Insight
Doing business in Mexico - a destination for growth
September 2016
Its economic and political stability, low inflation and strong economy make Mexico one of the world's most competitive countries for inward investment. It has one of the most open economies in the world having struck free-trade agreements with 44 countries across North America, Latin America, Europe and Asia.
Mexico is a leading producer and exporter in several business sectors including: automotive, aerospace, electronics, energy, mining and more. As well as manufacturing and heavy industry, Mexico also ranks first in Latin America for creative industries.
A strong and growing economy
Mexico can boast the world's thirteenth largest economy and the second largest in Latin America.
Its economy grew by 2.5% in 2015 with almost half that growth coming from services and manufacturing. Private consumption was also high on the back of more jobs, with higher wages fuelling an expansion in domestic credit.
Growth is predicted to slow down slightly in 2016. However, continued economic and financial stability, and investor confidence will all help to rebalance the sources of growth, with an increase in net exports and private investment complementing the expansion in private consumption.
In 2017, the government's structural reforms, which led to a depreciation in the peso, will give impetus to exports. This is likely to boost GDP growth to around 3% despite lower oil prices.
Taxation and accounting
Foreign businesses setting up in Mexico receive the same tax treatment as Mexican businesses. However, some concessions do apply. Mexico has a wide network of double-taxation treaties, with most following the OECD model.
Corporate taxes
Most corporate taxes are federal taxes on profits. However, there are some state taxes. Other withholding taxes apply too. The standard rates are as follows:
- Mexican corporate income tax - charged on corporate profits at 30%.
- Capital gains tax - usually included in profits but for foreign companies a withholding tax may apply instead.
- Employee profit-sharing tax - employees have a legal right to share in a company's profits, paid for by a 10% levy on pre-tax profits.
- Residence tax of 5%.
- Special excise taxes on production and services.
- A state real-estate acquisition tax of between 2% and 5%.
- A state tax on salaries of between 2% and 3%.
Withholding taxes
- Dividends - 10%
- Royalties - between 25% and 40%
- Interest - typically 35% but can be between 4.9% and 40% depending on the industry, jurisdiction, and type of interest payment.
Incentivising foreign investment
Various trade and tax incentives exist to encourage foreign investment.
Import tax refund to exporters (drawback)
This tax refund incentive allows companies to recover duty paid on imports that have subsequently been used for future exports.
Manufacturing, 'maquila' and export service industry (IMMEX)
The IMMEX programme allows companies to import goods temporarily without paying import or other duties where those goods are being used for export purposes.
Sector promotion programmes (PROSEC)
PROSEC rewards businesses working in certain sectors by allowing imports at preferential tariffs. The goods must be for producing specific goods but the relief applies whether or not the goods are for export.
Innovation incentive programmes
These programmes offer support to companies that invest in research, technological development, and innovation that aim to develop new products, processes and services.
International fund
This fund supports scientific and technological research projects that are conducted jointly between Mexico and the European Union.
Tax incentives include:
Immediate deduction
This rebate applies to projects that are labour-intensive, are non-polluting, and do not consume large volumes of water. It does not apply in Mexico City, Monterrey or Guadalajara.
Federal tax incentives
Eligible companies registered under IMMEX receive significant reductions in corporate income tax if they meet certain conditions.
Federal tax credits for research and development
Eligible companies may receive a tax credit of 30% of total spending on research and development activities.
Overcoming hurdles
Mexico offers opportunities that rival other emerging markets. However, setting up a business can be time-consuming. Foreign businesses can find the legal and accounting systems complex, although Mexican accounting standards are gradually conforming to international accounting standards and have now reached around 70% compatibility.
Access to professional help
While there are hurdles to overcome when doing business in Mexico, access to local knowledge and expertise will make a big difference.
There is no shortage of help and advice available to businesses considering doing business in Mexico - ranging from the services of global consultancies to more specialist assistance from local firms.
The help and advice available covers areas such as:
- Business structures
- Due diligence
- Legal and taxation services
- Intellectual property
- Marketing
- Outsourced accounting.
Mexico - a top-ten destination
To make Mexico attractive the government has invested in infrastructure and encouraged competition in areas such as transport, energy and communications. As a result, recent reports estimate that by 2050 Mexico will have grown to be the seventh largest economy in the world.
This is just one reason why, according to the OECD, Mexico sits among the top ten destinations for foreign direct investment.