Mexico PEO - EOR

Start A Sole Proprietorship In Mexico With Minimum Legal And Tax Obligations

Mexico is a strategic location for catering to global markets at competitive costs. Thanks to a sizeable active workforce, this North American country is on its way to becoming the 7th global power by 2050.  

Mexico is riding the wave of globalization with strategic advantages in the automotive, fintech, and manufacturing sectors. There are vibrant commercial opportunities in other sectors for global companies looking to expand operations. One way to leverage these exciting economic opportunities is by setting up a sole proprietorship in Mexico. 

Keep reading and learn about how to register a sole proprietorship in Mexico. 

Who can be a Sole Proprietor in Mexico? 

A sole proprietorship is undefined in Mexican business laws. However, a sole-ownership form of a company called Actividad Empresarial is well-recognized in the country. There is only one shareholder, and they are liable for all aspects of the business. As long as anyone is the owner of a business activity conducted in Mexico, they can register as self-employed or set up a sole proprietorship. 

Anyone can incorporate a sole proprietorship with necessary licenses and permits like all businesses. Regulations in Mexico may vary by industry, state, and locality. 

A sole proprietorship cannot own real assets but can employ staff, issue bills/invoices, and pay taxes as a business entity in Mexico. Freelance entrepreneurs can also start a sole proprietorship in Mexico. 

While foreigners in Mexico have unrestricted access to most business activities, the national policy has reserved specific economic sectors like mining, transportation for Mexican citizens, and the energy sector for the government. 

Benefits of Sole Proprietorship in Mexico

Mexico presents several reasons foreign businesses invest and expand their operations in the Latin American region. It is one of the most straightforward business structures an individual operates. Here is how you can leverage it by setting up a sole proprietorship in Mexico:

Zero capital requirement

Mexican law does not impose minimum capital requirements to register a sole proprietorship in Mexico. 

Easy to operate

Sole proprietorship provides unlimited liability, making individual owners responsible for all the profits and losses. Moreover, unlike other business structures, sole proprietorship involves less paperwork. 

Flexibility

The proprietor can sign any legal documents, conduct any legal operations, or sign a power of attorney on behalf of the business entity

Access to larger markets

By incorporating a sole proprietorship in Mexico, companies get access to larger consumer markets due to numerous regional trade agreements. 

Easy to hire local talent

Starting a sole proprietorship in Mexico makes hiring the best talents easier from a low-cost, educated labor force of 52.1 million people.

No legal & tax obligations

Bookkeeping and maintaining financial records is an excellent way to keep track of business accounts. However, it is sufficient for the owners to file their annual returns as sole proprietorship taxes in Mexico. In 2021, the annual tax rates for resident individuals varied from 1.92% to 35%. 

Simple Banking

As sole proprietorship has only one stakeholder, the banking process becomes straightforward. Owners can accept and make business payments through their personal bank accounts. 

Documents Required for Registering Your Business in Mexico

The documents required for registering a sole proprietorship in Mexico are as follows: 

Work visa

Resident visas like FM3 or FM2 visas with provisions allowing the holders to earn income in Mexico are mandatory.

Passport

Individuals planning to open a company in Mexico must provide a valid passport. 

Proof of address

A typical utility bill in Mexico can be a proof of address for identification. 

Tax identity 

Businesses need to get a certificate bearing the Registro Federal de Contribuyente or RFC, which is the tax ID number for persona moral or a business entity. 
If you are registered as self-employed in Mexico, the Servicio de Administración Tributaria (SAT) or the Tax Administrative Service may consider you as persona fisica or an individual taxpayer. 

Incorporation documents

Incorporation documents enlist the details about the company’s name, social address, the purpose of the company, shareholder’s name, and others. 
Notary certificates and apostille should validate all required documents. 

Notary fees

Sole proprietorship in Mexico costs standard notary fees in the range of MXN 1000, including the registration. 
It is advised to have a trusted notary as most documents and submissions for registration of sole proprietorship in Mexico will be made in Spanish. 

Bank account

Sole proprietors can use their personal bank accounts to make or accept client payments. However, they can also open a separate bank account for their business. 
Foreign owners may have to visit the bank branch physically to prove their identity and open a corporate bank account for a sole proprietorship in Mexico. 
Additionally, all signatures and documentation relating to money laundering like taxpayer-identification numbers and information on invoices are required. 

Other Criteria for Registering a Sole Proprietorship in Mexico

Individuals interested in setting up a sole proprietorship entity must follow proper procedures while setting up a sole proprietorship in Mexico.  Below is an overview of the general criteria for the same:

Legal obligations and responsibilities

  • Businesses that directly cater to the general public must register with the local government in the place of operation. 
  • A sole proprietorship in Mexico can employ people by registering with the Mexican Social Security Institute (IMSS) and the National Workers Housing Fund (INFONAVIT). 
  • A sole proprietorship may frame company bylaws.

Special delegate

  • When the visa status of a sole proprietor is pending, major acts or transactions may be conducted by a special delegate appointed on behalf of the sole proprietorship.

Proof of legal representative

  • Any legal representative of the company so appointed must hold Mexican citizenship or permanent resident status and have a local tax ID.

How to Register a Sole Proprietorship Company in Mexico

Here is a simple overview of how to register a sole proprietorship in Mexico.

Appoint a power of attorney

  • You may require the services of a legal attorney to formulate documents in Spanish. 
  • You will have to draw power of attorney (POA) to grant them powers to act and sign official documents on your behalf.

Select and register your company name

  • Registration of your company name can be online
  • While no document is required, it is necessary to have your e-signature.
  • The government department promises a response in a maximum of 2 business days. Once approved, you can print the proof of authorization of chosen business name.

Create the deed of incorporation

  • Your appointed legal attorney can create a deed of incorporation, also called company bylaws.
  • These documents define the purpose of a company and how it will carry out its business activities in Mexico. 
  • To be approved by local authorities of Mexico, you need to have your bylaws legalized by a notary public. 

Register your business 

  • Register your business with the National Business Information Registry, which the Department of Trade controls. 
  • Additionally, your sole proprietorship in Mexico may have to be registered with the Department of Trade Foreign Investment Register.

Get the company tax ID number

  • Employers need to register themselves with Mexico’s tax administration system. 
  • Once registered, they will get a company tax ID number (RFC). 
  • It helps your company to be identified on invoices and financial documents.

Open a corporate bank account

  • A sole proprietorship in Mexico can open a corporate bank account.
  • Documents related to incorporation and business registration numbers may be required. 

The registration process usually takes place in Spanish. So, individuals can look for local help or global EOR solutions to work through the process swiftly. Once the procedure is complete, you can start operating as a sole proprietorship in Mexico.

Conclusion

A sole proprietorship offers maximum benefit for foreign entrepreneurs looking to unlock the economic potential in Mexico. Setting up a sole proprietorship in Mexico requires no minimum requirements for the number of employees or capital. Even the tax laws in Mexico for sole proprietorship companies are not stringent and have simple filing procedures. Overall, the process of setting up a sole proprietorship in Mexico is hassle-free, provided employers follow the Mexican policy and legislation.  

However, when expanding teams and hiring employees in Mexico, payroll and team management are real challenges to overcome. It is time-consuming and financially burdening. That is where Multiplier comes to your help. 

Multiplier is a global employment solution designed for sole proprietors looking to expand globally. We have one-click payroll services to help seamless payments for international employees and freelancers. Our team of experts also helps with onboarding employees and managing HR responsibilities in Mexico. All our services are 100% compliant with the local rules and regulations for running a business in Mexico.

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Frequently Asked Questions

Sole proprietors usually receive a tax designation called Pequenos Contribuyente, or small contributor. Although various states offer competing tax incentives to attract foreign entrepreneurs, the majority of taxes in Mexico are levied at the federal level.

Usually, they pay a reduced flat tax with simplified tax filing if the business’s annual revenue is less than 1.5 million pesos (roughly 1200,000 dollars). This flat rate correlates with the annual tax rates for resident individuals.

Mexico is one of the most competitive countries for business investment. It has excellent macroeconomic and political stability with a strong, large domestic market. The country is open to international markets through free trade agreements (FTAs). Some of the dominating industries in Mexico are Automotive, Aerospace, Tobacco, Fintech & Electronics.

Mexico is open to foreign direct investment (FDI) in most economic sectors and has various business-friendly laws to establish business entities like sole proprietorships. Usually, FDI is limited to 10% to 49% where sector restrictions exist.

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