GUILLERMO PÉREZ DIONISIO, CPA
October 2012
1
This is a general
description of the main
aspects a company or an
individual might face when
planning to initiate a
business in Mexico. It is
intended to provide the
reader a background on
the country as well as
accounting and tax
requirements.
2
1. Country Profile
2. Business Entities
3. Accounting and
auditing requirements
4. Taxation
5. Investment incentives
6. Labor
7. Highlights
8. Conclusion
9. Sources
3
1.Country Profile
1.1 Location
• Mexico is located in the American continent
and belongs to North America.
1.2 Population
• 108 million
1.3 Language
• Spanish.
• English is also widely understood.
4
1.4 Geography
• 1,970,000 sq. km. (1,224,000 sq. miles)
1.5 Economy
• Gross domestic product was estimated at US
$1,750,000 billion in 2012.
• Industrial production growth rate: 1.6%
• Real growth rate: 4.1%.
5
1.6 Main Industries
•
•
•
•
•
Petroleum, mining.
Tourism.
Food and beverages, tobacco.
Chemicals, iron and steel.
Textiles, clothing, motor vehicles;
consumer durables.
1.7 Principal Trading Partners
Exports
20
80
Imports
United
States
Rest of the
World
5
United
States
China
11
14
48
Japan
European
Union 6
1.8 Political system
• Federal democratic republic.
• 31 States, one Federal District.
1.9 Currency and exchange control.
• The currency is Mexican peso.
• Peso is freely converted in to any currency
1.10 Religion
• Mainly Catholics 77%.
7
2. Business Entities
2.1 Stock Corporation (S.A.)
• Most common type of business entity used in Mexico.
• Shareholders only are liable for an amount up to the value of
their shares.
• Must have at least two shareholders.
• No minimum capital is required
8
2.2 Limited Liability Company (LLP)
• Same limited liability as the stock corporation.
• No minimum capital required.
• At least two partners.
2.3 Civil Enterprise (S.C.)
• Professional service providers, use this form of
corporation.
• It has no minimum capital requirements.
• There are no limits on the number of partners.
9
2.4 Branch
• Instead of incorporating an entity in Mexico, some
companies choose to register their existing
foreign company as a branch in Mexico.
10
However, the most common types of mercantile entities
used by foreign and national investors in Mexico are the
following:
• Limited Liability Company: A partnership with limited liability
for all its members, in which social interests represent the
capital.
• Stock Corporation: Entity similar to the US Corporation, its
capital is represented by common shares.
Both Mexican legal entities provide limited liability to
Shareholders and are subject to the same tax treatment
under Mexican law.
11
2.5 Requirements for Stock Corporation and Limited Liability
Company
• Minimum of two shareholders.
• Transfer of an LLP social parts or any new admission of
new partners will require a partners meeting approval.
• Legal representatives.
• Sole director or a board of directors.
• Annual financial statements.
• Variable capital can be established.
12
3. Accounting and Auditing
Requirements.
•
•
•
•
Shareholder and capital registry.
Books must be recorded in Spanish.
Shareholders minute’s book of meetings held.
With gross revenue exceeding 2,700,000 USD a
special fiscal report must be filed.
13
4. Taxation
4.1 Income Tax (ISR)
Individuals
Mexico's individual income tax rates for
012 are progressive, from 1.92% to 30%.
Personal annual tax rates 2012
Income (USD)
%
0.00076-457.9
1.92
457.9-3,886.53
6.4
3,886.5-6,830.23
10.88
6,830.23-7,939.84
16
7,939.84-9,506.16
17.92
9,506.17-19,172.57
21.36
19,172.57615-30,218.6
23.52
30,218.6 and over
30
14
Corporate Tax
• Mexico's corporate tax rate for 2012 is 30%. The
corporate rate will be reduced to 29% in 2013 and
28% in 2014.
15
4.2 Flat Rate Corporate Tax
• 17.5% rate to income determined based on cash flows.
• Co-exists with Income Tax.
4.3 Value added Tax (VAT)
• VAT consists of a 16% tax (reduced to 11% in the
borders and certain States) applied to each transaction.
4.4 Capital Gains/ Losses
The concept of capital gains in Mexico does not exist.
4.5 State level Taxation
• Transfer and acquisition of real estate, salaries,
wages and payroll.
4.6 Social Security
• Medical attention, disability pension, retirement
pension and housing.
• Rate of approximately 25% over the amount of the
salaries.
• These contributions are Income Tax deductible.
4.7 Treaties to avoid Double Taxation
Mexico has different treaties to avoid double taxation with its main trading partners.
1.
Argentina
2.
Australia
3.
Austria
4.
Belgium
5.
Belize
6.
Brasil
7.
Canada
8.
Chile
9.
China
10.
Colombia
11.
Costa Rica
12.
Czech Republic
13.
Denmark
14.
Ecuador
13.
Finland
14.
France
25.
Panama
15.
Germany
26.
Peru
16.
Greece
27.
Portugal
17.
Indonesia
28.
Poland
18.
Hong Kong
29.
Romania
19.
Hungary
30.
Russia
20.
India
31.
United Kingdom
21.
Ireland
32.
United States
22.
Israel
33.
Slovakia
23.
Italy
34.
Spain
24.
Japan
35.
Singapore
25.
Korea
36.
South Africa
26.
Luxembourg
37.
Sweden
27.
Norway
38.
Switzerland
28.
New Zealand
29.
Netherlands
18
4.8 Withholding
• Mexico’s treaties generally apply different
withholding rates, to interest 4.9-30%, royalties 1030%, technical services fees 0-30% and none for
dividends.
19
5. Investment Incentives
5.1 Subsidies
• Negotiated directly with the State or municipality
where the investment will be made.
These may include, among others:
• Discount on the land purchase price.
• Reduction of State taxes
20
5.2 Tax incentives
• Entities dealing exclusively in agricultural,
livestock breeding, forestry or fishing activities
are exempt from income tax when their gross
revenues do not exceed the limit established in
the law.
21
6. Labor
•
•
•
•
90% Mexican Workers required.
Sharing 10% of taxable income among workers.
Christmas Bonus
Mandatory holidays are: January 1, the first Monday of
February, the third Monday of March, May 1,
September 16, the third Monday of November
December 25, any elections day as determined by
electoral authorities and December 1 of every 6 years.
22
7. Highlights
• México is the world’s eighth-biggest trading country
and the largest in Latin America.
• It has a free market economy.
• Cheap production and manufacturing costs. Cheaper
labor. (Comparable to China).
23
8. Conclusion
With a growing consumer market fuelled by
macroeconomic stability, a strategic geographic
location, renowned high-quality labor force, open
trade and investment policies there’s no denying that
investing in Mexico is a smart choice for financial
growth.
If you’re interested in investing in Mexico, contact us for
assistance at.
24
9. Sources
• http://espanol.doingbussiness.org/data/exploree
conomies/mexico/
• Taxation and Investment in Mexico 2012: Reach,
relevance and reliability. UK. Deloitte Touche
Tohmatsu Limited.
• Meyer, Michael C.; William H. Beezley, editors
(2000). The Oxford History of Mexico. Oxford
University Press. p. 736.
• Krauze, Enrique (1998). Mexico: Biography of
Power: A history of Modern Mexico 1810–1996.
New York, New York: Harper Perennial. p. 896.
• www.pwc.com/mx/db2011
25