Mexico: a sound legislation for business.

Mexico has acquired a significant place among the most powerful economies as a Foreign Direct Investment recipient, ranking within the top 10 countries who received the most investment in 2020. Thus, despite the pandemic crisis around the world, the Mexican economy has stayed strong by providing an extremely attractive climate for investors derived from factors such as its participation in the USMCA, important tax incentives, modern infrastructure, sophisticated manufacturing industry, qualified labour force, competitive wages, and many others, all backed up by a harmonised set of commercial rules that allow foreigners to enter the market as a final destination or to produce and export good to the neighbours up north.

The USMCA effect

Besides its solid domestic market, Mexico holds a broad network of International Trade Agreements with over 50 different countries, but its major step towards globalisation in history has been indisputably the signing of the NAFTA (North American Free Trade Agreement) in the early 90s with our neighbours USA and Canada, which turned the country into an open economy by reducing tariffs, eliminating several restrictions for foreign companies to set-up in the country and facilitating exports, providing outstanding effects towards the development of such economy. But in order to comply with modern economic trends, policies and regulations, United States, Canada and Mexico decided to renegotiate its terms and a new version of the NAFTA was issued two years ago under the name of USMCA, which has resulted in a total success. Just in these couple of years, the North American region trade exchange went from $166 billion in 2019, to $267 billion within the first quarter of 2022.

“The Mexican economy has stayed strong by providing an extremely attractive climate for investors .”

The implementation of the USMCA has also served as a great aid for Mexico during the pandemic. As the global supply chain got disrupted due to the shift in demand of many goods and services, international trade severely plunged, prioritising the need for shorter and more reliable shipping routes. Hence, nearshoring became one of the primary solutions, and Mexico’s proximity with the USA and Canada fitted in just great.

We cannot continue to emphasise enough the beneficial effects the USMCA has brought to the Mexican economy, and even though this treaty is occasionally subject of political debate, it’s true that these three economies are enthusiastic to continue trading under its rules as long as it keeps being profitable and beneficial to the North American population as a whole.

Entering the Mexican market

In order to comply and execute the terms established in the USMCA and other International Treaties, Mexican legislators have been given the task of amending domestic law to comply with them. Therefore, a several update in the federal commerce-related normativity has been done to relax the restrictive measures imposed to foreigners to participate in the Mexican market in several industries that where reserved to nationals or the government. Nowadays, foreigners who seek to invest this territory are able to possess the 100% of the capital of a Mexican corporation in most of the industries except some like local transportation, development banks, professional services and the ones reserved to the government such as oil and gas and some others. Moreover, additional incentives have been made available to attract investment, being the IMMEX program perhaps the most demanded one, allowing manufacturing companies to temporary import certain goods and export them without having to pay for the VAT.

“Personal interaction and close relationship to interested parties is encouraged while doing business in Mexico.”

And even though the foreigner can set up and operate a Mexican company or subsidiary from abroad by merely appointing one or more legal representatives, one must be aware that its legal incorporation can take several months due to the bureaucratic process involved and authorities’ deep scrutiny in the incorporation documents, shareholders’ information and other information. In that sense, good legal advice is fundamental to increase the chances of a quick start in company operations, as any minor mistake could lead to a serious delay.

There are some routes to take in order to start doing business. The investor will have to decide between setting up a new company or acquiring an existing one to function as a subsidiary, by registering a foreign branch before the Ministry of Commerce, or by simply distributing their product by celebrating contracts with local companies solely with a registered trademark; hence, a legal counselor must be able to assess the investor according to their specific needs to determine the most favourable approach. Personal interaction and close relationship to interested parties is encouraged while doing business in Mexico.

Other aspects to consider

In addition to the foregoing, there are certain other key elements to consider before the set-up of the company, not only to maximise the advantages of investing in Mexico, but also to avoid risk and unnecessary liabilities. Examples of this can be choosing the right location for the company according to their industry, an adequate application of the labour laws when hiring your employees, intellectual property matters, a simple but challenging tax system and many others.

At Colter Carswell & Associates, we are able to share our expertise with each of our clients and serve as a trusted partner in a foreign territory. Our range of services cover and advise on most of the legal scenarios a company could face during their commercial ventures in Mexico. Feel free to contact us anytime.