On January 22, 2014, Barnes Dennig, along with US Bank and the US Department of Commerce, presented its first seminar exclusively pertaining to Mexico, “Doing Business in Mexico.” Mexico, the 13th largest world economy, is an attractive place for US manufacturers to do business, whether it be simply exporting to Mexico or setting up a business there. It is the United States’ 3rd largest trading partner, and with its vast, diverse markets, shared Western culture, and political stability, U.S.-Mexico trade continues to increase every year. And I would be remiss not to mention the benefits of NAFTA and the geographical closeness of the two countries.
Factors to Consider
Before taking business to Mexico, many factors must be considered. How do you want to enter? Maybe start small with exporting to Mexico. If you are already doing so, then you may be looking to further expand into Mexico. Weigh the advantages and disadvantages of the various entity structure options for setting up operations, such as a corporation or a limited liability entity; or perhaps consider setting up a branch or contracting with a shelter maquiladora to manufacture or assemble goods instead. Whether you are simply trading with or have a full operation located in Mexico, your business will be impacted by the risks of foreign exchange rates; consider managing that risk with hedging.
And don’t forget to consider workforce issues. Although the stereotype is that Mexico has cheap labor, their employee benefits are quite different than those typical of a US workforce, and the higher-up the employee’s position, the less differential there is between the wage of that person in Mexico vs. an employee in that same position in the US. In addition, extremely high turnover rates are common in Mexico, and thus employers experience higher costs of training and termination.
Mexican Tax Considerations
Whether you are ready to pursue setting up a business in Mexico or are already doing so, your business will be affected by the 2014 Mexican Tax Reform. Notable changes for 2014 include:
- Elimination of scheduled decreases to the corporate tax rate, keeping it at 30%
- Elimination of the flat tax (IETU) regime
- Broadening of the corporate tax base, including elimination of immediate depreciation and introduction of a limitation on deductible employee payroll and benefits expenses
- New 10% withholding tax on dividends
- New 8% excise tax imposed on flavored beverages and snacks
- Royalty taxes for mining companies went up dramatically
- Modifications to the definition of maquiladora and new limits imposed on them
For more information on Mexico’s tax law changes or expanding your business to Mexico, contact us today.