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Starting a Business in Mexico |
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This
article was written by my friend David Shafer describing his experience
in starting a business in Mexico. I
recently went through the process of starting a business here in Mazatlán
and it’s not much different than in the US. Here are the basic steps: First,
find a good accountant and discuss with him (or her) your plans. Many
accountants are listed in the phone book, but had a personal
recommendation from a friend. Actually, I "interviewed" 3
people before I selected one. Accountants
usually charge a set monthly fee (around 400 pesos) to handle your
monthly filing requirements and help out with any tax questions. Second,
go to Immigration. You will need an FM3 with an endorsement for
"lucrative activities". I already had an FM3 and so I was
requesting a change to my existing FM3. This required completing a
single form requesting the change, 2 letters on my new company's
letterhead stating what I would be doing and that I would comply with
the Mexican tax laws (Immigration gives you the actual text of the
letter), copies of my FM3 and US passport, proof that I was qualified to
do the work I wanted to do, and paid SAT receipts in the amount
specified by Immigration - around $150. The company letters had to be
signed and endorsed by an accountant. After all this work was turned in,
it took less than a week to get the endorsement in my FM3. My
accountant then took the FM3 and proof of where I live (electric bills)
- make sure the address on the electric bill matches that in your FM3.
The FM3 and an application for a tax ID was given to the Hacienda and in
1 week all the paper work was complete. Your accountant files the
appropriate forms and pays the taxes each month based on the income and
expenses you have for your business. There
are different types of companies in Mexico, just like in the US. If you
setup a small company you file under your own name, but you can call the
company whatever you like. In my case, the Hacienda has me registered as
David A Shafer, but I call the company Mazatlán Design. The Hacienda
doesn’t care what you call yourself unless you setup a Mexican
corporation which is a much more complicated procedure and has different
tax implications. Legitimate
expenses (gostos) in Mexico are much different than in the US. You must
have a factura from a company that matches your company information
exactly. For example, you can't claim a deduction for your electricity
bill if your bill is in your personal name and you are paying
"residential rates". The same is true for your phone or
Internet bills. Either you set them up as commercial accounts and deduct
them (usually these rates are much higher) or pay them personally since
there is probably a lot of crossover anyway in most small businesses. The
process above only applies for self-employment only. Working as an
employee is a different procedure and has different tax implications -
although the process is similar. The best comparison is the differences
in the US between being an employee of a company and being a sole
proprietor. Speaking
Spanish wasn't absolutely necessary for any of this, but it was helpful
and if you speak none, I would recommend taking someone with you who
does understand the language – both for Immigration and with your
accountant. If
you earn any income in Mexico you should be paying taxes to the Hacienda
(Mexican IRS). You have 30 days once you start receiving income to
obtain the necessary tax IDs and pay your taxes. For example, if you rent a property in Mazatlán
or are paid as an employee, you should obtain a tax personal tax ID
(much like a social security number) and pay taxes under this ID. This
is different from setting up a company (like I have done) that provides
services where the company is able to provide invoices (facturas) to
other businesses. You don't use a personal tax ID, you use a company ID
- much like a federal tax ID in the US. Tax laws in Mexico changed in 2005 and Mexico now has the same definition of income sources as the US - "worldwide income". Worldwide income means that both countries count all your sources of income irrespective of the source or the exemption in one country versus another. The good news is that Mexico and the US have a tax treaty that prevents an individual from being double taxed by both countries, however, where and how you pay your taxes is very important. This treaty stipulates that the IRS and Hacienda can share information (although I don't think that's being done as yet). Careful tax planning and filing in both the US and Mexico is very important. The requirements are very complicated and you will most certainly need professional advice – although getting it isn’t easy. However, you may even be able to save money by planning appropriately. Be sure to read about your obligations to your employees. |