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Seven Things You Need to Know About Nearshoring Opportunities in Mexico
November 1, 2024
MoldMaking Technology – Business Development TIP – November 2024 – Insights from CPA•CA (Colorado)
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Conducting business across borders may seem daunting, so understanding all the complexities is important. By doing so, you can analyze appropriately, define a course of action and monitor progress to ensure goals are met. Here are seven considerations for doing business in Mexico:
1. Advisory
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Consider strategic site research covering geography, supply chain, security, human capital, infrastructure, government incentives, utilities, etc.
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Use resources such as the American Chamber of Commerce Mexico, state trade missions, the American Embassy and industry peers.
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Seek assistance from Mexico-specific professionals (advisors, foreign trade, legal, tax and labor).
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Understand that investment requires significant corporate involvement and financial and capital commitment.
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Consider appointing a project manager for your expansion.
2. Human Capital
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Cultural understanding is crucial and can make or break a deal if not managed properly, including the market, salary and benefits.
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Your organization needs to adjust to Mexican standards, not vice versa.
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Securing good talent requires strategic screening and significant training, as well as patience and support to ensure that staff meet industry requirements.
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A local administrative team must handle SAT (Mexico's IRS equivalent), foreign trade and IT requirements.
3. Legal – Corporate
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In Mexico, the year-end date is December 31st.
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It's important to understand the roles and responsibilities of legal representatives and notaries.
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The requirements for corporate books and stock certificates are more bureaucratic compared to the U.S. and Canada.
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Formal agreements and notarization are required for inter-company loans and advances.
4. Foreign Trade
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To import, you must obtain an importer's registry permit. A lease agreement and designated broker are required for the permit.
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To export, it is essential to participate in export promotion programs such as IMMEX – VAT and Excise Certification, PROSEC and the 8th rule. This requires a robust inventory system and careful attention as regulations change quickly.
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You will also need strategies for importing machinery and equipment.
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It is crucial to comply with foreign trade requirements, given the high level of audit collections conducted by the SAT.
5. Labor
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Employment relationships are not "at-will".
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Termination causes are those provided by the Federal Labor Law and the internal work regulations. For example, productivity is not a justified cause for termination.
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Unions with at least 30.0% of eligible employees can request the signing of a collective labor agreement. Multiple unions are allowed.
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Labor and social security rights are not waivable.
6. Tax Issues
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The legal representative must have an active SAT electronic signature (FIEL) and a tax ID number.
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Profit sharing (PTU) is calculated at 10.0% of the taxable income.
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Transfer pricing studies are necessary for intercompany transactions, and the tax authorities closely audit this area.
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The company must fulfill various requirements, including electronic accounting, CFDI receipts (e.g., invoices, payroll, etc.), and monthly, quarterly and annual obligations, regardless of its level of activity.
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Compliance with tax requirements is essential in foreign trade; collections in 2024 have increased by 5.8%.
7. Information Technology
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Care must be taken to ensure that the ERP or software being used complies with SAT and foreign trade requirements. Failure to do so could result in severe penalties, interest and operational disruption.
The Managing Partner of RCG LLC, Carlos Redfern, published an article with MoldMaking Technology on nearshoring opportunities in Mexico. Although the publication focuses on the molding industry, many insights presented in the article are applicable across various sectors, including automotive, manufacturing, aerospace, agriculture, technology, and more. To download a PDF copy of the article published in MoldMaking Technology, click below.
For more information, contact RCG