Mexico: one of the most business friendly jurisdictions in Latin America

Mexico stands out as one of the best countries for doing business in Latin America, according to the World Bank’s “Doing Business 2020” report. This report measures the ease of doing business in 190 countries. It analyzes 10 indicators that measure the number of procedures, times, costs and quality of federal and local regulations that impact the business environment.

In the World Bank report, the score for Mexico regarding ease of doing business was 72.4, compared to the top entry, which was New Zealand, with 86.8; a difference of only 14.4

It is important to note that Mexico ranks 60th out of 190 countries evaluated, and in Latin America it is the second best country surpassed only by Chile, which is ranked 59th. Mexico also surpasses emerging market economies such as India, Vietnam, South Africa and European Union countries such as Luxembourg and Greece.

Why Mexico is an important foreign investment destination

The World Bank’s classification for Mexico as an attractive destination for foreign investment includes institutional certainty, the internal market and its great geographic position with North America, investment guarantees, a potential market of more than 120 million people and its proximity to its northern neighbour, the US.

Elsewhere, in its report on the world economy in 2020 the UN said Mexico was 14th in the top 20 recipient economies of 2018-19, with an average investment of US$34 billion. However, like everywhere else foreign direct investment was heavily impacted by Covid-19 pandemic along with the country’s uncertain political situation and structural weaknesses.

Of the different economic sectors in Mexico, the automotive industry stands out with investments from Germany (Audi), the US (Ford/General Motors), South Korea (Kia, Hyundi) and Japan (Mazda). Another industry with a huge economic impact is tourism with an average of 25 million visitors per year coming to the country. The real estate industry is also set to be one of the most profitable sectors in the medium and long term.

Mexico is a country in constant modernization with a good infrastructure. It has 63 international airports, 117 ports, 27
thousand kms of railroads and 389 thousand kms of highways. Other outstanding sectors include aerospace, processed
foods, health and pharmaceuticals, household appliances and the knowledge industry, IT services and software.

In terms of foreign trade, Mexico has a network of 14 free trade agreements with 50 countries; 30 agreements for the promotion and reciprocal protection of investments with 31 countries and 9 agreements of complementary economic scope under the framework of the Latin American Integration Association (ALADI).

As a result of the commercial treaties that Mexico has today, this allows us to reach international markets with more than one billion consumers with preferential access.

Regarding tax, Mexico became a member of the OECD in 1994. As a result of its incorporation, the Mexican tax system
follows the guidelines recommended by that organization. Today, Mexico has 56 double taxation treaties that are in force, which helps significantly when attracting foreign investment. Likewise, as part of its active participation in the OECD, Mexico implemented all the recommendations of the BEPS Project in its domestic legislation, complying with the commitments established multilaterally.

Additionally, the Mexican tax system is characterized by its federal strength, where the most important taxes are the
income tax (30% rate), which applies to the overall income of taxpayers, and VAT (16%), which is considered an indirect tax. Additionally, there are local taxes whose applicable rates vary depending on the state. The most common local taxes are the payroll tax (rates 2%-3%) and the real estate property tax.

Mexico today and in spite of the current difficult world economic situation is a real alternative to consider in the business world; its traditions, gastronomy and hospitality together with its cultural legacy make Mexico a great location for investment.

Contributing Advisors