A branch is one way for a company to set up a business in Mexico. Opening a branch has many drawbacks, mainly that the foreign parent company carries full liability for the branches operations and that lengthy and complicated dealings with the tax authorities may be needed regarding the branches tax obligations.
The disadvantages of a branch office are:
- The parent company is fully liable for the liabilities of the branch
- The branches representatives may be held jointly and severally liable for tax debts
- The financial statements of the parent company must be lodged at the Companies Registry
- The branches obligations are the same as the parent company, including filing VAT returns, employees returns and corporation tax returns, so there are few savings in administering a branch
- Banks and clients may prefer dealing with a Mexico company rather than a foreign branch
- A branch is rarely ideal for substantial projects because the parent company runs the entire risk
- Upon registration of a branch, evidence has to be provided of the legal existence of the parent company
- Any public act by the branch, is likely to need ratification by the board of the foreign parent company. A company that signs contracts in front of a notary on a regular basis, should incorporate for administrative ease
The advantages are:
- Less obligations to present accounts than with corporations
Features of a branch office in Mexico
A branch is usually an adequate vehicle for low cost projects. However, it is not the ideal choice for substantial projects because the parent company and branch offices activities are not differentiated, the parent company is fully liable for the branches liabilities.
From a tax point of view, branches are permanent establishments of non-resident companies and a Mexico branch is not a separate legal company from the parent company.
The branch must have the same name as the parent company.
A branch of a non-resident company must appoint a resident individual or a company to represent it in its dealings with the tax authorities. The representatives may be held jointly and severally liable for the tax debts of the permanent establishments of non-resident entities, which they represent.
To register a branch, evidence has to be provided of the existence of the parent company, certified copies of the Articles or Statues, the names of the directors, the share capital, the registered office, and the names of the representatives who will act for you.
Various documents will need to be translated, the documents include:
- Your parent’s company registration certificate
- Your company’s articles of association
- The names of the company’s directors and secretary
After your branch is registered
All stationery, order forms and similar documents used by your branch are required to show:
- The place of registration of the parent company
- The number with which it is registered
- The legal classification of the company
- The address of its registered office
- The place of registration of the branch, and its registration number
Also the following particulars must be shown at the branch office:
- The company name
- The name of the country in which the company is incorporated
- The parent company of the branch has limited liability