© grant thornton setting up a distribution business in mexico: considerations for u.s. and foreign...

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

Andrew SpeerGrant Thornton LLP

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WHAT TYPE OF DISTRIBUTION BUSINESS?

A. Wholesale to Maquila/PITEX customers

B. Wholesale to non-Maquila/PITEX

C. Retail

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• 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

WHOLESALE DISTRIBUTION TO MAQUILA/PITEX CUSTOMERS

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U.S. Parent

Mexican Sub

U.S. Customers

Mex Customers

Invoice (B)

Shipment

Invoice (A)

WHOLESALE DISTRIBUTION TO MAQUILA/PITEX CUSTOMERS

Shipment

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• Warehouse structure complications

– VAT Issue: May be unable to recover import VAT

– Invoicing Issue: Sales within Mexico subject to Mexican invoice rules

WHOLESALE DISTRIBUTION TO NON-MAQUILA/PITEX CUSTOMERS

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• 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

WHOLESALE DISTRIBUTION TO NON-MAQUILA/PITEX CUSTOMERS

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• 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

WHOLESALE DISTRIBUTION TO NON-MAQUILA/PITEX CUSTOMERS

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Parent

Customer Service

Customer

Shipment + Invoice

WHOLESALE DISTRIBUTION TO NON-MAQUILA/PITEX CUSTOMERS

Import & Warehouse

Shipment + Invoice

Shipment + Invoice

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RETAIL DISTRIBUTION

• Difficult to implement warehouse operation for same reason VAT recovery reason as wholesale operations

• Retail invoices do not require customs information, however

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RETAIL DISTRIBUTION

• Requirements:– Incorporation of one company– Import Licenses– “NOM” compliance– Transfer Pricing Support

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Parent

Mex Company

Shipment

+

Invoice

RETAIL DISTRIBUTION

Product + Invoice

Customers

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GENERAL REQUIREMENTS / ISSUES WHEN ENTERING THE MEXICAN MARKET

• Incorporation• Licenses• Operating Agreements• Labor Issues• Administration• Customs• Taxes

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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

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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

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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

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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%

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GENERAL REQUIREMENTS / ISSUES WHEN ENTERING THE MEXICAN MARKET

• Administration– Accounting– Payroll– Tax filings– Audit requirements

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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

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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”

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QUESTIONS?