For a variety of reasons, many companies are rearranging their supply chains, and many of those that target U.S. consumer markets are moving manufacturing to Mexico. We’ve written about “Omicron and Supply Chains: Buckle Up” here, and we wrote about manufacturing opportunity here in “President López Obrador Tells It Like It Is at North American Leaders’ Summit”. Other recent posts include: “China Manufacturing Alternatives and Near-Shoring: Mexico, Poland, and Turkey”, “Moving Manufacturing from China to Mexico or Poland Will Help the World” and “Manufacturing Outside China: Nike Likes It And You Should Too”.
As you may imagine, before they move their manufacturing halfway around the world, our clients (and prospective clients, who are trying to figure out what to do) have questions. Here are some of the most frequently asked:
1. We want to establish a limited liability company to move manufacturing to Mexico. What services can you provide?
In some jurisdictions (especially Hong Kong), when clients ask us to set up a limited liability company (or any type of company, really) they mean they want a fully operational entity that has a business license, a bank account, a VAT number or Tax ID and a corporate secretary. They want a company that has whatever qualifications, licenses or permits are required to operate in the client’s industry (e.g. registration in the General Importers Register). In other words, they want a turnkey solution.
In Mexico, ‘incorporation’ is understood as company formation in the strict legal sense, and for international businesses company formation services usually include the following:
- Drafting of Company by-laws
- Filing of Articles of Incorporation before a notary public
- Registration with the Public Commercial Registry
- Registration with the Mexican Tax Administration Service
- Acquisition of Tax ID and company electronic signature, as applicable
- Registration as an employer with the National Social Security (IMSS) and Workers’ Housing (INFONAVIT) agencies, as applicable
- Filing of notice of entity formation with the National Foreign Investment Registry
- Authorization of the entity with banking and/or financial regulators, as applicable
1. Do you provide shell companies to move manufacturing to Mexico? What can these companies do? Can you register a shell company and then transfer it to us?
By ‘shell company’, prospective clients usually refer to key-in-hand companies: already formed though not operational entities, whose ownership is then transferred to clients for a fee (again, e.g. in Hong Kong). In Mexico, however, formalities (notably, the legal requirement to form almost all types of companies before a notary public) and the difficulty in obtaining a Tax ID and an e-signature (particularly against a pandemic backdrop) make shell company formation costs prohibitive.
3. Does Mexican law allow foreign owners to register their companies in Mexico?
Of course it does! Any foreign citizen who can prove to a notary public his or her legal immigration status in Mexico (or directly to the Ministry of Economy, in the case of simplified corporations, or SAS) can set up a Mexican entity.
It is also possible – though not as common – to have a foreign company recognized under Mexican law by having its by-laws or Articles of Incorporation legalized, obtaining approval from the Mexican Ministry of Economy and registering the documents with the Public Commercial Registrar. To obtain recognition from the Ministry, the foreign company has to prove it was duly established in accordance with the laws of its home jurisdiction and that its by-laws/Articles of Incorporation do not violate Mexican laws. Proving this requires a Certificate of Formation of Foreign Entities (Certificado de Formación de Sociedades Extranjeras) issued by the Mexican embassy/consulate closest to where the foreign company has its corporate domicile, which in order to ensure that the company has not dissolved or merged will review its by-laws, Acts of Incorporation, Certificate of Good Standing and/or most recent Tax Return. The foreign company also needs to prove that it intends to undertake business in Mexico (this requirement can be met by setting up and demonstrating the existence of (e.g. by presenting a utility bill) a representative office, a branch or a subsidiary.
Once registered with the Public Commercial Registrar, the foreign company may act, enter into agreements with third parties, etc. in Mexico, and will just need to disclose their balance sheet, stamped by a certified public accountant, to the Ministry of Economy every year, and of course pay any taxes that result from operations.
4. Do we need our directors or owners to go to Mexico to register bank accounts if we don’t know locals in the area? Can we use your local acting director in Mexico to open a bank account?
In Mexico, there is no ‘renting out’ of local acting directors that represent companies for a fee. Any local director must be directly appointed by a) the Mexican entity or b) the foreign company recognized under Mexican law. In my experience, foreign companies usually send a representative fluent in English or Spanish to Mexico to oversee the representative office or company formation, act as legal representative for the newly formed entity, sign necessary documents, etc. Once appointed, a representative has authority to open a bank account in Mexico.
6. Do you offer company secretary services for entities moving manufacturing to Mexico? Do you keep accounting books or provide any accounting services?
Though we offer company secretary services, we do not offer accounting services. We recommend hiring a local accountant, who in any event will be needed for interaction with the Mexican tax agency (in Spanish known as Servicio de Administración Tributaria or SAT) and the Ministry of Labor.
That said, a corporate secretary will usually take care of the following tasks:
- Calling and recording meetings in accordance with law
- Drafting and maintaining corporate books
- Drafting and issuance of shares/share certificates;
- Legal review (i.e. not accounting or financial) of documents to be approved in the entity’s annual shareholders/members meeting)
- Drafting and filing of required notices before the National Registry of Foreign Investments and the Ministry of Labor, as applicable
- Drafting and issuance of powers of attorney
6. Can a company formed/domiciled abroad open a bank account in Mexico? What are the requirements?
No. Only Mexico-registered individuals and corporate entities can open bank accounts in Mexico. However, once a foreign company is recognized under Mexican law (i.e. once it is duly registered with the Public Commercial Registrar) it can perform any act in Mexico, including opening bank accounts (for which a foreign company must also obtain a Mexican Tax ID).
7. If the owners or board members of a company are foreign citizens, should they grant a power of attorney to a Mexican employee so that s/he can open a bank account in Mexico or can it be opened remotely?
Though a corporate bank account can be operated remotely, it must be opened in situ in Mexico by either be a Mexican citizen or a foreign citizen with a legal immigration status. Banks usually also require information of every owner, including name, address and nationality, even if they are non-residents of Mexico.
And for more answers to questions regarding moving manufacturing from China to Mexico, be sure to sign up for and attend our FREE webinar, set for February 8. I will be focusing on the Mexico side and Dan Harris will be focusing on what you should do in China to facilitate moving some or all of your manufacturing out. Go here to register.