Market Entry – Mexico?
America’s southern neighbour is a great place to start a business. If you are looking for a place to grow, starting a business in Mexico is an ideal location. Mexico has more free trade agreements than any other nation in the world. In recent years, new amendments to the Mexican foreign investment law have simplified procedures and made it easier to invest in Mexico. These amendments have not only made the administrative process easier but it has helped promote foreign investment and give a sense of security to foreign investors.
But before you go rushing in and starting a business in Mexico, here are a few things you need to know:
Ask around. As much as the single information source you are asking might seem legitimate, it’s best you get a second opinion. Procedures and processes can vary and not everyone is aware of the latest requirements.
Get well acquainted with your accountant. As a foreigner doing business in Mexico, you will have plenty of paperwork and administrative procedures to follow, especially as regulations change from year-to-year. It is important you find a trustworthy accountant to help you along the way.
Patience is a virtue. Like in most South American countries, time is relative and two days might turn into a week, a week into a month, and so on and so forth. It’s important to be patient and follow up closely with the people you have set deadlines with.
Play by the rules. Regulations change frequently. Although nationals may get away with certain things, as a foreigner, it’s advisable to play by the book. This reinforces the idea of having a good accountant who can assist you with the tricky legal landscape of starting and running a business in Mexico.
Establish good relationships. A good business is built on solid relationships. To do this, it is important you establish trust and get to know your vendors and clients well. Take the time to go out to lunch, share personal information, and accept invitations to social gatherings. Mexicans do business with their friends and people they trust.
Legal Landscape for Foreign Investment?
Mexico, the prosperous southern neighbour of the United States, is considered one of the most attractive destinations for foreign investment thanks to its strategic location. Recent legislative reforms, as well as modifications made to the Law of Foreign Investment, now allow both locals and foreigners to participate in activities that were previously restricted.
But despite the niche opportunities that have been brought upon by these legislative changes, what should you keep in mind if you want to start a company in Mexico as a foreign investor?
The first and most important step is to identify and define the social objective of the company. This means defining the activities for which you will be responsible, beyond marketing goods or services.
Despite sectors opening up to international investment in accordance with The Foreign Investment Law, there are still limits and restrictions regarding certain economic activities. Within the restricted activities, there are a few in which only the State can participate. This includes activities in the national electric system, radioactive minerals, nuclear power generation and ticketing. There are also activities reserved for Mexicans only, including development banking institutions as well as providing professional and technical (public notaries, brokers, customs brokers) services.
Lastly, there are also activities in which foreign investment cannot exceed a certain percentage. The National Commission of Foreign Investment (FIC) allows up to 10% of foreign investment in production cooperatives; up to 25% in domestic air transport and other specialized air transport; up to 49% in broadcasting, national newspapers, manufacturing and marketing of explosives and firearms as well as freshwater fishing, to name a few.
Activities that allow foreign investment exceeding 49% include: concessionnaires or companies that provide aerodromes services to the public; legal services; private services for preschool, primary, secondary, high school and higher education; shipping companies and provision of public rail transport services.
If your company falls within one of the activities mentioned above, you must file a CNIE application that will authorize you to invest up to 100% of the share capital. The application should have a general description of the project, share capital budget, projected growth for the coming years, as well as a detailed summary explaining the type of employee training provided. Should the CNIE deem necessary, additional information can be requested. Upon receiving the request, you have a maximum of 15 labor days to respond before your application is closed.
If your application is in order and was well received, the Mexican government will issue their decision within 40 working days.