Expanding your business into Mexico offers access to a growing market and strategic trade advantages. Setting up a subsidiary company in Mexico allows you to establish a local presence while complying with regulations.
With its strong manufacturing sector and trade agreements, Mexico is an attractive destination for global businesses. This blog will simplify the entire process of launching and operating your Mexican subsidiary.
Types of Subsidiaries in Mexico
Companies expanding into Mexico must evaluate subsidiary structures based on ownership models, legal responsibilities, and day-to-day control. The key options available are:
1. Wholly-Owned Subsidiary
- Fully owned and controlled by the parent company.
- Requires full compliance with Mexican regulations.
- Best for businesses seeking complete operational independence.
2. Joint Venture (JV)
- Partnership between a foreign company and a local Mexican entity.
- Shared ownership, risks, and profits.
- Valid for market entry with local expertise.
3. Branch Office
- An extension of the parent company, not a separate legal entity.
- The parent company assumes all liabilities.
- Suitable for temporary projects or limited operations.
4. Representative Office
- Limited to non-commercial activities (e.g., market research, promotion).
- It cannot generate revenue in Mexico.
- Ideal for initial market exploration.
Step-by-Step Guide to Setting Up a Subsidiary in Mexico
You must follow established legal procedures to complete business incorporation in Mexico efficiently. If you are looking at how to start a parent company in Mexico, this step-by-step guide outlines the entire subsidiary formation process:
- Choose Your Business Structure: Decide between a wholly-owned subsidiary, joint venture, or legal entity. Confirm the structure aligns with your operational and tax needs.
- Reserve Your Company Name: Submit a name request to the Mexican Ministry of Economy (SE) for approval. Ensure the name is unique and complies with naming rules.
- Draft and Notarize the Articles of Incorporation: Work with a Mexican notary public to formalize your company’s bylaws. Include details such as business purpose, capital structure, and governance.
- Register with the Public Registry of Commerce (RPPC): File your notarized documents with the RPPC to obtain legal recognition.
- Obtain a Tax Identification Number (RFC): Register with the Mexican Tax Administration Service (SAT) for tax compliance.
- Register with Social Security and Local Authorities: Enroll employees with the Mexican Social Security Institute (IMSS). Check for additional municipal or state business permits.
- Open a Corporate Bank Account: Deposit initial capital as your business structure requires.
- Comply with Ongoing Requirements: File annual financial statements and tax returns and renew permits and licenses as needed.
Key Benefits of Establishing a Subsidiary in Mexico
A subsidiary company in Mexico offers foreign businesses several essential benefits. These key advantages include:
- Access to Growing Markets – Mexico’s economy is the second-largest in Latin America, providing access to over 130 million consumers and free trade agreements with 50+ countries.
- Favorable Tax Incentives – Benefit from reduced corporate tax rates, manufacturing incentives, and special economic zones with tax advantages.
- Limited Liability Protection – A subsidiary operates as a separate legal entity, shielding the parent company from financial and legal risks.
- Strategic Trade Position – Mexico’s proximity to the U.S. and extensive trade agreements (USMCA, CPTPP) make it ideal for export-driven businesses.
- Lower Operational Costs – Competitive labor and established industrial hubs reduce manufacturing and operational expenses.
- Local Business Credibility – A registered subsidiary enhances trust with Mexican customers, suppliers, and partners.
- Flexible Repatriation of Profits – Favorable foreign investment laws allow efficient capital movement and profit repatriation.
Essential Documents for Registering a Subsidiary in Mexico
To complete the registration process, you must prepare the following documents:
- Company bylaws (including business purpose, capital structure, and governance rules)
- Notarized articles of incorporation
- Proof of company name reservation from the Mexican Ministry of Economy
- Tax identification number (RFC) application form
- Foreign investment notice (required for non-Mexican shareholders)
- Legal representative identification (passport, visa, or Mexican ID for signatories)
- Proof of address for the Mexican business location
- Power of attorney (if using a third-party representative)
Missing any requirements? Commenda can help prepare and verify all necessary documentation. Learn more here.
Legal Structures Available for Subsidiaries in Mexico
When considering incorporation in Mexico, foreign investors can choose from these primary business entity types:
| Structure | Key Features | Best For |
|---|---|---|
| Sociedad Anónima (S.A.) |
– Separate legal entity – Minimum 2 shareholders – Liability limited to capital |
Medium/large businesses seeking investment flexibility |
| Sociedad de Responsabilidad Limitada (S.R.L.) |
– 1–50 shareholders – Flexible profit distribution – Less formal governance |
Medium/large businesses seeking investment flexibility |
| Branch Office |
– Not a separate legal entity – Parent company bears liability – No minimum capital |
Temporary projects or service-based operations |
| Joint Venture |
– Shared ownership with local partner – Customizable profit/risk allocation |
Market entry requiring local expertise |
Taxation Rules and Incentives for Subsidiaries in Mexico
Understanding Mexico’s tax framework is essential for compliance and financial planning if you are looking at how to start a parent company in Mexico. Below are the key tax rules and incentives for subsidiaries:
1. Corporate Tax Rates
- Standard corporate tax rate: 30% on taxable profits
- Dividend tax: 10% withholding tax on profit distributions to foreign parent companies
- Value Added Tax (VAT): 16% standard rate (0% for certain exports and border regions)
2. Tax Exemptions
- Maquiladora Program: Manufacturing subsidiaries can benefit from preferential transfer pricing rules and VAT exemptions on temporary imports.
- Research & Development (R&D): Tax credits for qualifying innovation projects.
3. Key Incentives
- Special Economic Zones (SEZs): Reduced corporate tax rates for businesses operating in designated zones.
- Employment Incentives: Payroll tax reductions for hiring in specific industries or regions.
- Accelerated Depreciation: Higher depreciation deductions for qualifying capital investments.
Regulatory and Compliance Requirements
Subsidiaries in Mexico must meet ongoing obligations:
- Tax Compliance: File monthly VAT/income tax returns and annual financial statements with SAT.
- Employee Reporting: Submit regular social security (IMSS) and payroll tax filings.
- Corporate Governance: Hold shareholder meetings and maintain updated company records.
- Foreign Investment: Report material changes to the National Foreign Investment Registry.
- Industry-Specific Rules: Adhere to sector-specific licensing or environmental regulations.
Do You Need a Physical Address for a Subsidiary in Mexico?
A registered physical office address is mandatory for legal and tax purposes when setting up a subsidiary company in Mexico. This address will be used for official communications, tax filings, and legal notices.
Key considerations:
- Commercial lease agreements are typically required as proof of address
- Virtual offices or mail-forwarding services do not qualify as legal addresses
- Industrial or manufacturing businesses may need additional zoning approvals
Alternative solution: Many companies use registered agent services to fulfill this requirement while maintaining operational flexibility.
Operational Setup for a Subsidiary in Mexico
Establishing operations requires careful planning. Hire locally compliant with labor laws, including IMSS registration and proper contracts—secure office space meeting zoning requirements, with necessary utilities and permits. Implement accounting systems aligned with Mexican standards for tax reporting.
Develop supplier networks and logistics channels for efficient operations. Consider cultural and language factors in management approaches. Maintain all required business licenses and sector-specific certifications for uninterrupted operations.
How to Open a Business Bank Account for a Subsidiary
To establish corporate banking for your Mexican subsidiary, follow these steps:
- Choose a Bank: Select a reputable institution that meets your transaction needs and offers international services if required.
- Prepare Required Documents
- Certified copies of incorporation documents and bylaws
- Tax Identification Number (RFC)
- Proof of business address (lease or utility bill)
- Identification for all authorized signatories (passport, visa, or Mexican ID)
- Board resolution approving account opening
- Schedule an Appointment: Most banks require in-person meetings with company representatives.
- Initial Deposit: Meet the bank’s minimum deposit requirement, which varies by institution.
- Activate Banking Services: Set up online banking, corporate cards, and other necessary services.
Is an Operating Agreement Necessary for a Subsidiary in Mexico?
While not legally required for all structures, an operating agreement is highly recommended. It defines ownership terms, profit distribution, management roles, and dispute resolution procedures. For S.R.L. entities, internal bylaws serve a similar purpose.
The agreement ensures clarity among stakeholders and strengthens legal protection. Foreign parent companies should establish one to formalize control and operational guidelines when considering how to start a parent company in Mexico.
Opening a Branch vs. a Subsidiary: What’s the Difference?
Choosing between a branch and a subsidiary in Mexico involves key legal and operational distinctions. Take a look at them below:
| Aspect | Branch Office | Subsidiary (Pty Ltd) |
|---|---|---|
| Legal Status | Not a separate legal entity (parent company bears liability) | Independent legal entity (limited liability protection) |
| Taxation | Parent company files taxes in home country and Mexico | Taxed as a Mexican resident company (potential treaty benefits) |
| Setup Complexity | Faster registration, but higher ongoing compliance | More complex incorporation, but greater operational flexibility |
| Local Perception | Viewed as a foreign entity | Established as a Mexican company (stronger local credibility) |
| Profit Repatriation | Subject to withholding taxes | Flexible under foreign investment laws |
How Commenda Can Help You Expand in Mexico?
Establishing a subsidiary in Mexico involves complex legal, tax, and operational requirements. Commenda simplifies this process by providing end-to-end support tailored to your business needs. Our experts handle company registration, tax compliance, and legal structuring, ensuring complete adherence to Mexican regulations.
We assist with document preparation, bank account setup, and ongoing reporting, reducing administrative burdens. Additionally, we offer strategic guidance on localization, labor laws, and operational best practices to optimize your market entry.
With deep knowledge of Mexico’s business environment, Commenda minimizes risks and accelerates your expansion.
Whether you need entity formation, regulatory advice, or ongoing compliance management, we provide reliable solutions for a seamless setup. For more details on our services, schedule a free demo with our experts today.
Frequently Asked Questions
Q. How much does it cost to set up a subsidiary in Mexico?
Costs typically range from 3,000 to 10,000 USD, depending on legal structure, notary fees, and government charges. Additional expenses may include permits, licenses, or advisory services.
Q. How long does it take to register a subsidiary in Mexico?
The process usually takes 4–8 weeks, assuming all documents are prepared correctly. Delays may occur if approvals from multiple agencies are required.
Q. Can a foreigner fully own a subsidiary in Mexico?
Foreign investors can own 100% of a subsidiary in most industries, except restricted sectors like energy or media, which require local partnerships.
Q. What are the common challenges when opening a subsidiary in Mexico?
- Navigating complex tax and labor laws
- Language and cultural barriers
- Bureaucratic delays in permits or registrations
- Compliance with localization requirements
Q. Do subsidiaries in Mexico need a local director or representative?
While not mandatory for all structures, appointing a local legal representative simplifies tax filings, banking, and government communications.
Q. What are the annual compliance requirements for subsidiaries in Mexico?
- Filing annual financial statements
- Submitting monthly/quarterly tax returns (VAT, payroll)
- Renewing permits and licenses
- Updating the Foreign Investment Registry (if applicable)
Q. Can a subsidiary hire employees directly in Mexico?
Yes, but it must register with the Mexican Social Security Institute (IMSS) and comply with labor contracts, profit-sharing, and payroll taxes.
Q. What happens if a subsidiary fails to meet compliance rules in Mexico?
Penalties include fines, suspension of operations, or legal action. Severe violations may lead to forced dissolution or restrictions on future business activities.
