Changes to Capital Gains Rules in Mexico
Starting a business in Mexico offers new challenges for even those experienced in business in their home country. It is not better or worse, just different. There are limits to what enterprises in whcih foriegn nationals can engage, but a variety of legal structures to establish your business.
by
J. Beaulne LL.B
A sound business venture starts with a marketing study, cash flow, control on expenses, good accounting practice so as to minimize taxes on profits and the most important knowledge of the laws governing the establisment of a commercial establishment.
The wrong words
Most foreigners who come seeking fortune in Mexico set up a moral person which they call “Mexican Corporation” an expression that does not exist in Mexico´s legal system thus Corporation as such do not exist in Mexico.
Restrictions
In Mexico foreigners are limited as to the type of business one can get involved in, this is dictated by the Constitution and the Law on Foreign investment. The restrictions are few and they are related to natural goods. If one wants to be in business which caters to these goods one needs a Mexican partner who will hold 51% of the partnership other wise there is no need to have a partner, Mexican or Foreigner.
The 3 ways to get in business
If the business venture is not one which requires a partner who has 51% of the business there are 3 ways by which one can get into business:
One can form an entity which is not a “Corporation” but a PARTNERSHIP;
in countries where the law is based on Common law principals, or where the legislator enacted laws to permit the establishment of a “Corporation” one can form suc moral person but in Mexico, country of Roman Law principals no such entity can be formed; the entity that one can form in Mexico is a PARTNERSHIP in which can be invested variable capitals by varios persons, moral or personal. For business perpose two types are available, one is called Sociedad Anonima de Capital Variable (S.A. de C.V.) which translate in Anonimous Partership of Variable Capital and the other is Sociedad Anonima de Responsibilidad Limitada de Capital Variable (S. A. de R.L. de C.V,) translated in English one can say Anonimous Partnership of Limited Responsability of Variable Capital. The level of investment dictates which one one should use. The legal rules which control said partnerships are very different than the rules that control a corporation or an LLC. Using the expression “Mexican Corporation” should never be used for two reasons, first it confuses the listener and because Corporations do not exist in the legislation.
One must be aware of the following:
The legal cost of forming the entity is expensive.
Annual shareholder meeting must be held each year and must be protocolized by a Notario Publico and registered at the Registry Public of Commerce.
Any changes in capital or decisions must be registered during shareholder meetings.
Contrary to shares in a Corporation the part(s) that one owns can not be sold to a third party without the approval of the partner(s) and must be indicated in a shareholder meeting minutes.
The income tax is, at this time, 30% of the net profits.
The cost when one wants to liquidate the partnership is high.
One can be in business with a partner(s) without forming a partnership such as
S.A. de C. V. or S. de R.L. de C.V. In this case one needs a private contract. The advantages are in relation with the cost of forming the business, the taxes.
One can have a business under his own name with one or various commercial names; This provides advantages, lower cost of starting the business, no need for anual meetings, one can sell the business to a third party without having to have the accord of anyone. The level of income tax can be as low as .5% to 2% on declared net income up to 2,000,000.00 pesos under the small tax payer bracket. Once the business reaches the maximum one must change the fiscal regime..
Contact Information for Can-Am-Mex
Lic. J.E. Beaulne, LL.B.
Abogado / Avocat / Attorney at Law,
Cedula profesional # 0086,
Miembro del Colegio de Abogados de B.C.S.
Member of the Lawyer's College of B.C.S.
Plaza Cerralvo, Suite 6
Alvaro Obregon #1665
La Paz, B.C.S., Mexico C.P. 23000
24 Hour Emergency Tel: 044-612-8681027
Office: 612-128-6859
Puerto Vallarta - 044-322-227-6531