BlogDoing Business in Mexico

There are multiple benefits and opportunities present for U.S.-based companies considering global expansion into Mexico. Not only is Mexico geographically appealing, as it shares a long border with the U.S., but it also boasts a strong manufacturing and business environment, while also offering legal protection of intellectual property rights. However, language and cultural differences, as well as some complex rules and regulations, can make doing business in Mexico a more complicated endeavor than some companies may be prepared for.

This guide to global expansion outlines what your business can expect as they pursue business prospects in Mexico, we cover:

  • Reasons to do business in Mexico
  • Challenges of expanding to Mexico
  • FAQs about Mexico expansion

Thanks in large part to the United States-Mexico-Canada Agreement (USMCA) which is enforced by each country’s government to ensure fair trade, Mexico is the third largest trading partner of the U.S. and is second after Canada for U.S. tourism. In 2019, the World Economic Forum published their Global Competitive Report which assesses 140 economies. Mexico scored 64.95 points out of 100, which had risen from 2018, providing a high degree of confidence in the economy.

Top 4 Reasons to Expand to Mexico

1. Proximity

The fact that Mexico shares a border with the U.S. and has aligning time zones, enables companies doing business there to conduct operations during normal business hours. In contrast, businesses working with countries abroad often face extreme scheduling conflicts, resulting in late night calls and meetings. And should the need arise, U.S. managers can be on site easily within a few hours due to its proximity. In fact, border towns like El Paso, Texas see employees commute from their homes into Mexico on a daily basis.

2. Trade Considerations

Mexico has several import-export treaties with countries around the world, providing companies with a broad range of free trade agreements to take advantage of when exporting their products across the globe, not just to the U.S. or Canada.

Additionally, Mexico has nearly 120 million consumers, promising a burgeoning local market without the need to export. Furthermore, Mexican consumers are highly brand loyal and open to trading with international companies. Businesses that can form connections between their brand and the consumer will benefit from a long and fruitful relationship.

3. Multiple Manufacturing Proficiencies

Mexico is ideal for manufacturing interests. Its regions have been laid out with supporting infrastructure such as seaports, railways, and road systems to move needed materials and supplies, as well as moving finished goods to market. Vendors are already in place to provide raw materials, and technicians are easily sourced for any equipment repair that may be needed, making a new manufacturing set up a relatively easy undertaking.

Manufacturing industries in Mexico include everything from medical and biotechnology, to plastics, and packaging, to appliances and automotive, depending on the region’s manufacturing ecosystem. When doing business in Mexico, consider each region’s strengths in order to establish manufacturing within the perfect industry-specific environment.

4. Access to Talent

Mexico has a large, diverse labor force. However, the idea that labor costs are inexpensive here is  long outdated. In recent years, local and regional government programs have sponsored and incentivized specialized training programs, making it more common to find highly skilled employees. Along with increased college and trade programs, the Mexican government has established programs with companies around industry-specific needs. These programs offer hand-on experience to improve technical skills The focus on training and education has seen in a shift from basic manufacturing to more advanced, technical industries such as aerospace and medical device manufacturing.

Top 3 Challenges of Doing Business in Mexico

1. Tax Laws

Tax legislation in Mexico is not only complex but can vary based on industry. Companies doing business in Mexico are required by the Mexican Tax Authority to establish an electronic accounting system to trace all beneficiaries and transactions. This can result in an overwhelming administrative workload. Similarly laborious is the task of paying taxes in Mexico, as accounting and tax regulations have long required a certain level of in-person contact. While the pandemic has limited the need for certain in-person interactions, it has not eliminated them outright.

Each Mexican state has a payroll tax in place to collect taxes on wages and other expenditures resulting from employment. While it normally amounts to 2% to 3% of wages paid, it can vary from state to state.

2. Labor Laws

Mexican Labor Laws tend to protect the employee over the employer, which can make labor relations a complicated process. Add to that the high requirements for training and human resources, and many companies could face a major challenge when looking to establish business in Mexico.

Employees are entitled to numerous labor rights, like profit sharing and are protected from dismissal except in a few limited cases. Typically, wages are paid double that of minimum wage and overtime is limited. For employees who have worked throughout the year, they are entitled to a year-end bonus that’s typically equal to 15 days’ pay.

3. Security

How risky is doing business in Mexico? As in the U.S., it seems to be highly dependent on a company’s geographical location. In the American Chamber of Commerce’s Survey of Business Security in Mexico, businesses ranked their top five safety concerns as “safety for employees and family, information security, cargo transportation, the impact of crime, and the physical security of facilities.”

According to the survey, most companies did not suspend or relocate their industrial facilities in Mexico due to security reasons. However, roughly 38% of the surveyed companies reported an investment of 5% or more of their annual operating budget in security. This could be considered another cost of doing business in Mexico.

FAQs for Doing Business in Mexico

What are Mexico’s tax rates?

  • Corporate Tax Rate: The standard federal tax rate is 30%, with no state taxes on corporate net income.
  • Value Added Tax (VAT): The standard rate in Mexico is 16% and applies to most goods and services, as well as lease payments.

Do I need a legal entity?

In short, no. While there are several types of legal entities available for consideration, it may be in a company’s best interest to first determine if the potential rewards of establishment outweigh the risks. There are other options available to companies interested in doing business in Mexico that don’t require setting up a legal entity.

Companies like Global Upside, a Safeguard Global company, can help businesses expand into Mexico by providing talent acquisitionhuman resourcesaccountingpayrolltaxincorporation, and professional employer organization (PEO)/employer of record (EOR) services. These comprehensive offerings create an end-to-end solution that helps establish business and optimize operations, all while maintaining compliance with Mexican laws and regulations.

What are the data privacy requirements?

Personal data may only be processed with the consent of the subject. However, there are a few exceptions, like an emergency that could result in property damage or personal injury, or when it is required for healthcare treatment, prevention, or diagnosis. In these cases, the person carrying out the data processing is subject to professional secrecy.