Forming New Horizons – Expanding into Mexico

Country Spotlight:

GDP – $1.7 trillion

Population – 132.3 million

Competitiveness Ranking? –? 56 out of 64 (IMD)

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The Commercial Brief:

The sectoral distribution of income in Mexico is roughly 4% from agriculture, 34% from manufacturing and 58% from services. Mexico is the world’s 10th most populous country and its economy is currently ranked as the 12th largest. Its forecasted GDP growth for 2024 is 2.1% which is modest in comparison to similar size countries.

From a high of 132% inflation in 1987 to approximately 10% in 1999, Mexico’s inflation has been broadly steady between 3 and 4% and is forecast to be nearer 3% in 2025 and beyond. This is good for companies wishing to expand here.??

The Corporate Income Tax (CIT) is typically 30% which is slightly elevated, when compared to other similar economies. The tax regime involves mandatory estimated monthly? payments. Personal income tax typically ranges from 2-35% which is on a sliding scale based on increasing income ( it is therefore relatively low compared to countries like the USA, where the top federal tax rate is 37%, or the UK and Germany, which have top rates around 45%).?

Mexico is culturally renowned for its rich heritage that blends indigenous traditions with Spanish colonial influences. The country is famous for its vibrant festivals like Day of the Dead, which showcase colorful parades, intricate costumes, and traditional music and dance. Mexican cuisine, recognized by UNESCO as an Intangible Cultural Heritage, offers a diverse palette of flavors and dishes such as tacos, mole, and tamales. Art is another significant cultural element, with figures like Frida Kahlo and Diego Rivera who have gained international acclaim for their distinct and colorful artistic styles. Additionally, Mexico's folklore and traditional crafts, such as pottery, embroidery, and silver-smithing, reflect the country's rich history and artisanal skills.

Mexico is rich in natural resources, featuring a diverse array of minerals, energy resources, and biological diversity. It is one of the world's largest producers of silver, and also has significant deposits of copper, gold, lead, and zinc. Mexico's petroleum and natural gas sectors are critical to its economy, with substantial reserves located in the Gulf of Mexico and along the country's eastern shores. Additionally, the country has vast agricultural potential, supported by its varied climate and fertile land, which produces a wide range of products from corn and wheat to tropical fruits and vegetables. Mexico's rich biodiversity is also notable, including extensive forests and marine resources along its lengthy coastlines, which are vital for both ecological balance and economic activity.

Companies expanding here will find several industries stand out. In Mexico, the manufacturing sector stands out as a fertile ground for sourcing top talent, thanks to the country's strategic geographic advantages and robust capabilities in industries like automobile production, electronics, aerospace components, and medical devices. This sector not only employs millions but also attracts professionals skilled in engineering, production management, logistics, quality assurance, and supply chain operations. The demand for skilled labor in these areas continues to grow as companies seek cost-effective production and agile supply networks close to North American markets. Additionally, Mexico's advertising and digital marketing, SaaS (Software as a Service), and renewable energy sectors are also vibrant and growing rapidly. These industries are integrating advanced digital and marketing strategies, SaaS implementations, and renewable technologies, creating a dynamic environment for professionals interested in innovation and development

In summary, Mexico is an excellent destination for international expansion due to its strong economy, large populous and strong talent pools, in addition to this inflation is forecast to remain steady which is good for long term business confidence. Caution should be taken with regard to navigating bureaucratic hurdles in Mexico and it scores poorly in competitive rankings stated. EOR support is therefore recommended as per below.?

Challenges of Expanding into Mexico

In our experience setting up a permanent overseas entity in Mexico without Global EOR support can take up to 8 months, including the entity incorporation, setting up the bank account and concluding the local registrations. This timeline does not include license applications if needed, import/ export permits and certain industry specific government registrations. Some of the required registrations in Mexico are as follows:?

• Registration with an IMSS (Mexican Social Security Institute)
• Vendor sign up for provision of food coupon contributions to employees
• Employer registration for unemployment and old age contributions

Whilst Mexico has a robust system to provide basic social security, access to private health insurance is key to attract talent in the country. There are several items that are important to know in order to successfully expand your operation into Mexico. Notably they are:

• Mexico requires to have a local legal representative that is responsible for all aspects of your business - this individual does not need to be a local national but does have to be domiciled in Mexico and able to prove migratory status?
• Office space is also required for corporate registration and day to day operations
• By law all companies must share 10% of the profit amongst their employees, this is calculated based on the seniority and salary of individual employees
• Meal vouchers/ food coupons we referred to earlier are an expected benefit for most White Collar employees?
• Mexico has very robust health and safety legislation - all employers must implement a Health and Safety Prevention Plan to provide psychosocial risks at work (physical and mental health risks in the workplace)
• To remain fully compliant, all documents whether they are corporate or employment related must be signed in wet ink by the legal representative of the company?

Additional registrations for supplemental benefits may require a minimum number of employees for the benefit to come into effect.?

It is, therefore, essential for employers to familiarise themselves with the above. To avoid complications and business risk and enter the market quickly and compliantly, utilise a Global EOR in Mexico that has dedicated and extensive in-country personnel, HR, Legal, Payroll, Compliance & Immigration teams that can support you and your organisation directly.?

Peter Dixon & Laura Isaza , Velocity Global

If you're thinking about expanding into Mexico, we can help you plan for this and mitigate compliance risk. We're happy to provide guidance, simply get in touch and we will do our best to help.?

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