Reviewed March 2006
Starting a Business
I recently went through the process of starting a business here in Mazatlan 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 I had a personal recommendation from a friend. Actually, I "interviewed" 3 people before I selected one. Accountants usually charge a set monthly fee (around 3-400 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.
A couple of notes:
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 Mazatlan 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 propietor.
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 identication and pay your taxes. For example, if you rent a property in Mazatlan 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 (called a CURP). 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 - called an RFC.
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.
Price Waterhouse < [www.maquilaportal.com/public/artic/artic314e.htm>] has some answers regarding tax residency here. *
February 18, 2005
A couple of more notes:
1. Rule #1 in Mexico is that there are no rules - only guidelines. For example, Immigration in Mazatlan will require/accept different information for an FM3 than in other Mexican states. One bank may tell you that you must have an FM3 to open an account and the same bank may say otherwise at a different branch. Getting permission to work here in Mazatlan is normally very easy although it was made very difficult for 1 of the larger timeshare companies last summer when a complaint was made against them, so anything can change.
2. Most of the "advice" given by business oweners here is just that - opinions. Many of the small business owners posting on this site (David B, Roger, Marlene, yours truly) have primarily "gringo" clients for whom they provide services. None of us here are making a killing, just enough to pay the bills - like most small businesses do.
3. Starting a small business in any country is a risky proposition (failure rates are quoted as between 20 and 80%). Some people start small businesses with little information and get into big trouble - in any country. However, I have found that the accountants here are extremely helpful in walking you through the system (laws and taxes). My accountant actually made 3 trips to Immigration with me to clear up a small problem with the wording in my FM3 - NO CHARGE! Some businesses can be started for as little as $3-5,000.
4. Mexico is a big country with many different cultural attitudes and expectations - just like the US. An idea that will work in Mazatlan may not work in Zacatecas and visa-versa. To work with primarily gringo clients, you may not even need to speak Spanish, but it certainly will help and speaking the language makes life here much more fun and interesting.
5. Just like in the US, there are many opportunities for small business owners. Franchises even exist here in Mexico ( McDonalds, KFC, Dairy Queen, etc.). If you've run a small business sucessfully in the US, chances are you could do the same thing here in Mexico, but it might be a different type of business. Obviously, many of the professional occupations (doctors, dentists, lawyers) have credentialing requirements that might be hard to meet, but I have heard there is a program to allow US doctors and dentists to work in Mexico.
May 30, 2005