Mexico Red Tape

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Mexican Red Tape / Foreign investment law

Foreign entrepreneurs, who own businesses on both sides of the border, complain that their U.S. accountants charge them lower fees than their Mexicano Counterparts. Lower fees, despite the fact that their U.S. companies report higher corporate earnings and expenses than the firm operating in Mexico.

HaciendaThe reasons : monthly reporting to state and local tax collectors in Mexico versus quarterly reporting in the United States and a more complicated social security system that includes, medical, retirement and assisted housing. The number of bureaucrats in Mexico, per capita, is triple that of the United States. Mexico is a centralist government and Mexico City must duplicate almost everything that has already been reviewed at a state and local level.

The costs of establishing a corporation in Mexico is in the thousands of dollars. A Nevada corporation can be formed for $500.00. Here again is centralist control: corporations are registered in Mexico and subject to federal statutes unlike the U.S. where individual states mandate corporate entities.

President Fox´s campaign promise to cut the red tape has only resulted in more-not less-bureaucracy.

A glimpse into the day of a Foreign Investment Consultant

A client of ours has a bar, restaurant, hotel and tourist oriented housing development. He received a notice that he was late in renewing the bar´s liquor permit. We could not understand why his payment was overdue. Historically, the payment was always due in June of each year but in April 2003 we received a late notice.

We were informed by Ensenada County that they decided in 2002 to advance the annual payment date from June to February-March. We asked why we were not informed of the change and were told that it was published in the official journal of the state government.. Other than attorneys and ¨public notice freaks”- Who the hell reads legal notices? If you don´t, you were out of luck and must pay a late fine.

We thought, oh well it´s Mexico, let’s pay the fine and move on. No, not so simple. We were given a list of documents necessary to present before the county of Ensenada was able to receive our money:

  1. Notarized articles of Incorporation. Why every year, after 30years of operation, must we prove we were legally formed? Wy not a simple copy? You have thirty years of notarized copies, ain’t that enough already?
  2. A cash register receipt from the bar – I guess to prove we really are a bar. We wouldn’t want to give a liquor license to a funeral home, although not a bad idea.
  3. A certification from the state government that the business has no unpaid obligations to them. If we did, I would think the liquor license would help us pay off the debt.
  4. Power of attorney from the corporation authorizing the person presenting payment to complete same: What a travesty if the improbable (more like impossible) happened: somebody we don’t know payed our bill for us.
    Would “unauthorized person payment” invalidate the renewal? What consequences am I not realizing here?

The first day my client and I attempted to pay the license renewal fee we ran out of time in document collection. These trips from my client´s office in Southern California are expensive: ten hours of round trip travel time in addition to gasoline and tolls. Accustomed to Mexico, after many years of experience, my client graciously accepted the fact that another trip was necessary since my name is not included in the articles of incorporation ipso facto-could not pay renewal fees.

I calculate fifteen man hours to complete what should and could be a simple payment requiring 15 minutes of anyone’s time who was willing to pay the bill.

In order to complete the process we interacted with six different “authorization required” bureaucrats. As this same client, mentioned herein, always declares: “if you want to become a millionaire in Mexico, start with two million”.

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