5 steps to incorporating a business in Mexico
Mexico is an attractive destination for investors, but incorporating a business in the country can be challenging and requires a deep understanding of local regulations and policies.
In our Global Business Complexity Index (GBCI) 2024, Mexico ranked as the 4th most complex jurisdiction to do business, mirroring its position in GBCI 2022 and 2023. The country’s intricate rules and regulations are major drivers of this complexity, for example, setting up a bank account and obtaining a work visa can be time-consuming and cumbersome.
Recent changes to Mexican tax law now require all Mexican entities to share relevant information regarding controlling beneficiaries with the public notary before incorporation. A controlling beneficiary is defined as anyone who benefits from participating in the entity’s structure and/or has any kind of decision-making power.
5 steps to setting up a business a Mexico
Follow these steps to ensure a seamless incorporation process in Mexico:
1. Choose the entity type
The first step to incorporating a business in Mexico is to decide if the business will be an entity, a branch or a representation office. The nature of the business will guide the decision-making process. It is also important to decide whether you’ll have a representative on the ground to oversee the incorporation process, or if an expert in Mexico will be appointed to assist.
2. Select an entity name
Once you’ve chosen the entity type, you’ll need to select a name. It’s advisable to select three to five options before requesting entity names from the Ministry of Economy. It may take between three business days and a week for the proposed entity name to be approved or rejected.
In Mexico, the corporate name of an entity does not relate to trademarks, which need to be managed separately.
It’s also important to note that Mexican governmental authorities are not linked and registrations with different government bodies are treated separately.
3. Ensure good governance
If the Mexican entity has foreign shareholders, multiple documents will be required to support the incorporation process. Some of these documents need to be notarised and apostilled, or legalised (depending on if the country has entered into The Hague Convention), in order to be accepted in Mexico.
Unlike other countries, where a public notary is a witness and also signs documents, in Mexico a public notary is an experienced lawyer appointed exclusively by the Governor of State. Their role is to sign and authenticate documents and provide legal advice if necessary.
If a representative in Mexico assists with incorporation and acts on behalf of foreign shareholders, a Power of Attorney (PoA) needs to be signed by the shareholders or their representative(s), and will also have to be notarised and apostilled in order to be effective in Mexico.
While all incorporation documentation is being formalised, company bylaws must be drafted, as all corporate entities in Mexico must have these. The articles of incorporation will be added according to the bylaw specifications (and included in the same public deed). It is mandatory that the bylaws of any company be notarised. Once the documents have been signed and submitted to the public notary, the legal process of incorporation is complete. The timeline for this step may vary depending on when the signed, notarised and apostilled original documents are received by the Mexican public notary. Once the public notary has received all required documentation, signing off on the incorporation should take less than 10 business days.
All hard copy entity documentation must be sent to the Mexican public notary with “wet ink” signatures. Digital signatures are not permitted by the Mexican authorities.
It’s worth bearing in mind that an apostille or legalisation could take an additional two to three weeks, depending on the other countries involved.
The steps described here must be done in person, not virtually or online. The Mexican public notary also oversees the registration of the company before the Public Registry of Commerce in the city where the company will have its social domicile. This process used to take a month but can now be done in a day.
4. Get a tax ID number
Your newly incorporated company must have a tax ID number to conduct business in Mexico. A tax ID can only be requested by a Mexican resident or citizen, which means that a PoA must be granted to the individual requesting the tax ID number.
Mandatory registrations, including registering before the National Foreign Investments Registry and Social Security Mexican Institute, applying for a bank account or issuing invoices, won’t be possible without a tax ID number.
The individual acting on behalf of the entity must appear in person before the tax authority with the articles of incorporation to request the tax ID. This step can also be fulfilled by the public notary; however, the representative must go to the public notary’s office to sign the tax ID request. It is important to be aware that not all public notaries in Mexico provide this service; appointments have been limited recently due to pandemic-related regulations, resulting in significant wait times. Some interactions can take over two months.
To obtain a tax ID, the business must have a physical office in Mexico with an authorised proof of domicile. This physical location will be registered before the Mexican authorities and be used to verify the company’s legal existence and receive memoranda or notifications from the Mexican authorities. This is one of the most challenging aspects of the incorporation process, given that there are very few documents that the tax authority and other governmental authorities will accept. The tax ID process is also an in-person procedure and cannot be done virtually or online.
5. Open a bank account
Newly incorporated companies must have a Mexican bank account since taxes can only be paid by certain Mexican banks. Non-Mexican banks do not have the platforms used by the Mexican tax authorities to receive tax payments. This process can only take place once the business has received its tax ID and can take between six weeks and three months.
The first step to opening a bank account is embarking on the Know Your Customer (KYC) process required by banking institutions, in accordance with their own internal policies. This step takes up more than half of the abovementioned time frame or, in some cases, up to a month to complete.
Banking institutions in Mexico cannot start the process of opening a bank account without a tax ID being provided and digital signatures won’t be accepted. For this reason, this process should be done in person, at a branch of the relevant banking institution.
Talk to us
Our experts on the ground offer services across the three core business lines of accounting and tax, global entity management, and human resources and payroll. In addition to assisting with incorporation procedures, we help you streamline your operations and stay compliant.
To learn more about how we can help you set up a company in Mexico, make an enquiry today.
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