Foreign investors can open a representative office in Mexico. The representative office is also known as a liaison office and it defines a type of structure that is used only for non-commercial purposes. The representative office is set up by a foreign company abroad and for the registration, the foreign representatives must follow the steps for company formation in Mexico stipulated by the Mexican law.
Our consultants in company incorporation in Mexico can advise on all the steps involved in the registration and can provide full legal representation when dealing with the local institutions.
What are the characteristics of a Mexican liaison office?
The most important characteristic of a Mexican representative office is that it can be established only for non-commercial purposes, which implies that the entity is not designed for obtaining a profit when dealing with any third party in Mexico.
The parent company abroad is fully responsible for the representative office, for its decisions, liabilities, incorporation formalities and other post-incorporation obligations (taxation, reporting, etc.), making this structure rather similar to the branch office.
The main difference between the branch office and the representative office is that the first is established as a commercial company, set up for developing business contracts and completing various financial transactions (selling goods and/or services).
Therefore, investors who want to open a company in Mexico that will carry out commercial activities will have to search for other options, as the representative office can deal only with activities that will be beneficial to the parent company in a non-profit way (marketing, establishing new partnerships, etc.).
What are the incorporation obligations for a Mexican liaison office?
The representative office must conduct specific steps for company formation in Mexico, many of which are similar to the incorporation of a commercial company, but with some that are specific only for this entity.
Our consultants in company incorporation in Mexico have prepared a short presentation on few highlights of the registration process:
- the foreign company abroad, the founder of the representative office, must pay registration duties in amount of $2,168;
- the payment of duties is regulated by the Article 72, Section V of the Federal Law of Rights;
- a compulsory step, applicable to a representative office as well as to those who will open a company in Mexico, is to set up a corporate bank account, a procedure that can be completed in 8 weeks;
- overall, the registration of a liaison office can be completed in 16 weeks;
- the entity can be founded by 1 shareholder (the parent company abroad).
What entities can set up a representative office in Mexico?
Any type of entity, including non-governmental organizations, can operate through a liaison office in Mexico. The process of company formation in Mexico will be the same, regardless of what type of entity sets up this type of establishment.
However, in practice, when we refer to entities that obtain a profit from their activities, the liaison office can be set up by financial institutions, such as banks, which can, prior to engaging in a commercial activity in this country, set up a representative office through which they can introduce their services to the local market.
In general, banks operate through a representative office when wanting to address any potential clients on a new market. It must be noted that in this case, it is necessary to obtain an approval from the Mexican National Banking and Securities Commission.
Other types of commercial entities that can benefit from the advantages of a representative office are corporate entities, such as limited liability companies and other types of small and medium-sized companies that operate on foreign markets and want to see if there is a potential to further business activities in Mexico.
Therefore, prior to opening a company in Mexico, the liaison office can be the ideal solution for marketing research. During this stage, the liaison office will develop specific activities through which it will be measured what types of products/services can the company sell on the Mexican market.
Alike, the foreign business will want to determine the ways in which these products should be adapted to the local market and whether this will be necessary or not (as such, the company can make a clear business strategy and calculate the budget required for investments in Mexico).
For the latter, our accountants in Mexico remain at your service. Our consultants in company incorporation in Mexico can assist foreign business in all stages related to the registration of a legal entity, commercial or otherwise, and once your company starts its activity, our accountants can further assist you.
Please know that you will need accounting services for a representative office as well as, even though the entity does not develop commercial activities, it will still need to comply with local accounting standards and make various tax payments, such as those associated with employment.
The business can also discover more on the local competitors, the quality of their products and services, their market strategies to reach clients, their strengths and weaknesses and how the foreign company can be positioned on the new market amongst all other businesses once the process of company formation in Mexico is completed.
It is also important to know that if you want to open a company in Mexico, you can’t open a representative office at the same time. As such, you either directly open a business, or you first open the liaison office, analyze the parameters you need in order to see if you can start a business, and then register a legal entity.
In other words, if you want to open a representative office in Mexico for the purpose you need it, you first open this type of establishment, then you close it down and afterwards you set up a commercial business, in accordance with the Mexican legislation.
What documents are required for incorporation?
The documentation required for the registration of a liaison office is similar with the one required for company incorporation in Mexico. Investors must prepare a shareholders’ resolution through which the decision to set up a representative office is established.
It is also necessary to obtain the permit from the Mexican Ministry of Economy, along with the statutory documents of the foreign company, the proof of payment of all the necessary fees, the power of attorney, if the procedure is done through a third party, such as our specialists in company formation in Mexico.
What is the law applicable to Mexican liaison offices?
There are many rules of law applicable to a liaison office, including the Company Law (for matters concerning the incorporation, the registration of employees, employment taxes, reporting, etc.).
Please mind that, although the representative office does not conduct any commercial activities, it still needs to complete certain accounting and reporting obligations, and our accountants in Mexico can present what these obligations are.
The liaison office must follow the rules of the Foreign Investment Law (Article 17, Section II, and Article 17-A). According to the Mexican Government, the liaison office must also follow Article 21 of the Regulation of the Foreign Investment Law and the Foreign Investments National Registry.
It must also respect the rules of the Article 2,736 of the Federal Civil Code. There are other obligations to comply with and this is why we highly recommend you to contact our specialists, who can help you set up a company in Mexico. For accounting services, our CPA in Mexico remains at your service as well.