not have foreign investment restrictions.

We will first outline the steps that a foreign investor must take to incorporate a company or opening a business. Then, we will provide a general picture of the type of companies as well as other business structures suitable for foreign investors.

The 12 Steps to Create A Company in Mexico

The steps to create a traditional company do not vary as to the type of company, such as a stock company or limited liability company.

The intervention of a Notary Public or Public Broker is necessary to incorporate a company in Mexico. Due to the limited legal powers of a Public Broker, entrepreneurs normally prefer to retain the services of a Notary Public.

Step 0: Will you need a Power-of-Attorney?

Are you planning to “shake hands” with your business partners in Mexico or will you delegate the tasks to your trusted advisor?

If a foreign investor, as an individual, is not planning to sign the corporate deed personally, the foreign investor must sign a Power-of-Attorney (POA) in his country, naming his Mexican attorney or attorneys and listing their powers. Once signed the POA, the foreign investor must either apostille or legalize his POA and, of course, send by express packaging services the document.

If the investor is a foreign legal entity, said entity may have to provide additional documentation depending on their residence to prove its legal existence as well as the powers of the legal representative signing the POA. The additional documentation has to be apostilled or legalized. This is normally the case with Asian legal entities.

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[1] Mexico Starting a Business rank in the Doing Business is 107th out of 190 economies.

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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, vat, tax rates, 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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Doing Business in Mexico, English

Labor and Migration in Mexico

24 Aug , 2020  

Labor, Employment, Assembly, Migration, Mexican Lawyers, USMCA, Manufacturing

Our seventh chapter of Doing Business in Mexico, Labor and Migration in Mexico, will provide a general overview of the relevant labor law provisions on employment, from worker rights, dismissals to unions and collective bargaining, including a brief summary regarding the USMCA, the rapid response mechanism, as well as information on migration.

This Chapter includes the following sections:

  1. Labor and Migration Environment
  2. Individual Employment Agreements
  3. Foreign Employees
  4. Outsourcing
  5. Salary and Wages
    1. Over-working hours
    2. Rest Day
    3. Labor Rights and Premiums
  6. Termination of Employment
  7. USMCA Labor Chapter
    1. Publications
    2. Labor Chapter and its Enforcement Mechanism
  8. Labor Mexican Amendment: Unions and Collective Bargaining
  9. Migration Matters
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Labor and Migration Environment

Mexico’s labor framework is set forth in the Constitution and the Federal Labor Law (hereon “Labor Law”). Accordingly, a “job” or “working relation” is defined as rendering of a subordinated personal service to another person in exchange for a wage.[1] The job definition is quite broad because any person that renders a subordinated service to another, who in turn pays compensation, is deemed as an employee, regardless of the nature of the service performed, and he or she is entitled to labor rights.

Pursuant to the Labor Law, workers are entitled to numerous rights. Employees are entitled, for instance, to profit sharing, which can only be dismissed in a limited number of cases. If a worker is terminated without a justified cause, he or she is entitled to seek job reinstatement or severance pay. Indeed, foreign investors perceive Mexican Labor Law as “overprotective” and costly, as noted in WEF’s Global Competitiveness Index 2019

In addition to the Labor Law, Mexico has the following labor-related laws or regulations that complete its regulatory framework:

  • Social Security Law,
  • Retirement Savings System Law,
  • Institute of the National Housing Fund for Workers Law (INFONAVIT Law),
  • Federal Regulation on the Safety, Hygiene, and Environment at the Workplace,
  • The Mandatory Standard NOM-035-STPS-2018 on Psychosocial Risk Factors at Work – Identification, Analysis, and Prevention,[2] establishing the elements to identify, analyze and prevent psychosocial risk factors, as well as to promote an environment organizational support in the workplace.

The employers are required to register all of their employees before Mexican public institutions, namely the Mexican Social Security Institution (IMSS, acronym in Spanish), the National Housing Fund for Workers (INFONAVIT, acronym in Spanish) and the National Fund Institute for Workers’ Expenditures (FONACOT, acronym in Spanish). As a result, an employer has to pay “social-taxes” to these agencies. Failing to register or make timely payments regarding these social-taxes, the employer is subject to penalties and surcharges.

Also, the employer will have to register before the tax or treasury authority of the State (i.e. local authority).  States collect a Payroll tax that is paid by the employer based on wages and other expenditures. 

Individual Employment Agreements

As a general rule, the Labor Law establishes that an individual employment agreement duration is indefinite (i.e. permanent). Temporary contracts are permitted, however, only when there is a justified cause, such as probationary periods, initial training, among other situations. The employer has the legal duty to have a copy of the agreement.

Foreign Employees

Mexican employers may hire foreign employees. However, the Labor Law provides that employers must comply… Continue reading.

Outsourcing

Outsourcing labor legal schemes are carefully regulated to prevent their abusive use against employees and their labor rights. The 2012 labor reform[3] introduced the “outsourcing or subcontracting regime”, including two very relevant provisions. In essence, a labor-intensive service agreement, for instance, may have far-reaching legal consequences to the extent of deeming service provider’s workers as employees of the contracting company.

In essence, the Labor Law considers that outsourcing entails a “contractor” (i.e. outsourcing company) that performs work or provides services to a “beneficiary”, an individual or enterprise. The beneficiary sets the tasks and supervises the development and execution of the contracted work. In turn, the outsourcing company will carry the services or work with his own employees.

An outsourcing company is responsible for all labor obligations, including social security and tax regarding, his employees. Needless to say, the beneficiary of the outsourcing services is jointly liable in the event that the outsourcing company fails to fulfill its labor obligations (including tax and social security).

The Labor Law considers, for instance, “human resources” companies (e.g. head-hunters) as….Continue reading.

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[1] Article 20 of the Labor Law.

[2] Published on October 23, 2018, in the Official Gazette.

[3] Amendments to Labor Law published on November 30, 2012 and being effective as of December 1, 2012.

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