How to Set Up You Own Company

How to set up your own company

By incorporating your own company such company acquires complete legal liability or responsibility; the company must have all its management positions filled. This option is usually chosen in medium and largo corporation, and the State Government by way of Ministry of Economic Development, shall act as a liaison between government agencies and companies with the purpose of support.

Subcontracting

If the company should decide to recur to subcontracting, direct investment in Mexico may not be necessary, and thus avoiding any long term liability. It is a simple and quick way to begin operations in Mexico, as you only require a purchase order or quote signed by both parties (customer – supplier).

Usually, the client provides the necessary equipment and machinery, product and quality specifications and parameters, as well as direct and indirect material needs and technical support. Quality control of the final product is the responsibility of the supplier and assumes all liability in Mexico.

Regularly payment options are managed are: price per piece per hour worked and additional cost. The client has the advantage of having free transit aboard finished products.

Shelter Program

The function of the Shelter opration consists in providing accounting, tax and payroll services; project management, traffic and customs services, human resources and central control of all company management aspects.

Furthermore, the Shelter may assist in site selection for the company, all types of administrative procedures for securing import permits for material and export permits for finished product, determination of technical difficulties and their corresponding solution, and support in selecting technicians and executives.

Setting Up a Maquiladora in Mexico

The foreign investment law permits foreigners to acquire 100% of the capital stock of a Mexican company, including agricultural companies, with no need of government approval, with the exception of certain activities, which are reserved for the Mexican Government, or Mexican Individuals or corporations with a foreigner exclusion clause. For example: gasoline and other similar products, basic petro-chemistry, nuclear power and others.

In order to establish an Export Maquiladora or an Export Plant, also known as a Shared Production Plant, that operates as an exporting industry, Mexican entities (corporations with or without foreign investment) must be registered before the Ministry of the Economy for the corresponding type of Maquila. The approvals are usually issued within 10 to 15 days after filing the application.

Virtually, all maquiladora companies are organized as foreign subsidiaries. The steps for setting up a maquila are the following:

Incorporation of a Mexican Entity.

This procedure requires that the Ministry of Foreign Affairs authorizes the entity’s name. Once approved by the Ministry, the corporation’s bylaws are presented before a Mexican notary public for its registry.

The corporate charter or bylaws are presented and recorded before the Public Registry of Property and Commerce as well as the Federal Taxpayer Registry (R.F.C.).

Registry of Maquila Program.

The most important procedure for establishing a maquila operation is registering the maquila program before the Ministry of the Economy. In order to gain authorization, the company requires a lease agreement or title deed for real property where operations shall take place; a production contract or maquila services agreement with a foreign entity, on behalf of whom, the company shall render services to; lists of material, equipment and machinery to be imported into Mexico.

During the application process, the Ministry of the Economy’s personnel shall inspect the installations that are to be used for the operation of the maquila. Approval is granted within a 10 business day term after filing the written form of the application.

Maquiladores are permitted to import their products, as components, prime material, boxes for packing, management support material and duty free containers (please see article 303 of the Free Trade Agreement). All equipment and eventual accessories, shall be returned or shall be imported in a definitive manner (vis a vis temporary).

As of 2001, maaquiladoras may sell within the domestic marketplace a percentage of their total production.

Once the production program has been approved along with the import permits, the maquiladora shall be assigned a registry number which is better known as “National Registry of the Maquiladora Export Industry SICEX”(“Registro Nacional de la Industria Maquiladora de Exportación SICEX-Maquila”).

Environmental Filings

Mexican environmental laws are similar to those of the United States. To initiate a maquila operation, you must have the corresponding permits. The production process and characteristics of the materials to be used shall determine if either the State or Federal Governments shall have jurisdiction to grant such permits.

Work Visas (FM-3)

Any foreigner that wishes to work in Mexico within the maquiladora industry must have a current Mexican work visa. Work visas are requested once the program has been authorized by the Ministry of the Interior. Any person that visits a maquiladora must have his or her permit issued by the National Immigration Institute.

Individual or Collective Labor Agreements

For hiring personnel, employees may be accepted by individual or collective labor agreements through labor unions.

Industrial Installations

Installations or industrial buildings may be leased or purchased. It should be noted that in either case negotiations would be eminent.

Sub-Maquila Operations

Sub-maquila operations involve all aspects of production or services procedures for transformation, production or repair of products developed by a duly authorized individual or corporate entity by way of the maquila program.

A sub-maquila operation can be exemplified by the following: Company ‘A’ assembles all parts required for a laptop computer. Company ‘A’ transfers on behalf of Company ‘B’ part of its components for their corresponding assembly. Company ‘B’ assmbles such components (using prime materials imported by ‘A’ under its maquila program), which shall eventually be incorporated into Company ‘A’ laptop assembly procedure, then Company ‘B’ is rendering sub-maquila services on behalf of Company ‘A’. As the case may be, a sub-maquila operation can be executed between two or more Maquiladoras or between a Maquiladora and a non-maquiladora company.

To develop a sub-maquila operation, Authorization is required from the Ministry of the Economy. This authorization should be granted within a 5 business day term or otherwise, the authorization is deemed granted. Furthermore, Customs authorities should be notified of which companies carry out sub-maquila operations, and assume joint liability regarding beneficiary’s obligations.

Export Incentives

The primary incentive benefits under the Economic Development Plan are regarding export of manufactured goods. This incentive applies to all entities, notwithstanding the amount, if any, of foreign investment.

A series of executive decrees, general application rules were created to create secure entities that would continue with the task fomenting export and granting export based incentives. The existence of these export incentives, as well as other programs created to foment and support export and set forth below:

IMMEX

The IMMEX program is a tool that permits temporary import of goods used in transformation, manufacturing, service and repair of goods, procedures, such goods shall be exported afterwards exempt of the General Export Tax (Impuesto General de Impoirtación) (subject to the country of origin of the products to be exported), as well as the VAT (Impuesto al Valor Agregado or IVA) tax or any other applicable tax. This program is also used to render services on behalf of exporters.

Beneficiaries

The IMMEX program is granted to organizations established in Mexico, so long as these organizations comply with the requisites set forth in the IMMEX Decree.

Requisites

Authorization of the program is subject to the following requisites:

I. Commitment to export, on a yearly basis, $500,000 United States Dollars or its equivalent in other currencies, or 10% of its entire production.

Benefits

The IMMEX program offers the possibility of temporary import duty free of materials to be incorporated and used in the production process for goods to be exported; the beneficiaries of this program are authorized to maintain goods to be exported, per the Publication by the Ministry of the Economy in the Federal Daily Gazette.

Products are classified in four categories:

Prime material, loose pieces and components, packing, packing materials and oils and lubricants, tags and promotional products used during the manufacturing process of goods to be exported; (for an 18 month period)
Containers, trucks and trailers; (for a 2 year period)
Tools, equipment and components industrial safety, necessary products for cleaning, sterilization, pollution prevention and control, manuals, communication and computer equipment; (until conclusion of the maquila program)
Machinery, components and loose pieces for the culmination of the production process, lab equipment, measurement and testing equipment, quality control equipment and management or administration equipment as well; (until conclusion of the maquila program)

Term

The term of the operational maquila program is indefinite and shall be subject to the correct compliance of the requirements set forth by the Program, the Decree and current Customs Legislation.

Note: This is a brief description of the program, for detailed information regarding any restriction, regulations and requisites, please contact the Ministry of the Economy.

ECEX

In the Foreign Trade Companies Program (Empresas de Comercio Exterior or Ecex), entities yearly export amounts greater than 3 million Dollars of their production, and can be eligible to receive benefits granted to the IMMEX program, a 0% rate to the aggregate or total value of export production integrated local suppliers.

Therefore, local suppliers collect 0% for IVA or VAT tax for Foreign Trade Companies, as if these sales were actually personal exports. The Foreign Trade Companies are eligible to various non-tax incentives regarding financial and promotional assistance.

ALTEX

The Program for High Volume Export Companies (Empresas Altamente Exportadoras, of Ecex) is applicable to entities that have minimum yearly exports of two million Dollars (these export sales, represent at least 40% of total sales), companies under this program secure the following benefits:

VAT or IVA refunds within a 5 business day term.
Free access to the commercial information system, controlled by the Ministry fo the Economy.

Any company interested in operating under this regime must provide proof of direct exports with a minimum volume of two million Dollars or provide export sales information documenting how exports accounted for 40% of total sales.

Furthermore, any company under this Ecex program you may also operate the Altex program, so long as the registry is valid before the Ministry of the Economy.

Duty Refunds

Under this Program, all exporters (including indirect suppliers) are enlisted to receive a duty refunds paid up to one year before the import of merchandise integrated to products that were exported but physically sold and transported by other entities.

Another way to obtain a duty refund is by way of refund system when the goods are exported in the same condition as when imported into Mexico.

Note: This is a brief description of the program, for more detailed information regarding restrictions, regulations and other requisites, see the Ministry of the Economy.

PROSEC

The purpose of the PROSEC program is the import of goods, merchandise, prime material, equipment or machinery for specific industries, with preferential duties; waives the charge or commission of 0, 3, 5 or 7% subject to the industry and customs classification of the goods. This program is not directed exclusively for Maquila companies, it was created in reaction to the effects of article 303 of the North American Free Trade Agreement.

Basically, PROSEC is an instrument focused on legal entities, specific merchandise producers, and allows them to import finished merchandise and pay an ad valorem general import tax or primer materials used in the creation of the specific products, notwithstanding, if the merchandise produced is intended for domestic (national marketplace) or export. The program consists in, if the company requires certain good or material that is not available in Mexico or its price is not competitive compared with the international market, the program allows the importing company preferential duty rates. In order to use this program, maquiladoras are required to file a written petition before the Ministry of the Economy. Authorizations are issued within a 20 business day term after the petition is filed.

Immigration Regulations

Businessmen and Technicians

Foreign business investors and technicians may carry out their activities in Baja California so long as they follow the following procedures. It should be noted that technicians’ activities may solely consist in supervision and worker training.

Immigration Form 3 (FM3).

The Immigration Form to be used for carrying out business or technical activities in Mexico is named the FM3 that may be secured by foreigners prior to their arrival in Mexico, so that prior to their actual arrival they already have federal authorization to lawfully carry out business, as a foreigner, in Baja California. Securing the FM3 can be carried out at any Mexican Embassy or Consulate in the world.

Should foreigners, having entered the country as tourists, and wish to incorporate a Mexican corporation without having obtained an FM3, the incorporation procedure may also be carried out by way of a tourist visa, which may be issued at any Mexican diplomatic representation abroad, such consulates and embassies.

This tourist visa is issued free of charge and only requires a current passport. The toustis visa is valid for a 6 month term and in accordance with the Regulations for the General Population Law, allows the invest to appear before Mexican notary publics and execute incorporation documents for the creation of a company.

When the foreign investor from a group of 37 countries, among which are countries that Mexico has important commercial relations such as United States of America, Japan, South Korea, Canada, Chile, Spain, Singapore and others, the investor may opt, once the corporation is actually incorporated, request that the Ministry of the Interior issue an FM3 visa for the investor as well as the company’s foreign administrators and technicians.

Obtaining an FM3 visa as described above, is subject to the exclusive criteria of local officials. There are another group of countries which Mexico does not have strong commercial ties to and individuals from countries requesting an FM3 requires central authorization, countries in this group include Guatemala, Ecuador, Malaysia and El Salvador.

Finally there are a third group of foreigners subject to special regulation, therefore, a previous permit so that the central authorities may proceed to issue the corresponding FM3. Among these countries are Tai-Wan, People’s Republic of China, Colombia and Cuba, and others.

FMN and FMVC Immigration Forms

As a result of the negotiations of the North American Free Trade Agreement, in addition to the FM3 visa, other immigration forms that may be used by foreign investors, technicians, and administrators from the United States and Canada to carry out business in Baja California, these immigration forms are named FMVC and FMN.

The FMN shall be valid for a 30 day term and allows Canadian and United States nationals carry out business in Baja California. As mentioned above, this document is for exclusive use of nationals of the United States and Canada and is issued by local immigration officials.

The foreigner must prove his or her Canadians or American nationality by way of a valid passport, birth certificate or naturalization certificate, and should also describe activities to be carried out in our country. This authorization grants various entry and exits into the country during the term of its validity.

Additionally, there is an immigration form named FMVC which authorizes foreigners from 33 countries among which are Germany, Japan, South Korea, Great Britain and others to be in Mexico, this form is also applicable for any foreigner who has permanent residency in either the United States or Canada and visit companies in Baja California for business.

Like the FMN, the FMVC is free of charge, and provides for multiple entries and exits of the country during the term of its 30 day validity and is issued by local Immigration official in Baja California.

Approval for this form usually includes filing an invitation letter by the company to be visited by the foreign businessman or technicians, such letter must state the reason for the visit, activities to be carried out and the foreigner’s solvency, the letter must be addressed to local immigration officials that approve and issue the FMCV.

Foreigners that wish to use the immigration form should identify themselves by way of a current passport and the documentation that evidenced legal residency in the United States or Canada. Once the visit has concluded, the actual form must be returned to Mexican immigration officials by the foreigner or in the case of Baja California, local immigration officials have granted permission for the visited company to carry out the return of the visa.

Customs Facilities for Investors and Technicians

Per Mexican customs legislation, merchandise consisting of international passengers is the following:

Personal consumption goods, new and used, such as clothes, shoes and personal hygiene products, so long as the agree with trip duration and due their volume may not be commercialized.
A photographic camera and video camera and, if applicable, its power source; up to 12 roles of blank film for photography or videotapes; photographic material, printed or filmed; a mobile phone and a pager; a typewriter; portable computer, new or used, named either laptop, notebook, omnibook or otherwise; a portable copier or printer, new or used. In case of computers, copiers and printers, previous import permits shall not be required.
Two used personal sporting equipment, so long as they may be transported normally and commonly by one person.
One mobile radio or musical reproducer or dual deck apparatus.
5 laser discs, 5 DVD discs, 20 Compact Discs (CD) or magnetic tapes (audio cassettes), for reproduction of sound.
Books and magazines, which due their volume could not be used for sale.
Five toys, so long as that they can be transported normally and commonly by one person.
Personal use medication, prescriptions must be provided for psychotropic substances.
Suitcases, luggage, trunks and bags necessary for transport of merchandise.
Older passengers, a maximum of 20 cigarette packs, 25 cigars or 200 grams of tobacco and up to 3 liters of wine, beer or liquor, in the understanding that a greater amount of cigars shall not be permitted, unless applicable regulations and restrictions are observed.
One set of binoculars.
A musical instrument, so long as it is transported normally and commonly by one person.
A tent and camping equipment.
A watercraft, with or without sail.
In the case of handicapped individuals, merchandise for personal use that by its characteristics diminish their incapacity or hinders its effects.
Four fishing rods with their corresponding accessories.

Upon arrival to Mexico, be it by sea or air, you may introduce merchandise with a value of up to $300 US Dollars or its equivalent in Mexican Pesos or other currencies, for one o various articles; upon arrival by land, introduction of merchandise can be for up to $50 US Dollars.

For such effects, you must have your invoice, proof of sale or any other document that sets forth the commercial value of the merchandise.

Under the above understanding, beer, other alcoholic beverages, tobacco, fuel not contained in the fuel tank may be introduced into Mexico.

In case of importing merchandise different from the equipment of international passengers, for determining the tax base, value of merchandise may be diminished by the abovementioned amounts, in order minimize duties.

Should father, mother and children forming one family, even considering the minors, arrive to Mexico simultaneously and by the same means of transport, the abovementioned amounts may be pooled and used collectively by the family.

In addition to what is set forth in this rule, when merchandise is acquired in the border area, the applicable amount shall be $300 US Dollars, so long as the passenger evidences such fact by an official document issued by the border region, in the understanding that families may also accumulate such amounts as described in the above paragraph.

Passengers may carry out import of merchandise they are transporting that differ from their luggage, without using the services of a customs agent or factor, so long as the value of such merchandise, excluding the abovementioned exemptions or discounts, does not exceed $1,000.00 US Dollars or its equivalent in Mexican Pesos or other currencies and has the corresponding invoice, proof of sale or any other document evidencing the commercial value of such merchandise.