Doing Business in Mexico: What U.S. Companies Need to Know

Mexico is the United States’ largest trading partner, with total trade reaching $840 billion in 2024. This article offers practical guidance for U.S. companies seeking to do business in Mexico or manufacture products for sale in the United States. Attorneys from Varnum LLP and CMDG law firm in Mexico offer practical guidance and strategies for conducting business in Mexico.

Why Should U.S. Companies Consider Doing Business in Mexico?

With a population of 130 million, Mexico imports over $300 million in goods and services from the United States annually. Many U.S. companies also manufacture goods in Mexico for export back to the United States and to other countries.

Mexico’s proximity provides nearshoring opportunities to reduce global supply chain risks. The country also offers a large workforce at competitive labor costs. While free trade agreements have historically benefited U.S. companies, tariff levels remain uncertain as of August 2025.

What Are the Main Ways to Enter the Mexican Market?

• Distributor or Agent: Best for testing the market. Contracts must be structured carefully to avoid unexpected labor, tax, or intellectual property liabilities.
• Branch Office: Allows direct control but exposes the parent company to full liability for Mexican operations.
• Mexican Subsidiary: The most common and recommended structure for long-term investment. These entities offer limited liability and favorable tax treatment but require more compliance.

What Should I Know About Hiring Employees in Mexico?

Mexico’s labor laws include employee protections and mandatory benefits that differ from those in the U.S. In contrast to the at-will employment system in the United States, Mexican law presumes an employment relationship whenever someone provides services under another’s control and is compensated.

Key Employee Rights Include:

• Mandatory Severance: If an employer terminates an employee without cause, Mexican law mandates significant severance payments.
• Minimum Wage: Employees must be paid at least the statutory minimum wage (for example, in Mexico City: 248.93 pesos/day).
• Work Hours and Overtime: The maximum work week is 48 hours, with mandatory overtime pay for additional hours.
• Paid Holidays and Vacation: Employees are entitled to paid holidays and at least 12 vacation days after one year of service.
• Christmas Bonus: A mandatory annual bonus equivalent to 15 days’ wages.
• Profit Sharing: Employees must receive 10% of the company’s pre-tax profits.
• Social Security and Health Benefits: Employers must enroll workers in the Mexican Social Security Institute (IMSS) and contribute to the National Housing Fund (INFONAVIT).
• Maternity Leave: Six weeks of paid leave before and after childbirth.
• Mandatory Training: Employers are required to provide ongoing training.

Severance Costs:

One of the most significant risks and cost drivers for U.S. companies is the legal framework surrounding employee termination. In Mexico, unjustified termination triggers substantial severance obligations:

• Severance Pay: Three months’ salary plus 20 days’ salary for each year of service.
• Back Pay and Accrued Benefits: Employers may be liable for back pay and all accrued benefits from the date of dismissal until resolution.
• Notice and Documentation: Employers must provide written notice of dismissal and maintain thorough documentation.

Terminating employees, especially without clear, documented cause, can be costly and legally complex. The risk of litigation and the potential for significant financial liability are much higher than in the United States.

Since Mexico enacted reforms in 2021, outsourcing is banned except for specialized services unrelated to a company’s core business. Any permitted outsourcing arrangements require registration with the Labor Ministry and full compliance with tax and labor regulations. This limits flexibility in workforce management and increases compliance costs.

What Are the Key Benefits of the IMMEX (Maquiladora) Program?

The IMMEX (Industria Manufacturera, Maquiladora y de Servicios de Exportación) program is a cornerstone of Mexico’s export-oriented manufacturing sector. Commonly referred to as the “maquiladora” program, it is designed to attract foreign investment by offering significant tax and customs benefits to companies manufacturing in Mexico for export.

Key Features of the IMMEX Program Include:

• Temporary Importation of Goods: Raw materials, components, and machinery can be imported into Mexico without paying import duties or value-added tax (VAT), provided these goods are used to manufacture products for export.
• Export Focus: The program is specifically tailored for businesses that export their finished goods. Maquiladoras must export all temporarily imported goods or convert them to permanent importation within specified timelines.
• Tax Benefits: Companies operating under the IMMEX program can benefit from favorable tax treatment if they structure their operations properly. For example, certain tax incentives and exemptions may apply, and the program is compatible with international tax regulations, such as the U.S. “check-the-box” rules, which can help optimize the overall tax burden for U.S. parent companies.
• Flexibility in Manufacturing and Services: The program is not limited to traditional manufacturing. It also covers companies providing export-related services, such as logistics, repair, and maintenance, broadening the scope of businesses that can benefit from IMMEX.
• Strict Controls: Transfers of temporarily imported goods within Mexico are tightly regulated to ensure compliance with export requirements.

Legal counsel in Mexico can guide a U.S. company through the key steps to set up a maquiladora:

• Establish a Legal Entity in Mexico: The U.S. company must first create a Mexican subsidiary or entity. The most common structures are the Sociedad Anónima (S.A.) or Sociedad de Responsabilidad Limitada (S. de R.L.), both of which offer limited liability and are suitable for long-term operations.
• Register with Mexican Authorities: The Mexican entity must register with the Ministry of Economy to obtain IMMEX authorization. This involves submitting detailed information about the company’s operations, export plans, and compliance with program requirements.
• Customs and Tax Compliance: The company must register as an importer and comply with all customs regulations, including maintaining accurate records of all imported and exported goods. Monthly VAT and customs returns must be filed, and all goods must be tracked to ensure they are either exported or properly converted to permanent importation.
• Meet Export Requirements: To maintain IMMEX status, the company must demonstrate that it is exporting most of its production. There are strict timelines for exporting temporarily imported goods, and failure to comply can result in penalties or loss of IMMEX benefits.
• Ongoing Regulatory Compliance: IMMEX companies are subject to regular audits and must comply with labor, tax, and environmental regulations. This includes proper registration of employees with the Mexican Social Security Institute (IMSS) and adherence to all labor laws.

What Taxes Will a U.S. Company Face in Mexico?

• Federal Taxes: Corporate income tax (30 percent), VAT (16 percent), and specific taxes on goods/services (e.g., alcohol, tobacco). VAT is managed through a credit-and-debit system, with monthly filings required.
• State & Local Taxes: Payroll tax (3-4 percent), property transfer tax, and land ownership levies.
• Withholding Taxes: Services and royalties/technical assistance (25 percent), interest (up to 35%, but can be reduced by tax treaties).
• Tariffs: As of August 2025, tariffs between U.S. and Mexico are in a state of change and negotiation.

How Can I Protect Intellectual Property in Mexico?

Mexico follows international IP standards. To secure your rights, register your patents, trademarks, and copyrights locally. This is essential for enforcement and protection under Mexican law.

What Should I Know About Buying Real Estate in Mexico?

• Non-Residential Use: Foreign-owned Mexican entities can purchase property directly, with notification to the Foreign Affairs Ministry.
• Residential Use: Must be held through a bank trust “fideicomiso” with the foreign investor as beneficiary.

What Cultural Differences Should I Be Aware Of?

When conducting business in Mexico, businesspeople should be aware that cultural norms and expectations can differ significantly from those in the United States. Mexican business culture places a strong emphasis on personal relationships, trust, and respect for hierarchy. Building rapport and establishing trust with local partners, clients, and employees is often a prerequisite to successful negotiations and long-term collaboration.

Meetings may begin with informal conversation, and decision-making processes can be more deliberate, involving multiple levels of management and requiring patience. Unlike the typically direct and time-sensitive approach favored in the U.S., Mexican counterparts may prioritize consensus and relationship-building over immediate results. Additionally, respect for authority and seniority is deeply ingrained, so it is important to address senior leaders appropriately and understand that decisions may ultimately rest with top executives rather than middle management.

Recognizing and adapting to these cultural nuances can help U.S. companies foster stronger partnerships and avoid misunderstandings when entering the Mexican market.

CMGD and Varnum LLP are independent firms that are members of the Ally Law global referral network. Ally Law enables member firms to connect with trusted counsel around the world. Contact your Varnum attorney for guidance on doing business in Mexico.