Doing Business in Mexico

Transcription

1 Doing Business in Mexico

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3 Contents 1 Fact Sheet 2 2 Business Entities and Accounting Companies Partnerships Sole Proprietorship Trusts Branches Contractual Joint Venture Audit and Accounting Requirements Filing Requirements 7 3 Finance and Investment Exchange Control Banking and Sources of Finance Investment Incentives and Restrictions 9 4 Employment Regulations General Employment Matters Visas Trade Unions 11 5 Taxation Corporate Income Taxes Personal Taxes Employment Related Costs and Taxes Withholding Taxes on Payments Abroad Value Added Tax (VAT) Other Taxes Tax Incentives for Businesses 16

4 2 1 Fact Sheet Facts and figures as presented in sections 1 through 4 are correct as at 10 July Geography Location: Area: Land boundaries: Coastline: Climate: Terrain: Time zone: North America, bordering the Caribbean Sea and the Gulf of Mexico, between Belize and the US, and bordering the North Pacific Ocean, between Guatemala and the US 1,964,375km² Belize, Guatemala and the US 9,330km Varies from tropical to desert High, rugged mountains; low coastal plains; high plateaus and desert GMT-6 in central and eastern Mexico, GMT-7 in west mountain area and GMT-8 Baja California State People Population: 123,278,559 (2013) Religion: Language: Roman Catholic 82.7%, Pentecostal 1.6%, Jehovah s Witnesses 1.4%, other Evangelical Churches 5%, other 1.9%, none 4.7%, unspecified 2.7% (2010 estimate) Spanish is the main language, although various Mayan, Nahuatl and other regional indigenous languages are spoken Government Country name: Government type: Administrative divisions: United Mexican States (Mexico) Federal Republic 31 states and one federal district

5 Doing Business in Mexico 3 Political situation Mexico is a federal republic with three branches: executive, legislative and judicial. Its legal system is derived from a mixture of US constitutional law and civil law. Executive branch the President is both the Chief of State and the Head of Government. Legislative branch the bicameral National Congress consists of the Senate (128 seats) serving six-year terms and the Federal Chamber of Deputies (500 seats) serving three-year terms. Judicial branch Supreme Court of Justice; judges are appointed by the President with the consent of the Senate. Economy GDP per capita: US$15,600 (2013) GDP real growth rate: 1.1% (2013) Labour force: million (2013) Unemployment: Currency (code): 4.9% (2013 estimate) Mexican peso (MXN)

6 4 2 Business Entities and Accounting 2.1 Companies Stock corporations are generally the most common vehicles for foreign and national investments in Mexico. The most common form is the anonymous society (sociedad anónima S.A.). An S.A. is a separate legal entity. It must have at least two shareholders and has a minimum amount of fixed capital as agreed by the shareholders. An S.A. must also have a publicly executed corporate charter and by-laws. Capital contributions may be paid in cash or in-kind. For those paid in cash, at least 20% must be paid-up on incorporation. Changes to the amount of authorised capital are treated as amendments to the S.A. s corporate charter. Shares generally have a stated value. All shares must be registered shares. Some shares may have limited voting rights. The shareholders in an S.A. are only liable for the debts and obligations of the S.A. to the extent of their share of capital. If foreign shareholders are permitted, the foreign shareholders are required to consider themselves as Mexican nationals with regard to their shares or equity ownership interest and they must agree not to invoke the protection of their governments with regard to matters involving their ownership. The charter and by-laws of an S.A. are registered in the Public Registry of Commerce. Approval from the Ministry of Economy (Secretaría de Economía) is required to use a specific name. An S.A. may have a board of directors or a sole administrator (who may be shareholders). Annual general meetings of shareholders are required to approve financial statements, decide on the distribution of profits, and to elect directors and a statutory auditor. S.A.s must maintain bound books of minutes of shareholder meetings. S.A.s are taxed at the corporate level and are subject to corporate income tax. An S.A. de C.V. is a type of S.A. that is permitted to have variable capital, and is often used as a vehicle for foreign investment. An S.A. de C.V. has a minimum amount of fixed capital as agreed by the shareholders and may have unlimited additional variable capital. Changes to the amount of variable capital are generally governed by an S.A.de C.V. s corporate charter, except that an S.A. de C.V. that increases its capital stock must offer the new capital stock to its existing shareholders, in proportion to their existing share ownership, before offering the new capital stock to outsiders.

7 Doing Business in Mexico 5 Another investment vehicle common with foreign investors is the sociedad de responsabilidad limitada (S. de R.L.). The S. de R.L. is similar to a US limited liability company in that the shareholder s responsibility is limited to their investment. The S. de R.L must have at least two partners, but may have no more than 50 partners (individuals or entities). The name of the S. de R.L. must be immediately followed by the words sociedad de responsabilidad limitada or the abbreviation S. de R.L. The minimum amount of capital required is set by the partners and 50% of that amount must be paid-up at the outset. An S. de R.L. may have a sole manager or a board of managers that may be partners in the S. de R.L. Annual general meetings are required to discuss the company s financial statements, amongst other things. For tax purposes, the S. de R.L. is taxed at the corporate level and is subject to corporate income tax. However, these types of entities are widely used by foreign investors as they are considered as transparent under a tax perspective of many foreign jurisdictions. In recent years, a new form of corporation has been used. The Sociedad Anonima Promotora de Inversion (SAPI), which is a limited liability stock corporation, is based on the legal principle that parties in a commercial transaction should be free to bargain what they believe is necessary to carry out a given business activity. These corporations are governed under the Ley Mexicana de Valores (Mexican Securities Law) and not under the Ley General de Sociedades Mercantiles (Corporations Law) that regulates the S.A.s and S. de R.L.s types of corporations. The shareholders of SAPIs may execute shareholders agreements, and may freely negotiate investment and governance arrangements otherwise prohibited or limited under the Corporations Law. Although SAPIs are established in the securities law, they are not subject to the regulation or supervision of the Comisión Nacional Bancaria y de Valores (Mexican Banking and Securities Commission). Such arrangements could be issuing different classes of shares, limiting voting rights, establishing pre-emptive rights, establishing dispute resolution mechanisms, having stronger minority rights bylaws, among others. 2.2 Partnerships In addition to providing for the companies discussed above, the General Law of Mercantile Companies also provides for partnerships. Partnerships require at least two members. The collective name society (sociedad en nombre colectivo S. en N.C.) is similar to a partnership where partners have unlimited liability for the partnership s obligations. The sociedad en comandita simple and the sociedad en comandita por acciones (S. en C.S. and S. en C.A.) are similar to a limited liability partnership. These types of entities are not commonly used.

8 6 Professional practitioners generally organise as civil partnerships (sociedad civil S.C.), which are similar to an S. de R.L. The managing partners have unlimited liability; the liability of other partners is limited to their contributions. Generally, S.C.s are taxed in the same manner as corporations, although some may be classified as non-taxable entities. 2.3 Sole Proprietorship Many small businesses in Mexico are owned and operated by sole proprietors who use their own name for business and tax purposes. The sole proprietor has unlimited liability for the debts and obligations of the sole proprietorship. A foreign individual may engage in business in Mexico as a sole proprietorship if the individual is a permanent resident of Mexico. 2.4 Trusts Trusts are governed by the Law of Credit Institutions (Ley de Instituciones de Crédito) and the Law of Credit Instruments and Operations (Ley General de Títulos y Instituciones de Crédito). Trusts are not separate legal entities. A trustee must be a bank or certain other financial institution. A trustee is in charge of managing the assets and rights granted under a trust and may not be a beneficiary. When business activities are undertaken through a trust, the trustee determines the tax profit or loss of those activities and fulfills the obligations under the Income Tax Law (ISR) on behalf of all beneficiaries, including making estimated payments. The beneficiaries include their corresponding share of the trust s tax profit in with their other income for the tax year, as stipulated in the trust agreement, and credit in proportion the amount of estimated payments made by the trustee. 2.5 Branches A foreign company can be registered to operate in Mexico through a branch office. In general, authorisation must be obtained from the Ministry of the Economy (Secretaría de Economía) for the registration of the branch. Under the Foreign Investment Law (Ley de Inversión Extranjera), foreign branches habitually carrying out acts of commerce in Mexico must have a representative domiciled in the place of operation who is authorised to respond to the obligations of the business. A branch is not a separate legal entity. The foreign company is responsible for the liabilities of the branch.

9 Doing Business in Mexico Contractual Joint Venture An A. en P. (Asociación en Participación) is a contractual joint venture in which one person grants a right of participation in the profits and losses of a business venture to one or more other persons in exchange for services or property. A joint venture has no separate legal identity. A joint venture is treated as an entity for tax purposes when it carries out business activities in Mexico. 2.7 Audit and Accounting Requirements All businesses must maintain proper books of account for taxation purposes and retain the accounting records and associated documents for generally not less than five years. Companies are required to prepare their financial statements and maintain their books of accounting in Spanish. Financial statements are prepared using Mexican Financial Reporting Standards. Companies listed on the Mexican Stock Exchange must prepare their financial statements using International Financial Reporting Standards (IFRS). Special rules are applied in the case of reporting for tax authorities, including the use of digital reports as well as the use of an authorised chart of accounts. Starting January 2015, it is expected that all taxpayers must be able to provide information on the operations carried out, through the tax authority web page. Mercantile societies are required to have a special report by the statutory examiner who is engaged for the purpose of taking care that the operations carried out by the administrators of the societies are well done under the shareholders assembly instructions. 2.8 Filing Requirements Generally, individuals with business activities and entities with revenues over MXN100,000,000, net assets over MXN79,000,000, or over 300 employees for each month of the tax year (based on the previous year) may choose to have their financial statements audited through an authorised public accountant and file an audit report (dictamen fiscal). Taxpayers that choose to have their financial statements audited must submit them to the tax authority by no later than 15 July.

10 8 3 Finance and Investment 3.1 Exchange Control There are no exchange controls in Mexico. Foreign currencies may be bought and sold freely and there are no restrictions on the maintenance of foreign currency bank accounts in Mexico. Nevertheless bank offices could ask for information when operations are carried out in excess of the average of the operations reported by the owner of the bank account. There are no limitations on the repatriation of profits from Mexico. The Federal Law for the Prevention and Identification of Operations with Illicit Resources (Ley Federal Para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita) is designed to target transactions involving illegal funds. Activities designated by the law as vulnerable may trigger identity verification and reporting requirements by financial entities. Violators of the law may be subject to fines and criminal penalties. 3.2 Banking and Sources of Finance Banco de México is Mexico s central bank. It operates autonomously and is responsible for setting base interest rates. In addition to Banco de México, Mexico also has both foreign and domestic banks. Banks offer short, medium or long-term loans. Repayment terms are negotiable; the rate of interest may be fixed or variable. The Mexican Stock Exchange (Bolsa Mexicana de Valores, S.A. de C.V. - BMV) provides a market for shares and other securities issued by public companies. To become and remain listed, a company must satisfy and abide by the rules established by the exchange and must be approved by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores CNBV). For businesses that are not large enough to consider stock exchange entry but which require finance, venture capital companies can provide equity for start-ups and development in high growth areas.

11 Doing Business in Mexico Investment Incentives and Restrictions Foreign investment is allowed in all sectors, except in those that have been specifically reserved for the Mexican government or for Mexican nationals and companies. For specific tax incentives, see 5.7.

12 10 4 Employment Regulations For employment tax considerations, see General Employment Matters National employment standards Generally, employment contracts should be in writing unless a collective contract applies. As a minimum, the contract must state: Name, nationality, age, sex, civil state and domicile of the employee and the employer Whether the employment relationship is for a specific project or time, or for an indefinite period The service or services which must be provided The place or places where the work must be furnished The duration of the work day The form and amount of wages The day and place for the payment of wages A statement that the worker will be trained and educated in accordance with the plans and programmes as are established in the business, in accordance with legislation, and Other employment conditions, such as days of rest, vacations and others that are agreed to by the employee and the employer. An employer or employee may terminate the employment contract for just cause at any time. In general, if the employer terminates the contract without just cause, and without following the statutory disciplinary procedures, the employee may make a claim for unfair dismissal. This claim may result in the payment of compensation as determined by law. Minimum daily wages are established by the National Commission on Minimum Wages (Comisión Nacional de los Salarios Mínimos). The wages vary for two separate regions of the country.

13 Doing Business in Mexico Pensions and other benefits Employers and employees are required to make the monthly contributions to the social security system (see ). In general, if employees are absent from work for more than three days because of a non-professional illness or maternity, the Social Security Institute will pay 60% to 100% of their regular salary during their absence. A guaranteed minimum salary is payable in case of a permanent disability, and benefits are provided to beneficiaries in case of death. Pensions are normally payable from age 65 if the person has paid social security premiums for the required minimum of 1,250 weeks. Reduced rates of pension may be taken at age 60 for early retirement. 4.2 Visas In general, most foreigners are not required to obtain a visa in order to visit Mexico for periods up to 180 days. However, there is a list of countries whose residents do need a visa to enter Mexican territory. For longer periods, the temporary resident visa (visa de residente temporal) will allow foreigners to live in Mexico for more than 180 days and not longer than four years. It can provide work permissions and allows unlimited entries and exits from Mexico. 4.3 Trade Unions Legislation provides for the right to collective bargaining and the right to strike. There are both national labour unions and single-company unions. It is not compulsory for employees to be members of a union.

14 12 5 Taxation Facts and figures as presented in section 5 are correct as at 18 April Corporate Income Taxes Resident companies are taxed on their worldwide income. A company is resident in Mexico if its principal administration or place of effective management is in Mexico. Other companies are taxed on their income from sources in Mexico, subject to the terms of any relevant double tax treaty. The corporate income tax rate is 30%. Capital gains are generally taxed at the same rate as other profits. Capital gains derived by Mexican tax resident individuals and non-residents from the transfer of publicly traded stock (through the Mexican stock exchange or through another publicly recognised stock exchange) are generally subject to a 10% withholding tax. Losses may be carried forward for relief against future profits for up to 10 years (certain limitations may apply in cases of merger). There is no provision for losses to be relieved against the profits of earlier years and sale of shares. Losses may be adjusted for inflation by a specific formula set forth in the income tax law. There is an optional taxation regime for corporate groups. Corporate groups (made up of the integrator and integrated companies (as defined)) are permitted to file consolidated tax returns provided that the residency requirement is met, stock ownership requirements are met and a proper election is made. The optional regime allows a three-year income tax deferral period, payable by each of the entities integrating the group, provided the companies meet certain requirements. The tax year in Mexico is generally the calendar year. Corporate taxpayers are generally required to make provisional tax payments on the 17th day of each month immediately following the month in which the payment corresponds. Provisional payments are not required for the first year of operations. An annual income tax return for each calendar year must generally be filed no later than 31 March of the following year, and any balance of tax due must be paid at that time.

15 Doing Business in Mexico Personal Taxes Resident individuals are subject to income tax on their worldwide income. Non-resident individuals are subject to income tax on their income from sources in Mexico, subject to the terms of any relevant double tax treaty. Residents are taxed at progressive rates up to 35% on taxable income (that has been reduced by any applicable deductions and credits) according to the following table: Taxable Income Lower Limit (MXN) Taxable Income Upper Limit (MXN) Fixed Amount (MXN) Percentage to be Applied Over Excess , , , , , , , , , , , , , , , , , , , , , , ,000, , ,000, ,000, , ,000, And above 940, Non-residents are taxed on compensation at a rate that varies from 15% to 30%. The first MXN125,900 of employment income received in a 12-month period is tax exempt. Capital gains are taxed at the same rate as income. There is an exception for publicly traded shares, including financial derivatives, which are taxed at a 10% rate. Generally, the tax year is a calendar year. Individuals who derive income in a calendar year must file tax returns (subject to exceptions, such as an exception for exempt income) and typically make estimated tax payments monthly. The final tax is due on 30 April. There are no inheritance, gift or wealth taxes in Mexico.

16 Employment Related Costs and Taxes Fringe benefits Fringe benefits (called social welfare expenses) are expenditures made with the purpose of satisfying present or future contingencies or needs and to grant benefits to workers for the purpose of their physical, social, economic or cultural development, enabling the improvement of their quality of life. Fringe benefits include items such as savings funds, life and medical insurance and pensions. To be deductible by the employer, the benefit must be available to all of the employer s employees (there are special rules for unionised workers). Social welfare benefits are generally exempt from the income of the employee. The deduction for non-taxable wages and certain non-taxable benefits provided to employees is limited to 53% of the cost of such non-taxable wages and benefits. However, if the number of different types of non-taxable benefits of the previous tax year is reduced in the following tax year, then the deduction is limited to 47% instead of 53% Social security costs Employers and employees are required to make monthly contributions to the social security system. The contributions are calculated on the basis of the employee s earnings, subject to a maximum base of 25 times the general minimum salary. Social security contributions paid by employers are deductible Compulsory profit sharing Every business with employees is generally required to distribute a portion of its annual profits among its employees (excluding directors and managers). The amount distributable to employees is 10% of adjusted taxable income. Generally, the amount distributed is fully deductible, provided certain requirements are met. A company in its first year of operations is not required to share its profits with its employees, and special rules may apply to certain companies Payroll taxes State governments impose payroll taxes at varying rates, generally between 2% and 3% of gross salaries.

17 Doing Business in Mexico Withholding Taxes on Payments Abroad There is a 10% withholding tax on dividends distributed to foreign residents (including foreign corporations). Interest payments are generally subject to withholding tax rates of 4.9%, 10%, 15%, 21% or 35% depending on the circumstances and subject to exemptions. Residents of tax havens are generally subject to a 40% withholding rate, especially when operations between related parties are carried out. The withholding tax rate for royalties ranges from 5% to 35%. Residents of tax havens are subject to a 40% withholding tax rate, especially when operations between related parties are carried out. These rates may be reduced for payments made to recipients in countries with which Mexico has a double tax treaty. 5.5 Value Added Tax (VAT) VAT is levied on the sale of goods, leasing and the provision of services as well as imports. The general VAT rate is 16%. A 0% rate also applies to food, medicine and certain other items, subject to exceptions. There are also VAT exempt transactions, which include, but are not limited to, the sale of land, books, used personal property, partnership interests, credit instruments, residential construction, medical services and educational services, provided specific requirements are satisfied. There is no VAT registration threshold. In computing the VAT liability, input VAT may generally be credited against output VAT. Foreign residents visiting Mexico could get back VAT paid during their stays in Mexico under certain rules. Exports of goods are taxed at a 0% tax rate. Certain services rendered to abroad and listed by the VAT law are taxed at 0%, but certain requirements must be complied with. Imports of goods into Mexican territory could be subject to a 0% tax rate when such goods are involved in the export of finished goods to abroad. Certain requirements must apply.

18 Other Taxes Excise taxes There is an excise tax on items such as alcoholic beverages, tobacco, junk food, soft drinks, fuels and pesticides Real estate tax State governments impose a real estate tax on the ownership of real property at varying rates, based on the assessed value of the property. Certain types of real property may be exempt from payment of the real estate tax Transfer taxes There is a tax on the transfer of real estate imposed by the state governments at varying rates Stamp duty There is no stamp duty in Mexico. 5.7 Tax Incentives for Businesses Maquiladoras There are special rules that apply to Maquiladoras, a manufacturing entity that processes or assembles imported materials and parts for resale to the country of origin or other parts of the world, giving them tax benefits, including those that relate to tax-exempt benefits provided to employees, VAT and the use of machinery and equipment in Mexico that is owned by non-residents Research and development (R&D) expenditure Mexico s government provides incentives for R&D. The National Counsel for Science and Technology grants direct cash subsidies for qualifying R&D projects.

19 Doing Business in Mexico Other incentives Incentives are granted for national cinematographic and theatrical production. Tax incentives are also granted for employers who hire elderly or disabled persons. There are also incentives for real estate trusts.

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