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Set up a Branch in Mexico

Set up a Branch in Mexico

The branch is one of the means of establishing a business in Mexico used by foreign corporations. It is essentially the Mexican counterpart of the parent company abroad and it engages in the same business activities as the foreign corporation it represents. 

Branch offices are the preferred solution in some business sectors, such as banking and insurance. Investors who want to set up a branch in Mexico can benefit from the services offered by ourMexico company formation agents.

 Quick Facts  
Applicable legislation (home country/foreign country)

Mexican corporate law 

Best Used For

to carry out the same business model of the parent company, and the same business activities 

Minimum share capital (YES/NO)

 no
Time frame for the incorporation (approx.) approximately 45 days 

 

Documents to be filed by parent company the parent company’s bylaws and articles of association, translated into Spanish, the power of attorney granted to the person who is appointed as the branch office representative (who must be a Mexican resident), the payment of the registration fee, the identity documents and other personal details of the shareholders, etc. 
Management (Local/Foreign)

it can be local or foreign (for foreign management it is required to have a manager who is resident of Mexico)

Legal representative required (YES/NO)

yes

Local bank account (YES/NO) yes
Independence from the parent company no
Liability of the parent company the parent company is liable for the debts and other
losses of the branch 
Corporate tax rate 30% 
Annual accounts filing requirements  yes, but there are fewer obligations compared
to other company types 
Possibility of hiring local staff (YES/NO) yes 
Travel requirements for incorporating branch/subsidiary (YES/NO) no, the investors can be represented by local specialists, as long as they have sent all the documentation required for incorporation 
Double tax treaty access (YES/NO) yes

The characteristics of the branch in Mexico in 2022

The branch can be a convenient manner of establishing the presence of a foreign company on the Mexican market because it allows the foreign company to have full control over its operations in Mexico.

A branch’s scope of activity is not as broad as that of a corporation: it may not own real estate and the foreign company abroad is fully liable for the debts and obligations of its Mexican branch

The branch is subject to the same taxes as a Mexican corporation for the income it derives from the country, however, it has lower requirements for accounting and annual filing than locally registered corporations.

Our Mexico company registration agents can give you further information on branch taxation and how the double tax treaties can influence the overall branch taxation.

Branch set up in Mexico

Foreign companies that wish to set up a branch in Mexico must obtain an approval from the Ministry of Economy. A set of documents are needed for registration, including the translated Articles of Association and company registration certificate belonging to the parent company.

You can address to our team of consultants who are specialized in setting up a company in Mexico for information regarding the entire process and full assistance on the documentation that has to be prepared.

According to the procedures for company formation in Mexico, during the registration of a branch office, the investors have to prepare legalized translations in Spanish of the corporate documents that they will submit for incorporation.

Foreigners must be represented by a local representative, who must be a Mexican resident. In this respect, our consultants in company registration in Mexico can be of help, and they can represent you through the power of attorney. 

When submitting the files for the registration of the Mexican branch office, the applicants must also pay a registration fee.

All the required papers will be analyzed by the representatives of the Ministry of Economy and a response regarding the file can be obtained in approximately 15 days since the day when the file was submitted. 

However, this will not be the final stage in the process of opening a company in Mexico as a branch office. This represents only the beginning of the procedure.

In the case in which the Ministry of Economy will offer a positive response, the investors will be then allowed to go to the next step, which is to address to the National Registry of Foreign Investments, another institution where the branch must be registered with.

Here, another set of documents has to be prepared, and the representatives of the company will need to present information on the types of economic activities that the branch will develop.

At the same time, the company’s tax identification number must be presented. Here, the investors will have to wait 10 days until they will receive an answer from the institution.  

In the list below, our consultants in company formation in Mexico have prepared basic information concerning the documents that are needed for the registration of a branch

  1. the company’s bylaws and articles of incorporation (of the parent company), translated into Spanish and legalized at a public notary;
  2. the power of attorney which grants the right to legal representation for the person who is appointed as a legal representative of the branch;
  3. the person appointed as a representative must be the holder of a tax identification number issued by the Mexican authorities, which implies that the person is a resident of this country;
  4. the evidence that the applicant company has paid the necessary fees;
  5. the list of the economic activities that will be developed through the branch

 
Mexican institutions involved in the registration process 

The process of company formation in Mexico involves the participation of many institutions that are in charge with specific procedures and approvals. Because of this, investors have to prepare various application forms and files as per the internal regulations of each institution. 

When we refer to the registration of a branch in Mexico, is it important to know that the investors (through their representative) will have to address to the Tax Administration Service, which is in charge with the issuance of the tax identification number. 

Please mind that this procedure can take up to 45 days, depending on various variables, as many documents have to be notarized, which implies the participation of a notary public. 

Of course, expedite notary services are available, if the investors want to start their business operations as fast as possible, but there is a limit on how short the registration procedures can actually be. 

It is also required to address to the National Registry of Foreign Investment and the Economy Secretariat. This institution decides on whether the foreign company is allowed to set up a branch office in Mexico or not. 

This decision can be issued in a period of 90 days since the documentation has been filed by the company’s representative. 

We invite you to watch a short video about the procedure to set up a branch in Mexico:

What are the main corporate taxes applicable to a branch in Mexico in 2022?

As mentioned above, a branch office in Mexico is liable to the same taxes that are charged to other legal entities registered in this country. There are special rules that apply to the branch office with regards to the manner in which the taxation is made.

Given that the entity is not a Mexican based company, but solely a permanent establishment of the parent company abroad, the branch office is liable to taxation in Mexico only for the income attributed to the activities carried out in this country. 

Other than this, all taxes are charged in accordance with the tax laws imposed by the Mexican authorities. The branch office is liable to the payment of the corporate tax, the value added tax, the employment taxes and other types of taxes.

In the list below, you can discover information on the current tax rates applied to companies in Mexico

  • the corporate income tax – it is charged at the standard rate of 30%;
  • the value added tax – charged at the standard rate of 16%, it also applies a 0% tax regime that is charged on basic goods, such as foodstuffs;
  • the payroll tax – charged on the salary of the employees at rates ranging between 1% and 3%; 
  • another type of employment tax is charged at a rate of 30% for specific employment benefits, such as the Christmas bonuses or the vacation premiums;
  • social security – charged at a rate of 1,65% on the salary of the employee and at a rate of 7,58%, charged to the employers. 

What are the advantages of opening a branch in Mexico? 

As a foreign entity, one can set up a company in Mexico through a branch office or through a subsidiary and each situation presents a set of advantages and disadvantages.

When we refer to the advantages of the branch office, investors should consider the following: the registration of a branch is a more simple and straightforward process, compared to registering a subsidiary, and it also provides certain financial advantages. 

The latter advantage refers to the fact that the initial capital can be lower, compared to investing in a subsidiary.

The registration costs are lower and this can be an advantage when expanding on a new market – however, it is necessary to know that in terms of liability, the foreign company is fully responsible for the debts of the branch, and this can be seen as a negative effect of operating through a branch

Even so, opening a company in Mexico under a branch office can have numerous management benefits, as the branch must follow the management decision of the parent company, while replicating its business model and procedures.

This translates into a larger control of the parent company over its branches, as the parent company must approve all the financial decisions and any other major decisions that must be implemented by the branch

It is also a vehicle useful for brand recognition, as the branch must use only the signs, logos and other trademark identification signs of the parent company.

The branch can also have certain tax benefits and our team of consultants can present them; for any other details concerning the company incorporation in Mexico of a branch, our team can offer advice. 

What is the data on foreign investments in Mexico? 

Typically, those who want to open a branch office in Mexico are foreign investors. Choosing Mexico as the place for doing business through a branch office can be a very good decision, considering that this country is the 9th global recipient of foreign investments. 

The main foreign investors of Mexico are the following states: 1) Spain, 2) the United States of America, 3) Germany and 4) Canada. 

The main sectors of activity preferred by foreign investors are: 1) manufacturing, 2) insurance services, 3) financial services, 4) communication, 5) retail, 6) wholesale trade. 

From a geographical point of view, most of foreign investments can be found in 2 main locations: 1) the capital city and 2) the cities close to the Mexican-American border

Regarding the share of investments, the highest capital inflow observed for 2020 was from investors from the United States of America, representing a total of 39,1% of all the investments of that year. 

Manufacturing is the main activity in which foreign businessmen invest in Mexico, accounting for 40.6% in 2020.  

What are the rules for foreign ownership in Mexico? 

Generally speaking, those seeking to open a company in Mexico can enjoy full ownership of a legal entity as foreign investors. However, there are certain limitations that are imposed under the Mexican law

These limitations can be found in certain economic fields as per the Article 7 of the Foreign Investments Law. 

In regulated sectors, the share of foreign ownership can be limited to maximum 10%/25%/49%, depending on the sector. For instance, those who want to invest in insurance or leasing can only own a maximum of 49% of the shares as foreign investors. 

While the branch does not offer limited liability, foreign companies can prefer to set up this business form over other types of companies. You can contact our Mexico company formation agents for more information on how to open a branch or any other legal business structure in Mexico.