Business is the backbone of the world economy. Every person who wishes to grow will think of investing in his home country or even abroad. Before you take a step of investing in foreign countries, however, due consideration needs to be given to the legal requirements to carry out business in the specific country.
If you are planning to extend your business ventures into Mexico, you need to pay attention to some legal considerations. Familiarity with the legal landscape in Mexico would be vital. The legal system in Mexico is different from that in the United States or any other country that uses the common law since the country uses the civil-law tradition. The civil law makes the basis of legal considerations for doing business in Mexico and every investor needs to know how this affects different aspects of business operations.
7 Legal Considerations for Doing Business in Mexico
1. The Legal Framework
Before setting up a business in Mexico, you need to consider the legal implications of moving business to Mexico. For instance, a speedy modernization of business laws and regulations in the country is in place to benefit investors. However, Mexico’s civil law tradition makes it difficult for foreigners to conduct business in the country. Therefore, you will require an attorney trained in Mexico to guide you on the legal provisions.
The legal framework is improving since the country is now adopting the common laws. Participation in international organizations such as the World Trade Organization and NAFTA is giving hope of a better business environment to foreigners. The globally set common laws are now gaining momentum. This shall open the Mexican entrepreneurship field to more foreigners because of better working regulations.
2. Labor Rights and Privileges
Workers in Mexican firms and companies are legally protected against various issues. Luckily, the current Mexican Constitution gives workers rights that are similar to the internationally recognized labor rights. The Mexican labor laws provide the privileges without discrimination on nationality or place of work. The laws on industry are almost similar to those used in the United States.
The legal considerations for doing business in Mexico regarding labor laws include the following:
- Eight-hour work duration.
- Right to belong to unions.
- Earning a living wage.
- Profit sharing that requires you to pay the employees up to 10% value of the company’s pre-tax profit.
- An annual paid holiday.
- Workers are entitled to a Christmas bonus equivalent to fifteen days wage.
The legal considerations for doing business in Mexico do not necessarily make it unattractive to invest in Mexico. There are many labor rights but there are provisions for signing collective agreements with the federal or local authorities. The 2013 Federal Labor Law (FLL) is updated to determine the labor practices that are binding in Mexico.
Just like under the common laws, you will require to insure your enterprise fully to do business in Mexico. Coverage is one of the most vital legal considerations for doing business in Mexico. To operate a business in Mexico, a company must meet the set minimal coverage. The damage that comes as a result of accidents lay the burden on foreign business. In this case, familiarity with the Mexican business laws does not have to be considered.
Motor vehicle insurance is strict in Mexico. All cars rented or owned by foreigners are supposed to be fully insured. The consequences of driving unregistered or uninsured vehicles are punitive. The judicial system takes a long time to arbitrate cases that are related to with car impounding. As such, you need to consult an attorney within the country to give you clear regulations. Insurance brokers can equally help evaluate the amount of insurance a foreigner needs. Insurance is one of the most vital legal considerations for doing business in Mexico.
4. Legal Corporate Investments
Any investment or business set up in Mexico should have to be recognized by the relevant authorities. The most common corporate personalities in Mexico are in two groups:
- Limited liability stock corporation – this is a flexible stock corporation that allows two or more investors to own limited liabilities fixed to their capital input.
- Limited Liability Partnership – provides two forms of corporate ownership that allow a business to either increase or decrease its main stock without altering the corporate charter.
To be recognized fully by the legal entities, there are requirements to be achieved by the investors. For foreign businesses, approval is done by the National Commission of Foreign Investments and the Department of Foreign Affairs.
5. Fiscal Policy
Mexico’s tax policy has been incorporated into the new laws. Mexico foreign investment law requires registration for all foreign businesses. Tax is one of the most vital legal considerations for doing business in Mexico. Taxes levied on foreign investments are similar to those levied on local investors. Corporate income tax is subjected to all companies doing business in Mexico at a rate of 34% as stipulated in the Mexican Income Tax Law (LISR).
As a foreign investor, your lawyers will play a vital role in making your business operations successful. Foreign attorneys are not consulted in Mexico. This makes it a wise decision to use an in-country attorney for legal advice. Neither NAFTA nor the common law has a provision for foreign lawyers to work in Mexico.
Foreign lawyers are, however, free to register in a legal team if they have legal partners in the US. Services and movement of goods across the border require attorneys who can collaborate in Mexico to offer consultancy and representation in court.
7. Shipping Policy and Tariffs
Custom regulations observed in shipping of goods into Mexico are vital considerations for doing business in Mexico. You are required to have basic documents including a commercial invoice, bill of lading, packing list, import permits, and other special certificates.
The tariff scheme in Mexico has been downscaled from 11,072 to just 148 categories. Tariff levels for goods from countries within North America stand at 7%. Other nations are charged 13.5% to import goods into Mexico. Tariffs in Mexico are non-discriminatory and are favorable for business.
Doing business in Mexico is easy as long as you adhere to the country’s laws. There are legal considerations for doing business in Mexico that require appropriate legal advice. This, however, does not dilute the fact that it is a good country to do business.