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Setting up a Distribution Business in Mexico: Considerations for U.S. and Foreign Investors Andrew Speer Grant Thornton

Setting up a Distribution Business in Mexico: Considerations for U.S. and Foreign Investors Andrew Speer Grant Thornton LLP. WHAT TYPE OF DISTRIBUTION BUSINESS?. Wholesale to Maquila/PITEX customers Wholesale to non-Maquila/PITEX C. Retail.

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Setting up a Distribution Business in Mexico: Considerations for U.S. and Foreign Investors Andrew Speer Grant Thornton

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  1. Setting up a Distribution Business in Mexico: Considerations for U.S. and Foreign Investors Andrew Speer Grant Thornton LLP

  2. WHAT TYPE OF DISTRIBUTION BUSINESS? • Wholesale to Maquila/PITEX customers • Wholesale to non-Maquila/PITEX C. Retail

  3. WHOLESALE DISTRIBUTION TO MAQUILA/PITEX CUSTOMERS • Can invoice from U.S. & incorporate a Mexican company to provide warehouse services • Advantages • Easier to coordinate with parent than buy/sell operation • Provides greater flexibility for income distribution and tax planning • Requirements • Incorporation of company • Standard licenses • Service Maquila license • Operating agreements • Transfer pricing support

  4. WHOLESALE DISTRIBUTION TO MAQUILA/PITEX CUSTOMERS Invoice (A) U.S. Parent U.S.Customers Shipment Invoice (B) Mexican Sub Mex Customers Shipment

  5. WHOLESALE DISTRIBUTION TO NON-MAQUILA/PITEX CUSTOMERS • Warehouse structure complications • VAT Issue: May be unable to recover import VAT • Invoicing Issue: Sales within Mexico subject to Mexican invoice rules

  6. WHOLESALE DISTRIBUTION TO NON-MAQUILA/PITEX CUSTOMERS • Wholesale Distribution requirements: • Incorporation of 2 companies • Company number one: • Import licenses • “NOM” compliance • Mexican invoicing system • Transfer pricing support • Company number two: • Mexican invoicing system

  7. WHOLESALE DISTRIBUTION TO NON-MAQUILA/PITEX CUSTOMERS • Wholesale Operations • 1st Company performs import duties & warehousing • 2nd Company buys from import company & sells to customer • Limits impact of invoicing requirements that state first hand, wholesale import sales must provide detailed customs information on invoice

  8. WHOLESALE DISTRIBUTION TO NON-MAQUILA/PITEX CUSTOMERS Parent Shipment + Invoice Import & Warehouse Customer Service Shipment + Invoice Shipment + Invoice Customer

  9. RETAIL DISTRIBUTION • Difficult to implement warehouse operation for same reason VAT recovery reason as wholesale operations • Retail invoices do not require customs information, however

  10. RETAIL DISTRIBUTION • Requirements: • Incorporation of one company • Import Licenses • “NOM” compliance • Transfer Pricing Support

  11. RETAIL DISTRIBUTION Parent Shipment + Invoice Mex Company Customers Product + Invoice

  12. GENERAL REQUIREMENTS / ISSUES WHEN ENTERING THE MEXICAN MARKET • Incorporation • Licenses • Operating Agreements • Labor Issues • Administration • Customs • Taxes

  13. GENERAL REQUIREMENTS / ISSUES WHEN ENTERING THE MEXICAN MARKET • Incorporation: 4-8 weeks • Articles of incorporation / Corporate Purpose • Powers of attorney • Notarization • Taxpayer i.d. number

  14. GENERAL REQUIREMENTS / ISSUES WHEN ENTERING THE MEXICAN MARKET • Obligatory licenses • Importer registration • Foreign investor registration • Licenses that may be required • Service maquila license and RECIME registration • Padron Sectorial • Environmental Permits • “NOM” compliance

  15. GENERAL REQUIREMENTS / ISSUES WHEN ENTERING THE MEXICAN MARKET • Operating agreements that may be required • Warehouse agreement with third party • Intercompany warehouse agreement (earnings stripper) • Equipment lease agreement (earnings stripper) • Employee lease agreement

  16. GENERAL REQUIREMENTS / ISSUES WHEN ENTERING THE MEXICAN MARKET • Labor issues • Collective bargaining agreement with unions • Individual labor agreements • Human resources procedures consistent with Mexican law • Mandatory profit sharing of 10%

  17. GENERAL REQUIREMENTS / ISSUES WHEN ENTERING THE MEXICAN MARKET • Administration • Accounting • Payroll • Tax filings • Audit requirements

  18. GENERAL REQUIREMENTS / ISSUES WHEN ENTERING THE MEXICAN MARKET • Customs requirements • Customs agent • Duties, possible NAFTA benefits • “NOM” requirements • Benefits under Service Maquila license • Provide customs classification number

  19. GENERAL REQUIREMENTS / ISSUES WHEN ENTERING THE MEXICAN MARKET • Tax requirements • Income tax • U.S. considerations • Mexican considerations • Value Added Tax (VAT) • Asset Tax • Profit sharing “Tax”

  20. QUESTIONS?

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