Many foreigners choose Mexico as a place to set up a business. While there are some industries that exclude foreigners, and there are restrictions about the percentage of foreign investment allowed, it is still entirely possible for foreigners to start a business in the country.
We spoke with attorney at law Charlene Gómez Covarrubias, co-founder of the online law firm Legalab, to ask her about the very first steps anyone looking to start a business in Mexico should take. From registering your brand to deciding the type of legal entity to use and how to register at the tax authority, here are all the basics you need to know to prepare.
Before diving into the specifics, however, make sure you have the appropriate immigration status in Mexico. Typically, foreigners with a Temporary Resident Visa with permission to work or a Permanent Resident Visa are permitted to engage in business in Mexico.
Registering your brand
Registering a trademark gives you the right to use it exclusively across the country for your registered products or services. More importantly, it protects your brand from unauthorized use by others.
Unlike in the United States, you don’t need to prove prior use of a trademark to register — all you need is an original name or brand design.
“You can apply for a trademark registration even if you haven’t used it before. And it is highly recommended to do so since copycats are everywhere,” Gómez says.
While operating a business without a trademark is not illegal, using a brand without it puts you at risk of being sued by someone using a registered brand with the same name as yours.
“If it turns out that someone else already has that trademark, or a similar one registered, that person could take you to court and the fine could go up to 40 percent of your income,” Gómez warned.
The trademark registration process can be completed online through the Mexican Institute of Intellectual Property (IMPI). Gómez recommends hiring a specialized lawyer to assist with the application process, which includes classifying the trademark, carrying out a phonetic search to ensure no one has registered a similar brand and monitoring the IMPI’s response.
In some cases, the IMPI might require additional information before approving the application. But once it’s granted, the trademark is valid for 10 years, after which it may be renewed.
“The good news is you don’t need residency immigration status, nor do you need to be physically in Mexico to register it,” Gómez remarked.
Deciding whether to operate as a sole proprietorship or an incorporated company
There’s more than one option to open a business in Mexico as a foreigner. Investors can either incorporate a company or operate as a persona física con actividad empresarial (sole proprietorship).
“Various aspects must be evaluated to determine the best alternative,” Charlene Gómez says, adding that key considerations in choosing how to incorporate include whether there will be business partners involved and the business’s risk level. Both options have their advantages and disadvantages, and it’s important to understand which option is right for you and your business.
Operating as a sole proprietor means you have unlimited liability and are personally responsible for all debts and obligations of the business. However, this route offers benefits like tax exemptions, greater flexibility and less bureaucracy when starting and operating the business.
In contrast, incorporating a company provides limited liability protection, meaning that your personal assets are separate from the company’s assets, protecting you in the event of debt or litigation.
There is no one-size-fits-all answer, and Gómez recommends seeking the advice of a corporate lawyer in Mexico and tax attorney to help make the best decision.
Registering with the SAT
For any business to operate legally in Mexico, whether run by a natural person or an incorporated company, registering with the Tax Administration Service (SAT) is a mandatory step. This process provides the Federal Taxpayer Registry (RFC) number, a tax ID which is essential for paying taxes, issuing invoices and accessing a wide range of business services.
“Nowadays, it is essential to be registered at the SAT to actively participate in commerce, issue invoices, open a bank account, access credit and participate in tenders, among other business activities,” Gómez says.
When registering, you must choose the tax regime under which you’ll file your taxes. Additionally, you will need to obtain your password and Electronic Signature (FIEL) to access the digital services offered by the SAT.
While some steps for registration can be done online, some other steps require an in-person visit to SAT offices.
“For instance, to issue invoices you need the FIEL, and for that you have to go in person because they take your biometrics,” Gómez explained, adding a tax lawyer can advise businesses in this crucial process.
Failure to register with the SAT may lead to serious consequences, including fines, penalties, business closure and legal issues related to tax evasion and fraud.
Gabriela Solis is a Mexican lawyer turned full-time writer. She was born and raised in Guadalajara and covers business, culture, lifestyle and travel for Mexico News Daily. You can follow her lifestyle blog Dunas y Palmeras.
