Foreign Investors generally do business in Mexico through a wholly owned subsidiary, either a General Corporation (sociedad anónima) or a Limited Liability Company (sociedad de responsabilidad limitada), which avoids being considered as having a permanent establishment in Mexico. Except for a few activities, there is no restriction to 100% foreign ownership.
These companies usually have a minimum fixed capital and a variable capital structure, so they can increase and decrease capital more easily.
There are similarities between both types of companies which are summarized as follows:
US investors frequently choose the limited liability company because it qualifies for the check-the-box election, to be treated as a flow through entity for US tax purposes.
The General Corporations and Limited Liability Companies, as well as other types of business entities are regulated by the General Law of Mercantile Companies.
The requirements to incorporate a General
Corporation or a Limited Liability Company are:
National Registry of Foreign Investment
Mexican subsidiaries owned by foreign corporations, partnerships or individuals are taxed on all income attributable to the Mexican corporation, whereas the foreign companies are usually subject to an income tax withholding only on payments made to them by the subsidiary, such as interest, royalties, technical assistance and the like.
Joint ventures are regulated in the same way as the general law of mercantile companies.
Private companies must prepare an annual report regarding the company’s operations during the fiscal year, which must be a calendar year. This report must be submitted at the Ordinary Shareholders’ Meeting by the chairperson of the Board of Directors or the Sole Administrator of the company.
The annual report should be accompanied with:
Public companies must comply with the above, and must submit audited financial statements to the National Securities Commission.
Financial statements in Mexico should be prepared in accordance with Mexican Financial Reporting Standards (FRS), but financial audits are not mandatory for privately owned companies.
The Mexican Board for investigation and Development of Financial Reporting Standards (CINIF) is the organization responsible for issuing the Mexican Financial Reporting Standard.