Without a doubt, whether strategic or operational, challenges in Mexico are defined by “The Devil is in the Details” in 90% of the situations that present themselves. As an attorney and a consultant, I find that at least 50% of my time is spent on simply making things happen for my clients, things that in the US are not issues or taken for granted. You can come up with the best of strategies but the real key is in the implementation, or in sizing up the implementation realities adequately before deciding on a strategy.

As a result, you would think that Mexicans are better at recognizing this problem and addressing it, that is, recognizing the importance of details and therefore sacrificing conciseness for preciseness. However, Mexican tolerance for ambiguity and their decision-making processes tend to be focused, ironically and tradegicly, too often on gut feels and proceeding without defining important details. This happens for two reasons. First, it is the culture and business culture to tolerate ambiguity. Second, Mexicans are accustomed to not having access to good market information (or it simply does not exist) and therefore they have had to learn to make decisions often without it.

This dichotomy is something that frustrates a lot of foreigners who try to do business in Mexico, and is probably one of the major reasons why clients look for legal and accounting services from firms like SDL Consulting that understand that “The Devil is in the Details” and dedicate themselves to ensuring that they don`t overlook the details when helping their clients operate in Mexico.

In 2006, at the beginning of the 6 year Calderon administration, plans began for a comprehensive infrastructure program and a 20 year water agenda, with an important part of the infrastructure program focused on the water sector. As a result, later that year, the President released his 5 year Water Plan. Said plan is supposed to improve insufficient and lagging public water infrastructure thus allowing Mexico (64th in the world) to catch up in water infrastructure with advancing Latin American countries such as Chile (35) and Panama (46). A second, more long term and loftier goal of the plan was to set Mexico in motion to reach important, developed world goals and targets by 2030, establishing benchmark goals of reaching the water infrastructure levels of such advanced countries as South Korea (21), Spain (22), Malaysia (23), and Ireland (31).

The 2007-2012 Plan has 8 general objectives. Each one of these general objectives has 5-10 specific, operational strategies that were created to reach these objectives and which help to make the evaluation of progress with these objectives more operational and measurable, something fairly novel for a the water sector and for Mexican government entities in general. Many of these strategies have multiple components with 2012 goals reporting plans to demonstrate periodically how far along they are in reaching these goals. Below are the objectives:

1. Improve water productivity in the agricultural sector.

2. Increase the access and quality of potable water, sanitation, and sewage systems

3. Promote the integral and sustainable management of river basins and aquifers

4. Improve the technical, administrative, and financial development of the sector

5. Consolidate the participation of end-users and society in the management of water and the promotion of appropriate water use and water culture development

6. Prevent risks derived from storms and heavy rainfall and deal with their affects.

7. Evaluate the effects of climate change in the water cycle in the country.

8. Create a tax-paying water culture and promote compliance with the National Water Law.

The Plan has four specific and concrete goals for 2012 (related to the 2nd point above):

A. Increase potable water coverage to 92% nation-wide

B. Increase sanitary/sewage coverage to 88% nation-wide

C. Increase wastewater treatment coverage to 60% nation-wide.

D. Increase the level of efficiency in 80 local water utilities by 8%

Some might say that these goals are lofty especially considering the following facts. At this time, while 97% of urban areas have access to potable water, and only 76% of the rural areas have such access. Likewise, while 96% of the urban areas have access to sanitation/sewer systems, only 63% of the rural areas have this access. And while about 33-40% of the wastewater is currently treated in the country, only 10% of the wastewaters in the Greater Mexico City area and 0% of the wastewaters in the Greater Guadalajara area are currently treated. And, the competitiveness of Mexico’s water and sewage systems is considered to be 20% below the Latin American average, well below Chile, Colombia, Argentina, and Brazil, and just below severely underinfrastructured Peru.

A. Details of the 2030 Mexico Water Agenda

The Water Agenda 2030 was announced when the 5 Year Plan was announced. However, it was not until a few months ago that it truly began to take shape. And, even more importantly, the concrete strategies for the Agenda will be determined later this year as Conagua interacts with government, organization, and Business interests so that people from these areas can provide ideas and suggestions for approaches and technologies. In this way, Conagua hopes to construct a platform that will establish the necessary procedures to strengthen the water sector to comply with still unfulfilled 2012 goals as well as the still unspecified long term 2030 strategies.

The Water Agenda 2030 is still in its initial stages in terms of having measureable strategies. The general goal for the 2030 Agenda is for México to become one of the 20 most advanced countries in the water sector according to the Infrastructure Index of Competitiveness. Its specific, clearly lofty goals to date are the following:

• By 2015, all river basins will be in equilibrium, all irrigation will be technified, and all treated water be reused.

• By 2016, all major habitational areas will be free from risk of flood.

• By 2024 , all rural areas have access to potable water.

• By 2025, all industrial wastewater will be treated

• By 2030, all aquifers will be in equilibrium and the diverse sources of contamination will be under controlled.

With the still lingering international economic crisis, the 2012 Presidential elections and traditional Mexican political environment and realities, the lack of significantly increased revenue stream, and the fact that Mexican consumers consider water to be a mere commodity, it is difficult if not impossible to be able to say that these programs will be prioritized like they need to be during the next presidential administration let alone if they can and will be successful. However, in light of the extent of the problems and their urgency, and the evidence of a new, apolitical commitment to water infrastructure issues, we believe that the issue of the Mexican government commitment to resolving these problems will continue to move forward and is almost irreversible.

Earlier this year, SDL Consulting posted an article on its blog side about how most economists wrongly wrote off the 2009 Mexican economy.  The first paragraph of the above article reads:

“Mexico, without a doubt, took a very hard hit in 2009. Virtually everyone north of the border wrote off Mexico in 2009 and pretty much for the next couple of years. Brazil and most of the rest of Latin America were supposedly already recuperating from the crisis and growing again in the black, even in the last quarter of 2009. Therefore, both Latin America and the BRIC markets (Brazil, Russia, India, and China) were supposed to greatly out pace Mexico in trade during the next few years, and therefore they were supposed to be better markets for US products and services.” 

This very negative absolute and relative perspective about the Mexican economy was untrue for 2009 and is further borne out for the first half of 2010 when one analyzes the Mexican economy and Mexican import figures for that period.  And, these half year trends should only get better and stronger in the second half of 2010 and 2011.  This article, on the 2010 Mexican economic situation thus far, will be an effective update of the analysis of these same 2009 parameters which should help us understand to what extent the Mexican economy has improved since 2008, prior to the arrival of the economic crisis in Mexico, and since 2009 during the worst of the crisis.

Mexico Macroeconomic and Growth Figures – In the last quarter of 2009, Mexican economic growth for 2010 was expected to be 2.9%, somewhat similar to the 2.5% estimated economic growth in the US.  However, shortly after the beginning of the year, the figure for Mexico was increased significantly to 4.5% and as of October, that figure continues to hold true.  Economic growth in 2011 is expected to be more or less the same at 4%.  By the end of 2011, Mexico should be able to return to pre-crisis GDP and per capita income figures.  Although year end 2010 and first half 2011 estimates are very positive for Mexico, a slump in the US economy could still affect the economy. 

Likewise, Mexican international commercial activity is dynamic again.  To date (through August), Mexican imports are up 33% since the beginning of the year.  Total exports (including oil) are up 35.6%, total exports excluding oil are up 34.5%, manufactured exports are up 35.2%, and machinery and equipment exports are up 40.7%.  These are strong signs of the commercial recovery in Mexico.  However, with the US consuming over 80% of Mexican exports, a slump in the US economy could seriously impact Mexican export activity.    

US Exports as an indicator – If export volume and growth are good indicators of economic dynamic, one must conclude that the Mexican economy is experiencing a strong recovery from the economic crisis. In the first half of 2010, US exports to Mexico were up 32% while US exports to China were up a very similar 35.2%.  It is important to note that US export growth to Mexico in 2008 was positive and that in 2009 it fell by only 14.5%, meaning that US exports to Mexico are already up in absolute terms 10-15% over pre-economic crisis levels. US exports to Mexico increased from 11.75% of total exports in 2008 to 12.2% in 2009 to 12.64% in the first half of 2010.  During the first half of 2010, the only top 25 export destinations where US exports experienced greater than 30% growth were in several Asian countries, Brazil (38%), Colombia (35%) and Mexico (32%).  Also, while 9 of the next top 10 Latin America export destinations had US export increases of greater than 23% with half actually greater than 35%, US export growth to Mexico was still slightly higher than the average increase for these next top 10 Latin America export destinations (31%).

A lot of corporations judge growth potential against the export volumes and growth figures for the BRIC countries: Brazil, Russia, India, and China.  During 2009, total US exports to all of the BRIC countries totaled $118 billion while total US exports to Mexico were over $10 Billion more at $129 Billion. In the first half of 2010, US exports to Mexico represented 12.4% of total exports while US exports to BRIC countries represented 11.4%, a full percentage point less  US export growth to Mexico (32%) also stayed on par with the dynamic average growth in the BRIC countries (32.7%).  So, Mexico is not only more important than BRIC countries in terms of current US export volumes it is also keeping up with BRIC export growth figures which no one expected. 

Wisconsin Exports as an Indicator – In the State of Wisconsin, the numbers are even more pronounced in favor of the Mexican market in 2009 and 2010. In 2009, Wisconsin exports to Mexico did drop like US exports to Mexico and the rest of the world, but only by single digit figures. Also, even with this decrease, like total US export figures, Wisconsin exports to Mexico as a percentage of total Wisconsin exports increased from 7.9% in 2007 to 8.6% in 2008 to 9.5% in 2009.  In 2010, Wisconsin exports to Mexico represent 10.3% of total exports, and considerably more than the 6.6% figure for China.  In 2009, Wisconsin exports to China fell more than they fell to Mexico.  And, in 2010, Wisconsin exports to Mexico grew by and impressive 34%, three times the 10.5% growth in Wisconsin exports to China. 

In relation to the growing Latin America region, 2009 Wisconsin exports to Mexico decreased less than the average decrease to the top 10 Latin America export destinations.  In 2010, Wisconsin export growth to Mexico (31%) was well above the average increase to the next top 10 Latin America export destinations (14%) and still double the figures to the five top Latin America export destinations (15%).  Nonetheless, it is important to note that exports to Brazil are up 57% and to Colombia up 88%.  Nonetheless, it is important to note that first half 2010 Wisconsin exports to Mexico ($963 million) remain more than a third more than total Wisconsin exports to the next top 10 Latin American export destinations ($640 million).

It is also important to note that while Wisconsin exports to the four BRIC countries (11.1% of total exports) were somewhat more significant than Wisconsin exports to Mexico (10.4% of total exports), Wisconsin export growth to Mexico (34%) was almost double average Wisconsin export growth in these supposedly much more growth-orientated BRIC countries (18%).  

Conclusion – The above figures demonstrate that during the worst of the economic crisis in 2009 and during this year of recovery, Mexico has demonstated to its doubters and critics that it could endure the economic crisis (2009) and recover (2010) with or even more vibrantly than most of the rest of the developing and growing world.  Mexico has always been a good market for almost all US goods and it should not be overlooked nor underestimated now. So, for those companies that decided to look elsewhere in 2009 and thus far in 2010, SDL Consulting would like to suggest that they reconsider Mexico, still the US´s #2 export destination and one that is more than keeping pace with the rest of the world markets, including the important Chinese market.

The last time these types of restrictions were imposed, in 1982, it was done by President Lopez Portillo during a desperate, unpopular attempt to stem historic devaluation and financial destabilization with radical financial policies.  Since that time, Mexico has moved in a completely different progressive fiscal and monetary direction which has allowed Mexico to go from a country where it was dangerous to maintain funds.  This most recent effort should not be characterized as a departure from current policies or a return to the restrictive policies of the early 1980s.

Those people who will be most affected by these new measures, apart from the drug cartels, will be Mexican and foreign individuals receiving funds from abroad for personal reasons.  Tourists and Mexicans without bank accounts will be limited to changing a maximum of $1500 US into Pesos each month.   Also, this same limit will be imposed on individuals depositing dollars into dollar accounts at Mexican banks.  However, how the Mexican government hopes to enforce the restriction on the changing of dollars into Pesos is unclear at best.  Said measures will go into effect in a transitional manner during the 90 days following the June 15^th announcement.

In many cases, non-resident foreigners wishing to carry out commercial activities in Mexico can do so with a simple FMN VISA document, that can be filled out when entering the country and does not have a cost or fee. However, when carrying out commercial activities, non-resident foreigners, need to obtain a non-resident FM3 VISA from their local Mexican consulate, or via Mexican Immigration Offices in Mexico City and in each state.

Foreigners living more than 180 days in Mexico are considered residents in Mexico for tax and immigration purposes. All resident foreigners, employees and their family members, must obtain VISAs to work and reside in Mexico. And, these VISAs can only be requested by these foreigners` Mexican-based employers. For resident foreign business persons, the Regulation of the Mexican General Population Law (Ley General de Población) recognizes three different immigration statuses: non-immigrant, immigrant, and immigrated.

Non-immigrant working status (FM3) is granted to business people and their families with the understanding that they will be residing in Mexico more than 180 days during the year and their stay in the country is short term. In reality, this condition also exists if a foreigner is in the country for less time but has his/her source of income from a Mexican corporation.

While foreign executives in Mexico who will be transferring out of Mexico in less than five years are normally given FM3 VISAs, it is not uncommon to find that such executives have been granted FM2 VISAs. And, in reality, for foreign executives who will not be in Mexico for more than 4 years, there is no difference in immigration procedures, treatment, or benefits between the FM2 and the FM3.

Immigrant working status (FM2) is issued when someone effectively declares that they will be in the country for at least 180 days of the working year (or they live in the country for less than 180 days but receive their income from a Mexican corporation) and that they will be in the country for at least a medium-term (4 year) period. Having immigrant status (vs. non-immigrant status) can be important for two very specific reasons.

First, only a foreigner with immigrant status is allowed to become a Permanent Resident. The benefits of becoming a permanent resident are the following:

1. The foreigner no longer has to do annual immigration paperwork and is only required to advise the immigration authorities if there is a domicile, marital, or employment change;
2. The foreigner can now be self employed and therefore no longer has to be tied to a Mexican company that is “sponsoring” him/her before the immigration authorities.

The foreigner can do virtually everything else a Mexican can except vote or be elected to public office.

To obtain Permanent Resident status in Mexico, the immigrant presents the request to change the migration status anytime after the fourth renewal of the FM2.

Second, only a foreigner with immigrant status is allowed to bring his household goods with him/her to Mexico tax free. This includes furniture, appliances, clothes, and other personal effects including a car. This procedure is called menaje de casa, and is carried out at the Mexican Consulate in the country of origin, consisting of presenting a complete list and economic value of the goods without the need of presenting the invoices.

In both of these cases, foreigners should try to avoid the following errors. Sometimes, foreigners are told to request or they are granted an FM3 (non-immigrant) VISA and later realize that they want to bring in their menaje de casa to Mexico. As mentioned above, although for subjective reasons one might be able to find an exception, only foreign executives with an FM2 VISA are supposed to be eligible for this benefit. Likewise, it is important that if a foreigner is interested in pursuing permanent residency that they obtain an FM2 (immigrant) VISA from the start. Mexican immigration authorities are not supposed to count any years when a foreigner has resided in Mexico with an FM3 towards the above-mentioned four year residency total. Only years using the FM2 document are valid for these purposes and SDL Consulting has not seen legal or subjective exceptions to this rule for many years.

Eight other water norms that will be insitituted sometime during 2010 include:

1. Water consumption specifications for plumbing/bathroom devices;
2. Specifications and test methods for potable water system, sewer, and domestic water intake related to hermetic questions;
3. Maximum allowed pollutant limits for brine water discharge of sea water desalination plants into national waters and related environmental impacts;
4. Modification of NOM-011-CONAGUA-2000, which establishes the specifications and methods to determine the mid-annual availability of national waters;
5. Discharge for urban wastewater that is not connected to a sewer system;
6. Requirements to obtain the seal of “Ecological Grade” for laundry washing machines;
7. Specifications for rainwater discharge in urban zones; and
8. Flow control devices, water flow regulators, and test methods.

The same article included an inventory of the country’s wetlands, which will aid in determining the current state of these ecosystems, knowing what these assets and services provide, and being able to develop measures to ensure their conservation and sustainable development.

That’s one of the major points made by MANA associate member Vince Lencioni, LGA Consulting, Mexico City, Mexico. As a matter of fact, the very existence of that challenge is one of the major reasons Lencioni and his company have joined MANA.
According to Lencioni, who also is an attorney, “There is no MANA in Mexico, and I think there needs to be one. We don’t have very sophisticated rep networks in Mexico. Generally, whatever exists has been very informally created. For instance, you’ll have an individual who formerly was an employee of a manufacturer. He’ll leave the employ of that company, taking his knowledge of the industry, and go out on his own to sell similar products or products that his former employer needed but weren´t readily available in the market.”

He continues that in the absence of any form of rep association such as MANA, there are some distributor and manufacturer associations, but there’s nothing to meet the needs of reps.
In partial response to that void, Lencioni explains that part of LGA Consulting’s goal is to “assist United States manufacturers who may be using reps in the United States and who recognize the fact they should be doing the same in Mexico — but haven’t had any success as yet.”
To that end, he explains that for more than 12 years, “We’ve been able to find those reps that may be ‘hiding in the grass.’” The consulting firm has served as the trade office for the State of Wisconsin, helping Wisconsin exporters find distributors and reps, having some contact with the Wisconsin Association of Manufacturers Agents, Inc. (WAMA) and its member companies.
“Since there’s no directory or formal database of reps in Mexico, we’ve been able to employ what I’d call a ‘backdoor approach’, that is contacting manufacturers for suggestions, to finding reps that can best meet the needs of U.S. manufacturers.”

Rep Finding Service
According to the consultant, “We’ll offer a service whereby we’ll locate reps by phone and request that they complete an Englishlanguage profile of their services/capabilities. A higher level of service that we provide calls for us to meet in person with the prospective rep. In addition, we’ll also ask for commercial references from companies that they conduct business with outside of Mexico.”
During the course of locating reps to work with U.S. manufacturers, Lencioni maintains that there’s also a certain amount of education that’s called for when working with U.S. companies. “There are a couple of misconceptions that must be addressed for any company new to working in Mexico. First there’s the matter of how important credit is, and second are perceptions concerning corporate/commercial law in the country.”
When discussing the former — credit — Lencioni makes the point that “U.S. manufacturers have to realize that when conducting business in Mexico, they can’t avoid credit issues and think that they’re going to be viable factors in the market over the long or even the short term.”
The consultant emphasized, “With many companies that operate internationally, their accounting people tend to be fairly ‘black-and-white’ when it comes to extending credit to foreign customers. Many U.S. companies especially may not want to hear that, but it’s a fact of life in Mexico, and it will affect a manufacturer’s success or lack of success here. The reason credit is so important here is that the majority of the banking institutions won’t extend credit to companies. As a result, they’ll look to their suppliers for credit, which is where Mexican companies obtain over 60% of their financing. Credit is simply a competitive fact of life here. Don’t misunderstand me. Customers are still price-sensitive, but they may be even more credit-sensitive. That’s something a manufacturer will have to come to terms with.” Lencioni went on to say that with Mexican promissory notes, other guarantees, reasonably priced receivables insurance, and checking US commercial references, US companies can extend credit to Mexican companies with the confidence that they will get paid. CFOs of international companies need to realize that the Mexico of today is a different Mexico than that which suffered through the financial crises of the 1980s.

While collections in Mexico without guarantees can still be long and tricky, collections with guarantees is a solid business strategy and not imprudent.
On the question of corporate/commercial law, Lencioni, a Mexican attorney, admits that there may be a perception that such law exists in Mexico, but that’s not the case. “Mexico is hardly lawless and it’s certainly not Central America or China.” As an example, he cites the fact that manufacturers can much more easily contract with a rep in Mexico than in Central America where such an agreement is tantamount to extending an employee contract. “Mexico is much more progressive than that. Representation is not equivalent to employment and, in fact, it is very difficult to establish there is any type of employee relationship in Mexico.”
Lencioni continues that another consideration U.S. manufacturers have when it comes to Mexico is the size of the market. “While Mexico may be the 12th largest market in the world, it is still finite compared to the United States. A real reality check for most manufacturers comes when they realize they’ll have to be a little more creative when it comes to compensation for their reps and be willing to live with the fact there may be fewer opportunities than they’re used to in the US. While the nuts may be tougher to crack here, the effort is worth it.”

Service

As an example of the type of service LGA Consulting provides for manufacturers seeking independent representation in Mexico, Lencioni provided a description of his firm’s AgencyFind services. A synopsis of those services includes a ninestep process:

• LGA sends a fourpage questionnaire to the interested foreign company.
• The firm creates a onepage profile about the foreign company and its interest in Mexico and translates it into Spanish.
• LGA initiates contact with the foreign company in order to clarify points and to make certain that it understands the type of company and type of relationship that the company desires in Mexico.
• A critical mass of companies that appear to be good targets for the company in question is accumulated via search efforts.
• When a Mexican company confirms interest, LGA sends it a form along with the brochure/catalog of the foreign company.
• *Once LGA receives the form from the Mexican company, it reconfirms the information.
• LGA takes the information from the Mexican company questionnaire and translates it into a functional profile in English. LGA then provides the foreign company with its general opinion of the Mexican company’s potential in the format. LGA contacts the foreign company to secure dates for a necessary visit to Mexico.
• LGA waits for confirmation of visit dates and schedules meetings.
• If, after the search is complete, it is determined that the candidate focus was incorrect, the firm will reopen the search and find additional candidates at no cost to the foreign company.

It is emphasized that the above is merely an outline of the distributor and representative search services that LGA Consulting provides for U.S. manufacturers. Also, as mentioned above, when finding representatives specifically, the “backdoor approach” is just as important or more important than the above, more traditional methodology. More detailed information concerning the consulting firm may be found on www.lgaconsulting.com.

ISR (Traditional Income tax)

Starting January 1, 2010, the corporate income tax rate increased from 28% in 2009 to 30%. The base for this tax is Net Fiscal Profit. To calculate the fiscal result, one uses the following formula: Revenue minus cost of sales plus deductible expenses (general expenses, payroll and corporate payroll taxes). These concepts can be paid or accrued as long as the documents are issued with all fiscal requirements.

Monthly ISR tax payments need to be paid on or before the 17th of the following month. The due date for filing annual tax returns is March 31st.

IETU (Alternative income tax)

This somewhat controversial and not terribly progressive tax was first implemented in 2009. Its tax base is arrived at differently but the values should be somewhat similar to ISR tax. The flat tax rate for the IETU tax is 17%. The base to calculate this tax is the fiscal net profit of revenues collected and expenses paid (all transactions registered in the company bank statement). Under IETU, payroll and corporate expenses are not deductible but Mexican fiscal law allows you to credit this tax payment against the determined ISR tax.

Monthly IETU tax payments need to be paid on or before the 17th of the following month. A monthly informative tax declaration related to IETU calculation has to be filed on the 17th of each month, as well. The due date to file the annual IETU tax return is March 31st

IVA (VAT tax)

On January 1st 2010, the VAT rate was increased from 15% to 16%. The VAT tax payment is calculated every month. This calculation includes all the transactions related to the VAT collected on revenues/sales and the VAT paid on deductible expenses. The difference between these transactions will determine if there is VAT to pay or a VAT credit.

The due day to file the VAT declaration is on or before the 17th of the following month. A monthly informative tax declaration has to be filed on or before the 17th of the following month. This declaration includes information regarding the VAT paid to each vendor or service provider. The due date to file the annual informative VAT return is February 15th.

While incorporation options in Mexico are somewhat similar to those in the US, there are some important differences. In the US, the most common types of corporations, in order of limited liability status, are:

1. C Corporation (taxed as a Corporation)
2. LLC (Limited Liability Corporation)
3. S Corporation (taxed as a Partnership)
4. LLP (Limited Liability Partnership)
5. Partnership

In Mexico, the three most common types of incorporation, also in order of their limited liability status, are the following:

1. SA
2. S de RL
3. SC

Let me explain some of the similarities and differences of these models and try to match up Mexico incorporation options with their rough counterparts in the US. However, I want to clarify that I am not a US attorney and therefore some of the statements I make concerning the US incorporation models are made not for legal purposes but only for comparative purposes.

Mexican Corporate Models

An SA corporation, known as a Sociedad Anonima, has been the traditional incorporation model during the past 50 plus years in Mexico. It has limited liability and is taxed as a corporation. The S de RL model, known as Sociedad de Responsabilidad Limitada, has been a new, simpler model that has come into vogue in Mexico during the last 15-20 years. Many large companies, such as Wal Mart use the S de RL model, which has its name suggests, is also a limited liability corporation. The S de RL model does offer some partner-like benefits that companies can take advantage of but is taxed in an identical way to the SA model, as a corporation. Today, the only companies that reach for the SA model without considering the S de RL model are those that are public corporations or have aspirations to become public since the SA model is better structured for the formalities of a public corporation. Finally, the SC partnership, known as Sociedad Collectiva, is an unlimited liability partnership that is used principally by service providers like law and accounting firms and consulting firms. Finally, while branches do exist in Mexico, the Mexican government frowns on their use except when a foreign company will be temporarily in the country and is looking for an incorporation option. Law and regulations about branches in Mexico is not extensive and left open to many interpretations that foreign companies generally do not feel comfortable with, and therefore they tend to consider one of the other corporate models.

Comparison of US corporate models to Mexican corporate models

The Mexican SA model appears to be the equivalent of the US C Corporation or the US LLC. And, the Mexican SC partnership appear to be the equivalent of a US partnership. However, the Mexican S de RL does not really have an equivalent in the US system. Both the S Corporation and the LLP are limited liability like the S de RL, but they are both taxed as a partnership in the US while the S de RL is not. Therefore, you could conclude that Mexico does not have a form of a limited liability partnership that a US LLP or S Corporation might look to use when incorporating in Mexico. And, as mentioned above, while the US uses branch incorporation with some regularity, US companies with branches should not seriously consider incorporating with a branch in Mexico.

Later in June or in July, we will expand upon incorporation themes such as incorporation requirements, time frames, costs, administration options, the importance of powers, and some suggestions about when/why a foreign company should consider incorporation in Mexico over continuing to do business in the market from a foreign base.