Mexico Subsidiary Entity Set Up

Mexican Entity Set Up

Establishing a subsidiary overseas is a potentially expensive and time-consuming venture without any guarantee of success. Mexico is no exception. Incoming companies would typically choose to set up a Limited Liability Company (Sociedad de Responsabilidad Limitada, SRL).

After the initial step of registering a unique company name with the Ministry of Foreign Affairs there follows a raft of registration procedures for onboarding and putting staff on the payroll. Procedures may also vary between Mexico’s 31 regional states.

Expanding overseas is a major step. If the move fails companies face the extra expenditure and stress of closing the company, selling property, and paying off employees. It is easy to stumble while trying to fulfil two objectives – advancing your company at home while moving into a new territory, maybe thousands of miles overseas.

Once the subsidiary is legally established, other crucial factors must be dealt with. Tax processing, filing accounts, legal compliance, workforce management, payroll and recruitment add up to a hefty workload.

How to set up a Mexican Subsidiary

Most legal entities in Mexico are incorporated under the General Law of Commercial Companies (Ley General de Sociedades Mercantiles, LGSM).

The subsidiary must register the authorized company name with the Ministry of Foreign Affairs (Secretara de Rellaciones Exteriores) and obtain the tax ID number (Registro Federal de Contribuyentes, RFC) after signing deeds of incorporation with a notary. The deed must then be registered with the Public Commerce Register (Registro Publico de Comercio).

Once obtained, the tax ID number must be registered with the Ministry of Finance and Credit (Secretaria de Hacienda y Credito Publico). The next step is to register with the Mexican Social Security Institute (Instituto Mexicano del Segura Social) andthe relevant local tax administration for payroll (Secretaria de Finanzas del Gobierno de Distrito Federal).

Finally, register with the Sistema de Informacion Empresarial Mexicano (SIEM), which keeps a register of all Mexican businesses.

Once ‘up and running’, other procedures include:

• Remitting withheld taxes to the Tax Administration Service (SAT). Thresholds and rates may vary between states
• Remitting required deductions to the Mexican Social Security Institute
• Filing returns for the tax year, which runs from January 1 to December 31, although for foreign employees their tax year can start from their day of arrival
• Creating employment contracts
• Creating pay slips and calculating monthly salary and income tax contributions to be remitted

Benefits of setting up a Subsidiary in Mexico

A subsidiary incorporated in Mexico, typically as a Limited Liability Company (Sociedad de Responsabilidad Limitada, SRL), is a separate legal entity. The foreign parent company has no responsibility for its debts or liabilities beyond their own share capital invested in the subsidiary.

The subsidiary can follow its business opportunities independently of the parent company, which has the advantage of exploring the potential of the Mexican market without committing to major capital investment. There is also the opportunity to move further afield into the north and south American markets.

Further benefits of taking this route include:

• The subsidiary is an independent legal entity to the parent company
• The subsidiary has the flexibility to operate under its own business name and pursue independent business activities once it has obtained any necessary licenses
• The subsidiary will boost the international profile of the parent company
• The subsidiary has the same legal standing as local companies and can be eligible for government tax incentives and benefits
• The parent company is not liable for the obligations and debts of the subsidiary