It is essential to get well-informed legal advice before signing any contracts or legal documents. It is also indispensable when setting up your legal structure to ensure you can resolve commercial disputes.

General advice on how to build an advisory team.

New Zealand Trade and Enterprise Mexico has a range of contacts.

Your legal advice must come from a lawyer who has excellent language skills and extensive experience working with foreign companies already in-market. This would almost certainly be a locally based lawyer.

Mexico is on the United States Government’s 2010 intellectual property (IP) rights Special 301 Watch List, an annual review of the global state of IP rights protection and enforcement.

The 2010 report says Mexico’s enforcement efforts continue to improve. However, the US Trade Representative Office has concerns over the level of resources devoted to protecting IP, coordination among enforcement officials, enforcement procedures and inconsistent penalties.

Corruption at state and local levels is an issue you need to be aware of. Mexico ranks 89th in the world in Transparency International’s Corruption Perceptions Index.

In its associated report on the Americas, Transparency International says Mexico has been rocked by scandals involving impunity, kickbacks, political corruption and state capture.

Mexico ranks 20th in the index among the 31 countries in the Americas.

Most Mexican taxes are applied at federal, rather than state level. It is also important to remember that New Zealand has a Double Taxation Agreement with Mexico.

Foreign personnel in Mexico on a FM3 visa are not subject to Mexican income tax as long as they do not spend 183 or more nights in Mexico during a year. Otherwise, they must be registered with the Mexican Federal Taxpayer registry.

Main taxes

• The corporate tax rate is 30 percent for 2010-1012. By 2014 it will go back to its original 28 percent. Resident firms are taxed on global income. Non-resident firms pay tax on Mexican-sourced income only.
  
• Individual tax: progressive rates run up to 30 percent. A reduction is then applied to an individual’s tax liability, according to income and tax payable.
  
• Value added tax (VAT): the rate is 16 percent. Exports are zero-rated, as are food, books and newspapers, fertilisers and medicines. Construction of residential dwellings, some financial, insurance and medical services are also exempt from VAT.
  
• Capital gains: corporate and individuals’ capital gains are usually taxed as income. Gains by individuals on the sale of publicly traded securities are exempt.
  
• Special taxes on production and services relating to imports include alcoholic beverages, cigarettes, cigars and non-alcoholic beverages with a sweetener other than cane sugar. This tax may vary from 20 to 110 percent depending on the product.

The tax service (Servicio de Administración Tributaria) has information on tax treatments of residents who live abroad and receive income in Mexico

Tax incentives

Mexico offers tax incentives to research and development (R&D) investment. The Mexican Government provides one of the most favourable tax treatments for R&D among OECD countries with one unit of R&D expenditure resulting in 0.37 units of tax relief.

Mexico grants R&D incentives in cash, representing between 22 and 90 percent of eligible R&D expenses paid by a Mexican company, depending on the category and form of participation. Eligible companies have to be registered in Mexico and be engaged in technological research, development or innovation.

Export promotion tax benefits include:

• a special Customs permit allowing duty-free imports of all production-related machinery, equipment, materials and components for the manufacturing of export products.
  
• programmes offering tax benefits for high added-value industries and for research and development activities.

Investment incentives
As most taxes are federal, Mexican states compete aggressively for investments and offer incentives, such as cut-price or even free land, employee training programmes and reductions in state payroll tax. Examples include:

• foreign trade and promotion programmes
  
• accelerated depreciation
  
• federal income tax incentives
  
• social security subsidies
  
• labour training
  
• cash grants for new information technology and business process outsourcing (BPO) projects.

For more detailed information about foreign investment incentives, please contact NZTE Mexico, or another advisory agency.

Most foreign investment transactions do not require government approval. There are some restricted sectors including electric power generation, transmission, and distribution; airports and certain professional and technical services.

From 2012 all companies must present their financial reports under International Financial Reporting Standards (IFRS). PricewaterhouseCoopers, Mexico, advises that companies must start the transition process from Mexican Financial Reporting Standards to IFRS.

The Mexican Council for the Research and Development of Financial Information Norms (CINIF) is responsible for setting Mexican Financial Reporting Standards.

Mexico’s banking system has shown some signs of growth after years of stagnation, but interest rates remain relatively high. In particular, small and medium enterprises find it near impossible to obtain financing at reasonable rates despite the Mexican Government’s efforts.

Most importing is conducted on open account. Consequently, foreign companies need to conduct thorough due diligence before entering into business with a Mexican firm and should be conservative when extending credit and alert to payment delays.

New Zealand companies exporting to Mexico say:

• “New Zealand and Mexican banks seem to have either no confidence in each other or completely different rules that make the workings of a day-to-day relationship between two small companies difficult and expensive.”
  
• “Expect regular delaying of payments from customers which puts strain on local cashflow.”

There are no restrictions on the repatriation of profits from Mexico.

Because of corruption at state and local levels, be sure to deal with a reliable party. New Zealand Trade and Enterprise can help check certain companies or can refer you to consultants or reports for credit checks. If you are working with another agency, you should ask for this also.