Doing Business with Mexico

The following text was provided by Santistevan Abogados S.C.

Doing business with Mexico suggests engaging in international trade directly from the home office. Doing business in Mexico suggests the additional step of establishing a physical presence in Mexico and regularly engaging in commercial activities.

The primary purpose of doing business with Mexico is to avoid, or at least minimize, involvement with the Mexican tax system and other areas of regulation such as Mexican labor laws and the social security system. On the other hand, those foreigners who need to establish more of a presence in Mexico may find that the additional business and geographic advantages of a permanent presence in Mexico outweigh the tax and regulatory burden.

Doing Business with Mexico

A foreign company can do business with Mexico from abroad in order to minimize the tax and regulatory consequences arising from the establishment of a permanent presence in the country. When structuring operations in this way, however, foreigners must be extremely careful to ensure that they do not create a "permanent establishment" in Mexico, as Mexican tax law considers the income derived by foreigners from such entities taxable.

The Mexican Income Tax Law (ITL), when defining the concept of "permanent establishment" (Art. 2), considers taxable the income derived by foreigners from certain activities within Mexican territory. Generally, a foreign concern is deemed to have created a permanent establishment base in Mexico when it (1) establishes a place of business or (2) employs a subordinate agent with powers to enter into contracts in order to develop its entrepreneurial activities.

A foreign company doing business with Mexico from abroad has traditionally used four basic commercial vehicles: (1) appoint a sales agent in Mexico; (2) appoint a commission (sales) agent (i.e. commercial intermediary) for the promotion of its goods or services; (3) enter into an agreement with an independent distributor in Mexico; or (4) license technology (for example in a franchise operation).

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