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Mexico has the second-largest economy in Latin America and the 15th largest in the world. The country is one of the top global exporters of manufactured goods and is a major exporter to the United States; it is currently our third-largest trading partner. Over the next five years, Mexico’s position in the global market is forecasted to grow to be one of the top 20 countries to drive the global economy.
As with most large, complex nations, the legal, financial and regulatory landscape may be somewhat opaque or confusing to outside investors or businesses. Having experienced contacts in the market who are well versed in the local culture is an essential asset when navigating complex bureaucratic processes.
The Mexican government is supportive and encouraging of foreign direct investment. Investors are attracted to the region due to its macroeconomic stability, fast-growing customer base and increasingly skilled labor market.
In the past, the United States has been one of the largest foreign direct investment sources in Mexico. Now, Mexico is attracting an increasing number of global investors, resulting in the country’s rank as 15th in the world for direct investment.
Mexico has trade agreements with 45 countries, providing investors with access to over 50% of GDP worldwide. U.S.–Mexico–Canada Agreement, which will replace for NAFTA, is expected to be ratified by all parties. Mexico has a variety of other trade agreements in place, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the EU–Mexico Trade Agreement, the EFTA Free Trade Agreement and the Pacific Alliance agreement.
Together, these trade agreements enable manufacturers to access 60% of the world, as well as helping to drive more foreign investment.
Mexico has a diverse economy that includes agriculture, industrial and the services industry. This diversification helps to create stability for investors. The country is currently the world’s 11th largest exporter due to its strong production capacity. Mexico recently started expanding beyond raw material production, such as oil — focusing instead on manufacturing products that integrate to regional and global value chains.
Mexico also captures GDP dollars from financial services companies and investors in the services sector. Recent U.S. tariffs on China have made Mexico products and services more competitive in the U.S. market.
The Mexican government has invested heavily in infrastructure, which includes a network of railway and highway systems covering the entire country. The government is making additional investments to develop stronger infrastructure closer to the north and near the United States border.
Mexico has over 120 million consumers and a growing middle class with disposable income. The standard of living has risen steadily since the 1994 NAFTA agreement. The county’s middle class has risen to include roughly 47% of the country’s population.
Economists predict this growth will continue, and Mexico will become the world’s fifth-largest market by the year 2050. This growth will be supported by the country’s manufacturing and energy sectors, which will continue to increase household incomes and the purchasing power of middle-class consumers.
Mexico ranks 60 out of 190 economies for overall ease of doing business. The country holds an even lower rank for ease of starting a new business, ranking 107. The tasks associated with establishing a new business, such as registration processes, are complex and time-consuming. For example, the business registration process is estimated to take about nine days to complete in Mexico City. This can make starting a new business difficult without the benefit of local expertise.
Securing construction permits in Mexico can also be an arduous process. Businesses can expect to devote around 76 days, although this number is still lower than other Latin American and Caribbean regions. Water and sewer permits can take a month or longer, and getting approval on zoning permits can also be time-consuming.
The World Bank ranks Mexico 106 worldwide for ease of establishing electrical service, mainly due to the lengthy and time-consuming bureaucratic processes involved. Businesses must obtain federal certification and successfully pass the required inspections prior to any work being done, which adds up to longer wait times.
Registering a property takes an average of 42 days, which is far longer than in other OECD countries (which average only 23.6 days).
However, this is still faster than in other Latin American and Caribbean countries, which average 63.7 days.
Additionally, new businesses must be certified by water service offices and secure all required zoning approvals from the Public Registry of Property of the Federal District.
Mexico has a 30% corporate tax rate, and taxes take around 102 hours to file annually. The country also requires social security and value-added taxes, which further increase the tax rate and the amount of time required to file. Total tax contributions as a percentage of profit add up to approximately 55% in Mexico City.
Mexico has struggled with a rise in organized crime in recent years. A high level of due diligence is required for businesses considering partnerships with firms or individuals in the country. Local consulting firms can be hired in larger cities to learn more about a specific company or person. Local chambers of commerce can also help U.S. firms with gathering economic data of firms and understanding critical details about local businesses.
Doing business in Mexico represents significant potential gains for U.S. businesses. However, to be successful, an intimate knowledge of local laws, regulations and corporate culture is required.
With our global footprint, CT Corporation delivers the experience, knowledge and relationships you need in order to guide you through the nuances of forming or expanding your business in Mexico while staying compliant.
To learn more about how CT can help you better manage your global compliance needs, contact a CT representative at (855) 444-5358 (toll-free in the U.S.).
Why should I consider doing business in Mexico?
Mexico has a thriving trade market and is the second-largest economy in Latin American and the 15th-largest in the world. The country has a variety of trade agreements that cover 45 different countries and provide investors access to over 50% of GDP worldwide. Economists predict the country’s market will become the fifth-largest worldwide by the year 2050.
What challenges should I consider when expanding to Mexico?
The country ranks 60 out of 190 economies for ease of doing business. Mexico holds an even lower ranking for ease of starting a new business, ranking 107 out of 190 economies. Setting up permits and registering property are complicated processes and require a greater time commitment than in other parts of the world.
What is the local tax rate?
The corporate tax rate is set at 30% and VAT tax is 16%. Additional taxes include customs duties, excise tax, stamp taxes, social security contributions, compulsory profit sharing and property taxes.
What are the entity types available in Mexico?
There are several entity types to choose from, including a limited liability company, stock corporate or stock corporation for investment promotion.
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