The World Bank’s Doing Business 2010 measures business regulation in 183 countries. Below is a data comparing the ease of doing business in Mexico and New Zealand. (New Zealand score in brackets):

• Procedures to start a business - Mexico 8 (New Zealand 1)
  
• Days taken to start a business - 13 (1)
  
• Procedures for a construction permit - 12 (7)
  
• Days to obtain a construction permit - 138 (65)
  
• Difficulty of hiring index – 33 (11)
  
• Days to register a property – 74 (2)
  
• Number of tax payments per year – 6 (8)
  
• Number of procedures to enforce a contract – 38 (30)

On average it takes 28 days to start up a business in Mexico. State and municipal governments are implementing rapid business start-up systems to standardise procedures and criteria and reduce waiting times and costs.

The Rapid Business Start-up System (SARE) has established two main mandatory procedures, as the maximum, to incorporate a business and start a small to medium sized business. Some of Mexico’s most important states and municipalities have adopted similar mechanisms that make it possible to start up a business within 48 hours.

Note: in August 2010, the Mexican government announced a new simplification of processes for setting up new businesses, and importing and exporting products in key industries for the Mexican economy. Most of these procedures will be electronic.

Getting the right type of business incorporation is extremely important because it determines the operations you are allowed to perform in Mexico and, among other liabilities, the amount of tax you pay.

Foreign companies may establish and own business enterprises and engage in any form of commercial activity in Mexico, except those reserved for the State. Private companies can also freely establish, acquire and dispose of interests in business enterprises.

The two most common types of business entities are:

• corporations (Sociedad Anonima) and
  
• limited liability partnerships (Sociedad de Responsibilidad Limitada). These are similar to closed corporations in the US.

Another commonly used type of business is a Corporation with Variable Capital (Sociedad Anonima de Capital Variable). One of its advantages is that the minimum fixed capital can be changed after the company has been created.

Corporations:

• Can be up to 100 percent foreign-owned.
  
• Must have a minimum of US$3,800 in capital stock to start.
  
• Must have a minimum of two shareholders.
  
• Board of directors can run the administration of the company.
  
• The enterprise has an indefinite lifespan.
  
• Free transferability of stock ownership is permitted.
  
• Operational losses incurred by the Mexican entity on subsidiary may not be used by the parent company.
  
• Limited liability for shareholders.

Limited liability company:

• Can be up to 100 percent foreign-owned.
  
• Must have a minimum of US$231 in capital stock to start.
  
• Must have a minimum of two partners. The partners must manage the company.
  
• Exists only while there is a business purpose and partners remain the same.
  
• Restricted transferability of partnership shares.
  
• Any changes in the partnership composition may cause the partnership to be liquidated.
  
• If structured properly, it may offer tax advantages by allowing operational losses incurred by the Mexican entity to be used by the parent company.
  
• Limited liability is afforded to the partners.

The rules for creating a subsidiary or opening a branch in Mexico differ and offer New Zealand companies different advantages.

There are no income tax advantages in operating through a branch rather than through a subsidiary. However, from a liability point of view, a New Zealand company acting in Mexico through a branch is not a separate legal entity and, therefore, the New Zealand company may be liable for the branch’s obligations. A parent company is a separate legal entity, unlike a branch, and therefore has no liability for acts of its subsidiary.

To open a branch office, companies must get approval from the Ministry of Economy. If the company performs commercial activities in Mexico without approval, the ministry may impose a fine.

Branches have the same tax obligations as Mexican ones. They are considered ‘permanent establishments’ for tax purposes and are not subject to any taxes in addition to those paid by Mexican companies.

If a New Zealand company decides to just act as intermediary, engage in promotion or similar activities in Mexico from which it will not obtain income, the company may decide not to register a branch but have only a representative office without income.

To establish a representative office in Mexico, companies must get authorisation from the Ministry of Economy and must register at the Registry of Foreign Investment.

The issue of whether a representative office performs commercial activities (ie, intermediation) and therefore should request authorisation from the Ministry of Economy to open a branch, and subsequently register in the Public Registry of Commerce, is subject to differences of opinion.

There are many commercial and legal advantages in incorporating a new company in Mexico, including limiting liability as the activities of the subsidiary are legally independent from those of the parent company.