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Set Up a Subsidiary in Mexico 

Set Up a Subsidiary in Mexico 

subsidiary is a company which is owned or controlled by another company, named the parent or holding companyMexico is the ideal place to set up a subsidiary because it is ranked the 11th largest economy in the world, having 77% of its population living in urban areas.

In this article, our Mexico company formation consultants provide a few key details related to opening a subsidiary in this country.

How a subsidiary can be opened in Mexico in 2022

To open a subsidiary in Mexico, it is required to obtain an authorization from the local government first. Also, a fee in the value of around USD 100 has to be acquitted to the Mexican government.

An important aspect that should be clarified for foreign investors who want to open a company in Mexico as a subsidiary is that this entity is an independent structure from its parent company. 

Even though it belongs and it is founded by the parent company, the subsidiary has autonomy in many aspects, unlike the branch office, which is fully dependent to its parent. 

The subsidiary must be incorporated as a separate legal entity in accordance with the Mexican corporate laws. For this, the investors should decide on a suitable business form. 

In general, 2 options are commonly associated with the incorporation of a subsidiary: 1) the public limited company and 2) the limited liability company.  

According to the Mexican Foreign Income Law, a company can be considered a subsidiary as long as 51% of the capital of the company is subscribed by the parent company, which has to be the subsidiary’s major shareholder

Please mind that the law for company formation in Mexico allows foreign investors to own 100% of the company’s shares. Some limitations can appear depending on the business field in which the company operates. 

In order to be issued this permission, a declaration must be filed with the Ministry of Economy. This declaration includes the incorporation documentation of the parent company legalized or dully apostilled by the Embassy or Consulate of Mexico in the foreign company’s home country.

The above-mentioned declaration has to be translated by an officially certified translator. Moreover, a letter addressed to the local government has to be made, which will be comprised of:

  1. a written declaration which states that the parent company is incorporated in compliance with the legislation in its country of origin and that its by-laws are not against the public order;
  2. an explanatory statement of the activities which the subsidiary will be undertaking;
  3. the physical address for the commercial subsidiary activities.

Our company formation advisors in Mexico can offer more details on the registration procedure necessary to set up a subsidiary in this country. We also provide assistance to open any type of company in Mexico.

What is the tax system applicable to a subsidiary in Mexico? 

Investors who want to set up a company in Mexico should know that all entities that obtain an income from commercial activities are taxed following specific rules. 

Thus, tax obligations and tax reporting obligations will appear in the case of a subsidiary as well. In most of the cases, subsidiaries in Mexico must comply with the same tax obligations as local companies. 

This is due to the fact that the subsidiary is a Mexican incorporated company. So, unless stated otherwise by specific rules of law, subsidiaries must pay the same corporate taxes

Specific tax deductions can appear when the company qualifies as a foreign controlled entity, which can be the case of a subsidiary if certain conditions are met.  

In the list below, our consultants in company registration in Mexico have prepared a short presentation on basic taxes and tax laws: 

  • a foreign controlled entity that qualifies as opaque can benefit from the regulations of the Mexican Income Tax Law (Articles 176 and 177, which prescribe a preferential tax regime);
  • the corporate tax is charged at a rate of 30%;
  • withholding taxes on dividends are charged at a rate of 10%;
  • the withholding tax on royalties varies from 25% to 40%, when they are paid to nonresident entities;
  • social security contributions are paid by the employer, and the rates vary from 15% to 25% (progressive rates based on the income). 

What are the compliance obligations in Mexico? 

Whether one wants to open a company in Mexico as a subsidiary or a branch office, certain tax compliance procedures should be concluded in all cases. In Mexico, tax compliance is based on the accounting rules and the tax year. 

The subsidiary is required to comply with the same types of accounting regulations that are imposed to a regular company operating in this country. Our accountants in Mexico can present the main obligations a subsidiary will have.

As a general rule, the subsidiary is required to pay the general company taxes charged to local businesses, such as the corporate tax, the VAT, the employment taxes, etc.

A tax year in Mexico is the calendar year and all corporate structures will have various tax obligations throughout the year. 

Companies are required to pay the tax on their corporate income based on a self-assessment regime. Thus, advance corporate tax payments have to be made in 12 installments, 1 for each month of the year.  

It is also mandatory to submit an annual tax return and the deadline to submit it is within 3 months (the 1st quarter) since the beginning of the new financial year. 

Delays in the payment of the taxes due will be charged with penalties. All companies must submit their tax returns with the Tax Authority. 

Taxes collected as social security contributions must be submitted with the Mexican Social Security Institute

Foreign investors have to be aware of the fact that although Mexico offers multiple business benefits, the country lacks in digitalization services and because of this, most of the registration procedures are completed in person.

The investors are generally required to travel to Mexico in order to present various documents and to contact the local institutions for the registration procedure. 

However, this can be generally avoided through the power of attorney, a legal document that grants the right of legal representation. 

By signing this document, you can grant our team of consultants in company formation in Mexico with the right of representing foreign investor/the foreign company in specific registration procedures. 

If you want to start a business here by registering a subsidiary, you can also address to our team for advice on the corporate documents that must be included in the application file. 

If you need to know more about subsidiaries in Mexico, or for assistance related to opening such a business structure in the country, please contact our friendly Mexico company formation executives.