Starting an expat business in Mexico - just do it

If you are reading this post, you are either already living/working in Mexico or you are seriously thinking about it.  So what is holding you back? 

YOUR PEER GROUP

You wake up excited.  You have got a great business idea that will allow you to live comfortably on the beach in Mexico (with lots of hard work of course!).  The idea is almost bursting out of you...then you tell your closest friends.  "Are you SURE about that?"  "But what about your job?"  "It sounds nice, but who knows if it will work."  "You don't even speak Spanish!"  "Mexico!  Are you crazy?  They are killing everyone!"   All of the sudden, you feel deflated and start to doubt your idea.  Sometimes the people you believe to be your biggest supporters turn into your biggest critics.  They don't necessarily do it to discourage you - they just don't get it.  Do not let your peer group discourage you.  If you are truly passionate about an idea, delve into it with laser sharp focus.

YOUR LACK OF SPANISH

This is not an excuse.  I know very successful business people who have seen an opportunity in the Mexican market and jumped on it, without speaking the language.  You SHOULD learn the language, not because it is a requirement, but because it will enrich your life and give you opportunities that you otherwise might not have.  There are Spanish schools, books on tape, podcasts, conversation meetups, etc. 

YOUR LACK OF KNOWLEDGE OF THE LAW

Foreign law seems scary because we are dealing with the unknown.  When you think about it, how well do you really know the law in your home country?  We all like to think we do, but when it comes down to it, unless you have studied the laws it is most likely that your knowledge is cursory.  There is a reason that lawyers and business advisors exists - use them!!!

YOU ARE GOING TO DO IT ONCE "X, Y, Z" HAPPENS

I've been guilty of this many times in many areas of my life, until I really drilled this phrase into my brain "There is never a right time."  I know it sounds extreme, and you may argue till your blue in the face about how you just are waiting for X to happen and then you'll be ready.  Have you ever thought about what would occur if X happened and you still weren't ready?  Jumping in* is hard, but it is the best way to get started.

*Jump in after you have done some research - jumping in blind could shoot your anxiety levels through the roof and be totally counterproductive!

Starting a business in Mexico: Franchises

For those expats who are undecided about what kind of business to start, franchises are a good option.  While there are pros and cons to opening a franchise anywhere in the world, opening a franchise as an expat gives you the systems and guidelines you need to make the business work.  Another very important point is to watch the trends in the United States and Europe because Mexico tends to adapt the same trends several years later.

Here's an example:

At the beginning of 2005, a frozen yogurt chain called Pinkberry took Southern California by storm.  People were lining up to get their hands on the yogurt and soon after Pinkberry had a cult like following.  Other chains followed - RedMango, YogiBerry, etc.

Mexico didn't have many frozen yogurt shops, but I saw three franchises pop up on a two block stretch of Masaryk (The Rodeo Drive of Mexico City) in less than one month - Tasti D Lite, Yogen Früz (a Canadian chain), Moyo Frozen Yogurt.  

The point here is to always be looking for trends in other countries because most likely, sooner or later those trends will become popular in Mexico.  It is crucial to analyze the franchise and see if it really fits into the Mexican culture.  Another good way to get a gage on what could be successful is to look at where Mexicans who travel are going when they are abroad. 

Here is a link to Mexico's Franchise Expo (franchises from around the world).

Doing Business in Mexico: Opening a Mexican Bank Account

When you set up a business anywhere, one of the first tasks to take care of is to set up a bank account.  Mexico has a number of banks that offer small and medium businesses checking and savings accounts, some in Pesos and some in Dollars (NOTE:  in order to open a dollar account, you have to be a certain number of kilometers from the US-Mexico border).



The requirements vary from bank to bank but here are the minimum standard requirements that you will need to open a business bank account:

• Acta constitutiva (articles of incorporation)
• Official ID (if you are a foreigner, your passport)
• FM-2 or FM-3 visa (your work or investor's visa)
• If you are not the legal representative for your company, you must have a document that testifies you can sign on behalf of the company
• Comprobante de domicilio (proof of address - must be recent, within the last month, Telmex or CFE)
• Minimum deposit (these range from bank to bank...the least I've seen is $6,000 MXN at Bancomer)
• Copy of your RFC
• Business and/or personal references

Remember to check each bank's requirements.  Bring extra copies of everything!

Dealing with Unions in Mexico

The other day I came across an interesting post (back from 2005!) about an expat from Belgium who was living out his dream in Lake Chapala (near Guadalajara) by running a small cafe.  The article talks about how the unions virtually shut him down because of his refusal to cooperate.  Depending on the nature of your business, you might have to deal with unions in Mexico, so this is a very important read:

Unions Frustrate Expat in Mexico

Setting Up: Factura Electronica required starting in 2011

In a past post, I went over what a factura was (think of it as an official receipt for tax purposes).  Beginning January 1, 2011 all businesses in Mexico will be required to use what is called "Factura Electronica".  This is Hacienda's way of electronically keeping records.


After the end of 2010, all receipts over $2,000 MXN must be electronic. 




So, as a small business, how do you go about issuing electronic receipts? 

There are a number of companies that are authorized by SAT (Hacienda) to help companies with electronic receipt software:

DigiFact

Enlace Fiscal

Castelec

Facture Ya

Hold the Phone: Getting a monthly cell phone plan in Mexico

This post was inspired by the 2 hours that I spent at Telcel this weekend trying to change my plan.  Getting a cell phone anywhere should be easy, but getting on a monthly plan in Mexico as a foreigner is not for the faint of heart. 

SOME REQUIREMENTS
Some companies require a credit card...but a credit card issued IN MEXICO.  Your Visa, MasterCard or American Express will not be accepted if it was issued outside of Mexico. 

Other companies require that you bring in a payment of your last property taxes in Mexico.  "But I just moved here!" you say..."I'm renting and I don't pay property taxes!" you say...It doesn't matter.  They need to see that before you will get your phone plan.  The solution?  Find a friend that will vouch for you (as a cosigner) and get a copy of their last property tax bill called the predial.

Then there is always the most famous document....pay attention to this because you will hear it over and over again...the comprobante de domicilio, or proof of address.  It seems kind of counterintuitive that they would ask you for a proof of address when you first move somewhere.  Here's the thing - the proof of address doesn't have to have your name on it!  If you are renting, ask your landlord or property manager for their last Telmex bill and you will be good to go.

The cell phone company will do an actual investigation before you are approved.  They want to make sure you are who you say you are and you live at the address given.  They will send someone out to verify, so don't lie on your application. 

*Note: This info is for monthly cell phone plans, getting a pay as you go phone is not that difficult.

More on cell phones in Mexico in future posts....

Setting Up: What is a FACTURA?

If you live in Mexico, it is a phrase you'll hear over and over again "Necesita factura o solo el ticket?"  Loosely translated, they are asking if you need an official receipt or non-official receipt.  Facturas are super important pieces of paper that you will be glad you saved during tax time.

WHAT IS A FACTURA?

A factura is an official receipt for goods or services that can be used for tax purposes.  In order to issue a factura, the place of business must have your RFC (your Corporate tax identification number).  Many people carry a laminated copy of their RFC in their wallet so it is easy to access.

CAN I USE A SIMPLE RECEIPT FOR TAXES?

No.  The only document that can be used for business tax deductions is a factura.

WHAT IF I FORGOT MY RFC NUMBER BUT I NEED A FACTURA?

Many places have a window of time where you can come back with your receipt (el ticket) and present your RFC to get a factura. 

Setting Up: What is a Notario?

When you move to Mexico and start doing business here, you will hear the word notario all the time.  There is much confusion as to what a notario is and what the difference is between a notario and a lawyer. 

If you are going to be incorporating in Mexico, you must have a notario take care of your articles of incorporation.  Technically, someone else in the Notary's office may prepare the paperwork, but when all is said and done the notario is the only one who can sign the documents as an official witness that they are valid.

Many people from the US get confused when they hear the word "notary".  In the US, anyone who takes a test and passes can become a public notary.  Please note that a notary in the US is NOT the same as a notario.  In Mexico, a notario is a very respected and coveted position, one which requires legal studies.  There are a limited number of notario positions in the country (depending on location and population) and notarios must undergo a difficult exam and qualification process.

Setting Up a Business in Mexico: What is a FIEL?

Part of the process of setting up your business in Mexico involves getting yourself registered with Hacienda (Mexico's version of the Internal Revenue Service).  Once you obtain your RFC and your CURP, you will need to get a FIEL. 

What is a FIEL?

FIEL stands for Firma Electronica Advanzada.  The Firma Electronica is a fairly recent addition to the Hacienda requirements. 

The FIEL is based on PKI (Public Key Infrastructure) which means that 2 codes or keys are used for transmitting encrypted messages:

1.  Public key- available to all users via Internet
2.  Private key- only known by the user

The purpose of the FIEL is to allow taxpayers to access their information  and make transactions online in a safe, private manner. 

Some of the transactions available using your FIEL:
Customs documentation
Fiscal documents

For more information (in Spanish) visit: 
http://www.sat.gob.mx/sitio_internet/e_sat/tu_firma/default.asp


The FIEL is very easy to get.  Make an appointment at Hacienda and you will get your FIEL with a period of minutes (no more than an hour depending on how busy they are)! 

Setting Up: What is an S.A. de C.V.?

When you first open a business in Mexico, you will be faced with a variety of options...S.A. de C.V., S.R. de L., S.A., S.C., etc

It is important to note that in Mexico, sole proprietorships do not exist.  You must have someone else on the papers when you incorporate.  Many people who want to run their own businesses have silent partners who are listed in the paperwork, but in reality do not make any of the business decisions.

S.A. de C.V.'s must have a minimum of two partners (individuals or entities).  There is a misconception that corporations in Mexico can NOT be completely foreigned owned.  This is simply not true.  There are certain protected industries (oil and electricity for example), but the majority of corporations can be opened with foreign partners.

S.A. de C.V. means "Sociedad Anonima de Capital Variable" or.  In a S.A. de C.V. setup, the partners may alter the amount of capital at anytime either by adding new partners or just simply adding more capital, without ammending the original incorporation documents.

The S.A. de C.V. set up is the most common form of incorporating your business in Mexico. 

Doing Business in Mexico - The Best and Worst Places

So, you know you want to start a business in Mexico, but not sure where to set up?  Mexico has come a long way in terms of red tape for foreigners setting up a business.  I remember back in 2002 it took a friend of mine close to 5 months to get their corporation set up, but recently it took me less than a month!!!  The government is moving to more online processes, which is a wonderful thing, as it cuts down the time it takes to process permits, register corporations, etc.

According to Doing Business in Mexico, a report published by the World Bank group, Aguascalientes is the best state within Mexico to do business in.  The factors taken into consideration are ease of incorporating, access to credit, registering property, hiring/firing, and enforcing a contract.  Aguascalientes has lead Mexico in ease of doing business for years.  The state is located about 537 km northwest of Mexico City and has a population of around 1 million.

(Jim Cine Photo)

So, what's the most difficult state for doing business in Mexico according to the report?  You guessed it...Distrito Federal, aka Mexico City.  This is not surprising - the bigger cities usually have more red tape to cut through.  Doing business in the biggest city in the world can have it's challenges, but it can also have its advantages.  Mexico City is where most multinational corporations have their headquarters and if you can't find something in Mexico City, you probably can't find it anywhere else within Mexico.

No matter where you set up you will run into headaches that come with setting up a business in a foreign country, but don't let that stop you.