Do you need to incorporate in Mexico to manufacture and benefit from the free trade agreement between Canada, the US and Mexico?
No, you don’t need to incorporate in Mexico to manufacture.
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No, but really, if you are a Canadian manufacturer interested in integrating Mexico into your supply chain, or if you want to engage in Ally Shoring, to counter the long lead times from manufacturing in other continents, then manufacturing in Mexico without incorporating your own entity is a viable option for you.
And that’s probably the key benefit of manufacturing in Mexico via a Shelter company; that you don’t have a permanent establishment in Mexico, but you can operate essentially as if you have one.
So, you don’t need an incorporation, but I should also point out that if you start manufacturing in Mexico with a shelter company, you can incorporate later and then migrate out of the shelter company; so, it doesn’t cut off your options for the future.
It’s why many companies do start manufacturing in Mexico, with a shelter company, and then eventually when they’re established and comfortable, they set up their own entities and migrate away from the shelter company.
Well, at least that’s how most American manufacturing companies and even Chinese manufacturers operate in Mexico; however, most Canadian business owners and manufacturers don’t know what a shelter operation is!
Also, don’t forget this, whether or not you decide to incorporate in Mexico: It depends if you’re manufacturing and selling, or just manufacturing, and sending back your goods to be integrated in your supply chain in the US or Canada. Or, if you want to sell in Mexico and you’re not manufacturing in Mexico. So again, it depends, on what you want to achieve out of integrating Mexico into your supply chain.
But if your goal is to manufacture in Mexico to shorten lead times and attack the US markets, or to use Mexico as an export platform towards the rest of Latin America; you don’t need to incorporate in Mexico to start manufacturing.
I would also add, that if you’re not going to incorporate, be sure to use the shelter model. Because, the worst-case scenario, is that you want to manufacture in Mexico without using a shelter company; which means, that you would have to create a permanent establishment in Mexico.
And, creating a permanent establishment in Mexico, is basically getting close to the 7th Circle of Dante’s “Inferno” in purposes of complication, of how you are going to operate, moving down the road. So, you don’t want to go that way for sure. I’m not going to get into the details, but if you want to manufacture in Mexico, either you do it through a shelter companyor you incorporate.
But you don’t go any other routes.