Manufacturing in Mexico: Which Entities Are Involved When Expanding a Business?06.25.19
There are several moving parts when expanding a business to Mexico. There are certain requirements and compliances that must be taken care of before any operations can begin. There is also facility research, employee hiring, as well as other HR and accounting initiatives that must be in place. It can take several months for a company to start manufacturing in Mexico, which could delay supply chains and derail business goals.
Fortunately, with the help of a shelter services company, the setup time is significantly reduced. Businesses can prioritize and focus on their initiatives, while the shelter partner takes care of the logistics. Alternatively, if a company does not choose to manufacture under a shelter, there is still the option of starting a new Mexican entity as a “standalone” and a shelter company can help in obtaining the permits with all of the necessary Mexican government offices.
Both are viable options when opening a business in Mexico, although operating under a shelter comes with the added benefits of reduced legal risk and liability, exemption from VAT payments at Mexican customs, no income tax for the first four years, and a shorter time to production. In addition, a shelter company takes care of all administrative details associated with the following organizations.
The Ministry of Foreign Affairs
To begin manufacturing in Mexico, it’s necessary to establish and register its name. The Ministry of Foreign Affairs (SRE) authorizes the creation of a company and ensures that the name has not already been taken by another party.
Public Notary/Public Registry of Commerce
The business of starting operations in Mexico is formalized through “constitutive writing,” which establishes the rules and requirements under which a business will operate. Among the items included in this document are:
- General information about the business partners
- Purpose of the corporation
- Company name
- Information regarding the time during which the company will operate
- Amount of capital invested
Everything must be in writing, notarized, and registered.
Ministry of Economy
This office is responsible for authorizing the IMMEX program for a foreign company. The IMMEX program is vital to import materials temporary without paying the 16% VAT since goods will be transformed in Mexico into a finished good and then, exported back to the U.S.
There are several documents and steps required during the application process, in addition to legalities and regulations to understand before a new program can begin. Because of this, companies benefit from working with a shelter company that can take on the administrative burden of collecting, organizing, and filing all necessary correspondence.
Ministry of Finance and Public Credit
A foreign company must register with the Federal Register of Taxpayers with Mexico’s Ministry of Finance and Public as soon as they finalize the new company creation and registration process at the Public Notary and the Public Registry of Commerce. Referred to as “hacienda,” this is the equivalent to America’s Internal Revenue Service.
An operating license issued by the municipal government is required for certain activities and must be kept in sight. Also, some municipalities require a Land Use Permit as well.
Mexican Social Security Institute
A company must register all workers with the Mexican Social Security Institute within a period of five days when manufacturing in Mexico. The employer’s activities are classified by the IMSS according to the Regulation of Classification of Companies to determine the “risk factor” of the activities the company will perform.
When opening a business in Mexico, companies must select a banking institution to set up payment of all taxes, utilities, and any other financial transactions. Additionally, companies operating in Mexico must register with the Savings System for Retirement. Deposits of workers’ retirement fund in a special account must occur on a bi-monthly basis.
In addition to these named organizations, there are other entities involved when opening a business in Mexico such as:
- Mexican Business Information System (SIEM)
- Secretary of the Environment
- Secretary of National Resources and Fisheries
- Ministry of Labor and Social Security
- National Water Commission
Businesses should consider the time it takes to learn the ins and outs of working in a foreign country. In short, there are numerous personnel to meet with and boxes to be checked before a company can begin fully operating in Mexico, a process that is often complex. With the help of a shelter company, this is all taken care of by professionals who are well-versed in the requirements and can help to expedite the process due to knowledge and experience of doing business in Mexico.
Manufacturers continue to look to Mexico to handle part of their supply chain due to benefits such as lower production and labor costs, high quality and timely delivery, and a skilled workforce, among other advantages. Although companies can choose the standalone route, the value of operating under a shelter is that it reduces the amount of risk and time it takes for all setup and administrative processes, while providing peace of mind to foreign businesses unsure about all of the legalities and regulations required.