Navigating the Legal Landscape When Doing Business in Mexico

Mexico offers a dynamic and growing market for businesses and investors. However, to operate successfully in the country, understanding the legal framework is crucial. Mexico's legal environment is shaped by a combination of civil law, federal regulations, and international agreements. This article provides an overview of the key legal considerations for businesses looking to establish or expand their presence in Mexico.

Doing Business in Mexico

Operating a business in Mexico involves adhering to a well-defined set of legal requirements that vary depending on the industry and business structure. Whether you are establishing a manufacturing plant, expanding an e-commerce operation, or setting up a service-based business, understanding the foundational regulations is essential for doing business in Mexico with long-term success.

Choosing the Right Business Entity in Mexico

One of the first steps in navigating Mexico’s legal landscape is selecting the appropriate business entity. Each entity has its own advantages and legal requirements, impacting taxation, liability, and operational control. Choosing the right entity is critical to minimizing risks and maximizing your business potential.

Complying with Mexican Tax Law

Taxation in Mexico is an essential component of doing business legally. Companies must comply with various tax obligations, including income tax, value-added tax (VAT), and social security contributions. Registering with Mexico's Tax Administration Service (SAT) is mandatory, and businesses must stay up to date with tax filing deadlines, deductions, and exemptions to avoid penalties. Understanding these tax regulations will help businesses manage their finances effectively and remain compliant with Mexican law.

Download the free Doing Business in Mexico e-book for additional details

Legal Framework in Mexico

The legal frameworks in Mexico are complex and constantly evolving. The Mexican Constitution is the supreme law of the land and holds the highest authority. All laws, regulations, and actions of the government much comply with the provisions of the Constitution. The Mexican Constitution establishes basic principles of government. The Constitution is supplemented by more than 2,600 federal, state and local laws and regulations, including the Federal Civil Code, the Federal Criminal Code, the General Law of Commercial Companies and the Federal and the Commercial Code.

If any law contradicts the Constitution, it can be declared unconstitutional and invalid. Additionally, the Mexican legal system incorporates principles of international law and international treaties that Mexico has ratified. In certain cases, international treaties may have precedence over national laws.

Mexico has a legal system known as Civil Law (also known as the Roman-Germanic system), and is very formal and bureaucratic. The notary public office in Mexico holds a lot of weight and responsibility. Many legal acts must be conducted in front of them. For foreign companies, this will most likely require a power of attorney and a local partner to facilitate.

Foreigners from applicable countries that wish to visit Mexico may enter on a Tourist Visa that is good for 180 days. This visa allows you to enjoy tourism or business meetings, for example. You cannot work in Mexico with a Tourist Visa.

Key Legal Concepts

Labor Laws: The Mexican Federal Labor Law was reformed in 2019, with most notable changes to labor laws that protect workers’ rights. These laws govern everything from minimum wage and overtime payments to freedom of association and labor conciliation requirements.

Tax Laws: Mexico has a complex tax system that includes a variety of taxes, such as income tax, value-added tax (VAT), and property tax. Manufacturers must register with the Mexican tax authorities and file tax returns on a regular basis.

Intellectual Property Laws: Mexico has strong IP Laws that protect patents, trademarks, and copyrights. Manufacturers must register their IP in Mexico to protect them from infringement.

Data Protection Laws: This applies to government, individuals and entities that obtain, use disclose and store personal data.

Trade Laws: Mexico has a complex system of trade laws that govern imports, exports and investment. Manufacturers have access to a network of trade programs designed to promote trade and investment, under strict compliance standards.

Environmental Laws: Mexico has a number of environmental laws. These laws include governance on air pollution, water pollution, and waste management. There are fines and penalties associated with non-compliance by manufacturers.

Corporate Laws: Mexican corporate law are primarily governed by the General Law of Mercantile Societies (LGSM). This legal framework is based on civil law principles and establishes the rights and obligations of shareholders, directors and officers within corporations operating in Mexico. There are two main types of corporations in Mexico: (1) sociedades anónimas (SAs) which are similar to U.S. corporations, and (2) sociedades de responsabilidad limitada (SRLs) which are similar to LLC’s in the U.S.

Foreign Investment Law

Mexico is open to foreign investment, with regulations designed to encourage international participation while protecting national interests. The Foreign Investment Law (Ley de Inversión Extranjera) governs foreign ownership in various sectors. In many industries, foreign investors can own up to 100% of a Mexican company. However, certain strategic sectors, such as energy, telecommunications, and transportation, may have restrictions on foreign ownership.

Foreign businesses are required to register with the National Registry of Foreign Investments (Registro Nacional de Inversiones Extranjeras) and comply with reporting obligations. Failure to adhere to these regulations can result in penalties or restrictions on the company’s operations in Mexico.

The General Law of Mercantil Societies (LGSM) provides a solid legal foundation for corporate governance and promotes transparency and accountability in business operations. It is crucial for investors and entrepreneurs to adhere to the LGSM’s regulations and seek professional advice when establishing and operating businesses in Mexico.

Read more about how to incorporate a legal entity in Mexico.

Equivalent Agencies - US & Mexico

Below are some of the most important regulatory organisms in Mexico and their equivalent in the United States, for reference:

Human Resources

Environmental, Health & Safety

International Trade

Financial

Note- agencies do not have 100% equivalent responsibilities. Each match is determined to be as closely equivalent as possible. Some responsibilities may not be covered.