So you want to pack up and move to paradise? Before you put your house on the market and start selling off your ski gear, you may want to spend some time investigating your options as to moving to Mexico. Starting a business has worked for thousands of foreigners in Mexico, but the expat business-owner life is not all sitting on the beach sipping margaritas and hopping from cantina to cantina singing along with the Jimmy Buffet impersonators. In fact, most business owners in Mexico, unless they own a bar or beach club, are far too busy or tired to take part in these activities. This article is a very basic, very general, look at a few of the things you need to consider before you embark on your tropical dream.
One of the things you have to decide before you start the whole process of creating your enterprise is what type business are you going to do. You need to have your plan well laid out and determine beforehand if it is a business that you can take part in as a foreigner in Mexico. The Mexican Constitution reserves exercise of some commercial activities for the government and some others for Mexican citizens, you will need to make sure that the business you want to create is something you are allowed to do.
There is a long list of businesses that are reserved exclusively for exercise by the federal government, some make a lot of sense, because of their nature as publicly necessary, while others are nationalized as an attempt to keep the country’s wealth in the hands of Mexican citizens. The federal government has exclusive rights to: harvesting and processing petroleum, generating electricity and nuclear power, processing and handling of radioactive minerals, telegraph/radio-telegraph, mail, the creation of money and supervision of ports, airports and helipads.
As well as industries that are exclusively performed by the government, the Foreign Investment Law specifies some businesses that can only be performed by Mexican citizens and still others that can only have limited participation of foreigners. The businesses reserved exclusively for Mexican citizens are broadcast television, terrestrial transport, and distribution or sale of gasoline. As for businesses that allowed limited foreign participation: Production cooperatives are allowed 10% foreign participation; airlines which fly routes inside of Mexico may have up to 25% foreign participation; insurance companies, suppliers of bonds, exchange houses, financial institutions, firearm and ammo manufacturers, newspapers, commercial fisheries, harbor pilots, interstate shipping, port management and telecommunications companies may have up to 49% foreign participation; and finally, tugboat operators, marinas, boat ramps, private airfields, private schools, law firms, insurance brokers, cell phone service companies, oil pipeline builders, petroleum drillers and railroad builders need a special permission from the government if their foreign participation is more than 49%.
One more consideration about restrictions for business type is that while the law only limits the previous activities, by custom some businesses are only performed by members of certain unions or syndicates. If you are not a member of a particular syndicate it can be extremely difficult to obtain a business license or sellers permit in certain fields, therefore you will need to research local customs in respect to unionization as well.
You have your idea; you have checked that it is possible for you to perform. Now you need to look at the way in which you want your business to run. The most common way of starting and running a business, at least for foreigners, in Mexico is through a corporation, although it is possible to run your business in Mexico as a sole proprietorship in many circumstances.
Everyone who has ever mentioned starting a business in Mexico will get the standard expat advice that you must start a corporation to run your business, which can be true in some cases. There are a wide variety of corporate structures available in Mexico, the most common of them being the S.A. de C.V. or Anonymous Society with Variable Capital, which is very similar to the Inc. in many English-speaking legal systems. Even though the S.A. de C.V. is the most commonly used, in this author’s opinion the S. de R.L. or Limited Responsibility Society fits better with the needs of small business owners. Without going into too much depth, basically the S. de R.L. has more of a small business feel, allows restrictions on transfer of ownership and has a lower required startup capital. The most notable advantage of using a corporation to run the business are the corporate veil which limits liability to the owners/partners, but the drawbacks of a corporation are that start up costs will be increased and you, of course, a corporation requires partners.
Sole proprietorship is a great option if you want to go it on your own. Expat legend tells us that foreigners cannot run businesses through sole proprietorships, but the reality is that this is just not true. Sole proprietorships have big tax advantages, avoiding the classis double taxation incurred by corporations. Many will say that the major disadvantage of the sole proprietorship is that it will not offer the limitations on personal liability that a corporation would give, but in this author’s opinion that might not really be a big concerns considering that the biggest liability risk is labor-related, which is not protected under corporate shielding anyway.
What Do I Need To Be Ready?
You will need to get yourself legally ready to do business in Mexico, not just your corporation but also your personal documents. Before leaving your home country, it is a good idea to ready some of your pertinent documents for use overseas, then after arriving in Mexico you will need to have these documents translated into Spanish. Finally, once in Mexico you will need both a permit from immigration and a personal taxpayer ID number. Both of these can be obtained personally or with help from a consultant or attorney.
Most documents issued by foreign governments are not valid for use in Mexico, at least how they are issued. Your birth certificates, school records and/or professional degrees, as well as your marriage licenses or divorce decrees will all need to receive a special certification from your home government, and depending on which country you hail from you might also need to get the Mexican government to authorize the use of the document in Mexico. Once the documents have been properly authorized for use in Mexico, the will also need to be translated into Spanish by a translator who has been authorized by the Mexican government.
In order to work in Mexico as a foreigner you will need a special permission from the National Institute of Immigration (Instituto Nacional de Migración or INM in Spanish). These permits are widely given to entrepreneurs, investors and professionals who have migrated to Mexico, but obtaining one of these documents can be taxing on the patience, usually requiring multiple trips to the INM office and a plethora of documents pertaining to your personal, academic and financial background. Immigration law in Mexico is currently in the process of reform; apparently the new laws will make the migratory process more agile.
The Mexican Treasury Department, also known as Hacienda, issues to all taxpayers in Mexico a unique taxpayer ID that is based on your name, birthdate and a few random numbers and characters. The taxpayer ID is commonly known as the RFC, which stands for Registro Federal de Contribuyentes or Federal Registry of Contributors in English. If you are opening the business as a sole proprietor, you will use this number for tax purposes. If you are opening your business with a corporation, you will still need a personal taxpayer ID number in order to be the legal representative of the corporation. Getting your taxpayer ID is very simple, much of the inscription process is online and the people in the Hacienda office are usually very efficient.
Doing business in Mexico has its own unique style and flavor; many people never adjust to the pace and therefore struggle unnecessarily in their business. Most people that are able to run a business in Mexico for any long period of time have an accountant and an attorney that they trust and use regularly for advice and help on various issues that they face.
Tax laws are different in Mexico than in other parts of the world, many foreigners find the tax system in Mexico frustrating and confusing. A good accountant can help you sort through what taxes have to be paid and when, giving advice and helpful reminders which can keep your business out of trouble in the long run.
Labor law, contract law and other aspects of the legal system in Mexico are very different from those we are accustomed to in our home countries. Mexico’s laws tend to be favorable towards the employee, the renter or the customer, although this tendency is progressive and humanistic, it can also be very frustrating for individuals trying to conduct business in Mexico. A good attorney will help new business owners by orienting them in the laws and customs of Mexican businesspeople, explaining the importance of good labor practices, rental contracts, etc.
Mexico can be paradise for the expat business-owner, but preparation and patience are keys for anyone thinking of taking this life path. If after reading and contemplating the ideas mentioned here, you still are interested in setting up shop “South-of-the-border”, Mexico will welcome you with open arms.