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Nearshoring in Mexico for US companies.

Legal considerations of nearshoring in Mexico for US companies.


Acquiring property should be done carefully, making sure to perform thorough due diligence to ensure clear title to the property that complies with local zoning laws . And most real estate transactions must be formalized before a notary .


Environmental Regulations.

United States companies must also comply with Mexican environmental laws and regulations , which may affect site selection and operations, and plan for an environmental impact assessment that may be necessary for certain types of industrial activities.


Normative compliance.

There are a number of industry-specific regulations , such as health and safety standards, that are enforced by various federal and local agencies.


Anti-corruption laws.

We recommend that US companies implement robust compliance programs once established in Mexico, to comply with the anti-corruption laws of both countries such as the FCPA and Mexican anti-corruption legislation.


Maquila


Dispute resolution.

Understand the Mexican legal system and the mechanisms for resolving disputes, including litigation and arbitration, which are becoming increasingly complex .


Nearshoring in Mexico has become increasingly popular for US companies looking to relocate part of their production or services .


Relocating a U.S. company to Mexico involves several legal aspects that must be taken into account to ensure compliance with both U.S. and Mexican laws .


Some of the most important legal considerations are:


Due diligence.

In order to prevent risks and legal challenges, companies should consider differences in legal systems and practices through due diligence , including understanding local procedures, infrastructure availability, different terminology and contractual meaning, to name a few. some.


Corporate Structure and Registration.

Choosing the appropriate legal entity to operate in Mexico, such as a subsidiary, branch or joint venture, must be done carefully.


The most common entities are:

a) Sociedad Anónima (“SA”) , which is a public limited company with at least two shareholders, where liability is limited to the amount of the shareholders' contributions, and

b) Limited Liability Company (“S. de RL”) , which is suitable for smaller companies with limited partners.


Incorporation Process.

This process consists of writing and signing the articles of incorporation that include the corporate bylaws and are signed before a notary public and the company must register in the Public Registry of Commerce (“RPC”) as well as obtain a federal taxpayer registration number (“RPC”). RFC”) of the Tax Administration Service (SAT) of Mexico.


Permissions and licences.

It is crucial to obtain the necessary permits and licenses to operate legally in Mexico , which can vary by industry. The permits and/or licenses can be a) Federal, State and Municipal Permit, depending on the nature of the business, several permits from different levels of government may be required and b) Operating License which are generally obtained from the local municipal authority.


Nearshoring | Permissions and licences

Labor Law Considerations.

Labor law and compliance is one of the most important topics that foreign companies should know about.

Labor legislation includes Social Security regulations , workers' participation in company profits ("PTU"), employee benefits , working hours that must comply with recent reforms regarding labor exploitation. , the payment of the minimum wage, negotiations with unions , the prohibition of subcontracting and the housing fund for workers .


When it comes to hiring qualified labor, companies that intend to employ subcontractors must confirm that the services they are outsourcing in Mexico are not part of their main business , since, in Mexico, subcontracting is regulated to ensure that it is not results in the avoidance of labor obligations.


The main requirements and legal aspects of subcontracting are regulated in the Federal Labor Law (“LFT”), which is the primary legislation governing labor relations in Mexico, including subcontracting.


In April 2021 there were important reforms to the LFT and related laws to more strictly regulate outsourcing practices.


This law prohibits the subcontracting of personnel and companies can no longer employ workers through an external service provider to perform tasks that are part of their primary economic activities.


Exceptionally, subcontracting is permitted for specialized services or works that are not part of the company's core business activities .

Companies that provide specialized services must register with the Ministry of Labor and Social Security (“STPS”) and obtain a registration certificate (REPSE). The registry is public and accessible online.


Among the most important practices that should be taken into account is that subcontracting agreements must be in writing and specify the nature of the services or specialized works.

The registration number of the service provider and the obligations of the parties, subcontractors must comply with all labor and social security obligations and provide evidence of compliance to the contracting company. A key issue is that the contracting company is jointly responsible with the subcontractor for labor and social security obligations.


For subcontracting purposes, there are a series of Information requirements, such as reporting your subcontracting agreements to the Mexican Social Security Institute (“IMSS”) and the National Housing Fund for Workers (“INFONAVIT”).

This includes detailed information about subcontracting contracts and the workers involved.


Companies must also submit annual reports to the STPS detailing their subcontracting activities, ensure compliance with mandatory benefits, including social security, vacations, profit sharing and severance pay, and be aware of the role of employees. unions in Mexico and the potential of collective bargaining contracts .


Taxation .

Companies seeking to relocate their operations to Mexico should obtain expert advice regarding the Mexican corporate tax rate, as well as tax obligations, including Value Added Tax (“VAT”), income tax and other applicable taxes. .

It is also advisable to have appropriate advice to ensure compliance with transfer pricing regulations to avoid penalties and ensure that transactions between related entities are carried out at arm's length.


Companies can benefit from tax treaties between the United States and Mexico to avoid double taxation on income.


Intellectual property .

In Mexico there are important regulations for the protection of intellectual property , in this sense, companies must register trademarks, patents and copyrights in Mexico and ensure that intellectual property transfer and license agreements comply with Mexican legislation.


Customs and Trade Regulations.

With the enactment of the Agreement between Mexico, the United States and Canada (“T-MEC” or “USMCA”) , Mexico improved its offer to foreign manufacturers by providing legal certainty to nearshoring projects.

There are several relevant business regulations when developing this type of project that you should keep in mind.

Foreign companies can benefit from government maquila programs , so it is important to understand the regulations for importing raw materials and exporting finished products, including tariffs and non-tariff barriers. Taking advantage of the USMCA allows companies to obtain preferential trade terms and compliance with their rules of origin.


Property.

Foreign companies must consider the requirements and obligations within the legal process of acquiring or leasing properties that are increasingly common in the country.


Data Protection.

Companies must comply with Mexico's data protection regulations, including the Federal Law on Protection of Personal Data Held by Private Parties (“LFPDPPP”) and ensure adequate protocols for the transfer of data between Mexico and the United States, adhering to the privacy laws of both countries.


Logistics and Supply Chain.

We recommend that companies draft contracts with suppliers and logistics providers that clearly define responsibilities and risk management, and that they implement strategies to manage the risks associated with cross-border supply chains, including political and economic risks .


Recommendations and conclusion.

There are many advantages for a North American company to move its operations to Mexico, however, when looking to have cheap and qualified labor, American companies must be aware that the legal framework for subcontracting in Mexico is strict , especially after the 2021 reforms.

U.S. companies must carefully navigate these regulations to ensure compliance and avoid potential liability.


De Hoyos Aviles has an experienced group of lawyers and experts who can assist you immediately. For any questions, you can write to us at contacto@dha.mx




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