Entering the Mexican market can be exciting, but it also means adapting to very specific local rules and practices. Here are some of the most important financial, tax, and business considerations you should be aware of:
1. Profit Sharing (PTU)
In Mexico, companies are required to distribute a portion of their profits (currently 10%) to employees as profit sharing (PTU). This is a legal obligation and must be factored into your financial planning.
2. Electronic Invoicing (Factura Electrónica)
Mexico has one of the most advanced electronic invoicing systems in the world. Every transaction must be documented with a digital tax receipt (CFDI) issued through the SAT (Mexico’s Tax Authority). This system is strict, and non-compliance can lead to penalties or even the suspension of your tax ID.
3. Electronic Accounting
Companies must also keep and submit electronic accounting records to the SAT, including chart of accounts, trial balances, and journal entries. These submissions are standardized, which means your accounting software must be aligned with Mexican regulations.
4. Withholding Taxes on Professional Services
When you hire professionals (individual contractors), companies are required to withhold income tax (ISR) and VAT (IVA) from their payments and remit those amounts directly to the SAT. This is very different from systems in the U.S. or Europe and often surprises foreign investors.
5. Rental and Other Withholding Obligations
Rental payments and certain other transactions also trigger withholding obligations. Businesses must act as tax collectors on behalf of the SAT, which adds another layer of compliance.
6. Legal Entity Requirements
Most companies in Mexico (like an S.A. de C.V.) require at least two shareholders. While there is a simplified entity type (SAS) that can be set up with only one shareholder, it comes with limitations and is not always recommended for larger operations.
7. Labor and Social Security Costs
Beyond payroll, employers must comply with mandatory contributions to social security (IMSS), housing (INFONAVIT), and retirement funds (SAR). These costs can represent a significant percentage over and above gross salaries.
8. Banking and FX Controls
Opening a corporate bank account in Mexico requires strict compliance with Know-Your-Customer (KYC) and anti-money laundering rules, including proof of local domicile. Foreign companies must plan ahead, as this process can take time.
9. Frequent Tax Filings
Unlike some countries where taxes are filed quarterly or annually, in Mexico companies must file monthly VAT, income tax withholdings, and provisional ISR payments. This creates a heavy reporting calendar that CFOs must plan for.
10. Corporate Governance
Annual shareholders’ meetings are mandatory, and minutes (actas de asamblea) must be documented and, in some cases, notarized and registered. This adds a formal legal layer to corporate governance that foreign investors sometimes overlook.
Takeaway:
Doing business in Mexico requires navigating unique tax and compliance obligations. From PTU to electronic invoicing and monthly filings, foreign entrepreneurs and CFOs should not assume that “business as usual” will apply. Local expertise is essential to stay compliant and avoid costly mistakes.
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