Enrique Pastor
Tax and Business Process Partner, Kreston FLS, Mexico
Graduated in Public Accounting at La Salle University and is in the process of graduating as a lawyer from the National Autonomous University of Mexico. He is currently the Managing Partner and in charge of the Tax and Consulting Area of the Kreston FLS SC Firm in Mexico City.
Setting up a business in Mexico
March 13, 2024
Setting up a business in Mexico has been a strategy of global businesses in the region, looking for ways to sidestep geopolitical challenges creating pinch points in supply chains. This presents an opportunity in some regions, businesses pull operations geographically closer to avoid costly delays and unpredictable prices.
Mexico is a benefactor of the US moving away from manufacturing in Asia, with US firms setting up operations closer to home Mexico, capitalising on lower labour costs, geographical proximity and free trade agreements. Enrique Pastor, Tax and Business Processes Partner at Kreston FLS in Mexico City shares his experience in setting up businesses in Mexico for the last two decades.
Whether you want to take advantage of nearshoring benefits or have your own expansion plan, before establishing a company in Mexico, it is important to consider several factors.
Market analysis
Conduct a detailed analysis of the Mexican or North American market if you are an exporting company to understand consumer preferences, competition, and business opportunities.
Legal and regulatory aspects of setting up a business in Mexico
The legal and regulatory requirements for operating companies in Mexico, including obtaining permits, licenses, and compliance with labour and environmental regulations, must be considered. There are various legal entities to establish a company in Mexico. The most suitable depends on various criteria, so proper advice is essential to define the most appropriate. Regulatory issues are a speciality in professional consulting; do not embark on a venture without being sure of the regulatory requirements, which can vary even by city.
Human resources
Have a plan for recruiting, training, and retaining human talent in Mexico, considering cultural and labour differences. Issues such as social security costs, union relations, and other matters must be analysed to define operational strategies in the country
Political and economic risks
Evaluate the political and economic risks in Mexico, including the recent strength of the Mexican Peso exchange rate.
Proximity and delivery times from suppliers
Although the country has good communications, its size can affect the timing and quality of supplies. Consider this before deciding where to establish the company. Trade agreements Mexico may have the highest number of treaties to avoid double taxation and treaties to boost trade, so consider that besides the North American market, there is a whole world that could buy from you.
Geography
Consider establishing in the Isthmus of Tehuantepec area, where a project connecting the Pacific
and Atlantic Oceans by rail, complementing the Panama Canal, offering shorter crossing times and competitive costs and will offer significant real estate and industrial development opportunities. This could be beneficial if your market is not exclusively North America.
Fiscal incentives
Mexico offers a variety of fiscal incentives to promote investment and economic development in various parts of the country, including development zones, border incentives, and programs like IMMEX and the Inter-Oceanic Train of the Isthmus. These range from one-third discounts on the Income Tax rate and 50% off the Value Added Tax to immediate deductions for investments in specific industrial areas or sectors.
Incentives for Foreign Direct Investment
To promote foreign investment interest in Nearshoring, the federal government enacted in October 2023 a Fiscal Incentives Decree for the 20 export production sectors listed below.
The benefits, which are the accelerated deduction of investments for companies, vary from 56% to 89%
in 2023 and 2024. An additional deduction of 25% for three years for worker training expenses, focusing on human capital development, is allowed in the Income Tax. The incentives are available in all states and municipalities of the country, extending the opportunity window by one year for interested companies
The sectors benefiting from these incentives include fertilisers, agrochemicals, food products, pharmaceuticals, electronic components, medical equipment, batteries, electrical cables, automotive engines and parts, electrical and electronic equipment, and non-electronic medical devices, among others.
A fiscal incentive is also offered for the production of copyrighted cinematographic or audiovisual works intended for export. Mexico is an attractive destination for nearshoring and the domestic market due to its strategic location, competitive costs, access to the US market, and fiscal and regulatory incentives. However, it’s crucial to consider the mentioned factors thoroughly to ensure a successful establishment in Mexico.
If you are looking for advice on establishing a business in Mexico, please get in touch.
