Doing Business with Mexico 21 years after NAFTA Alfonso Cornejo Lisa Wineland Sean McGrory
Our Presenters Alfonso Cornejo, President, Hispanic Chamber Mr. Cornejo is the president of the Hispanic Chamber Cincinnati USA and president of AC & Consulting Associates, a Business Consulting firm headquartered in Cincinnati. He has a well rounded background in all facets of business, with particular expertise in manufacturing and human resources. Before entering the consulting field, Mr. Cornejo worked for 30 years with several Fortune 500 companies, including Procter & Gamble, Clorox, and Chiquita Brands. His main areas of expertise are business development initiatives in Latin America, including integration and mergers and acquisitions, as well as providing human resources support for companies interested in their Hispanic workforce development.
Our Presenters Lisa Wineland, Principal, Clark Schaefer Hackett Lisa specializes in the area of international and corporate taxation. She consults with clients regarding international outbound and inbound transactions as well as entity structure planning. She serves many multinational clients with international reporting requirements. Prior to joining the firm Lisa spent many years with a Big Four accounting firm and most recently worked in private industry for a Fortune 20 multinational public company. Her international experience includes cross border transaction analysis, foreign tax credit planning and compliance, M&A transactions, and related party tax reporting.
Our Presenters Sean McGrory, Shareholder, Clark Schaefer Hackett Sean leads client engagements by providing accounting, audit and business advisory services to commercial organizations, including those with family or closely held ownership, international operations or ownership, and private equity investors. His areas of emphasis include budgeting and forecasting, strategic planning, international transactions and reporting, and financing. Sean s over 20 year career includes more than a decade with an international accounting firm, where he spent two years in London as their US Liaison Partner for Europe.
Agenda Current economic & business environment in Mexico Challenges of doing business in Mexico Transforming challenges into opportunities Interdependency between Mexican & American economies Tax implications for U.S. companies investing in Mexico Minimizing risk while meeting your business objectives Q&A
THE REALITY THE WORLD IS SHRINKING Regional Free Trade Agreements Huge Global Companies Smart & Dedicated Global Mobile Employees Fast Technological Advances
Today s Perspective The USA is still the largest economy in the world but its GLOBAL influence is becoming less significant every year Some USA internal politics, industry policies/regulations and their implications are isolating us from the rest of the world. The USA is among the countries with fewer free trade agreements vs. other developed nations Great Opportunity!! Trans Pacific Partnership (TPP) Agreement 12 countries (w/o China) 7 years in discussions/negotiations
TRANSFORMING SHORTCOMINGS INTO OPPORTUNITIES
Mexico Challenges Poverty Education Drug Traffic (varies) Corruption (varies) Environment & Contamination Large Economical/Class Differences
Example MEXICO CITY METRO AREA 22 MM people, 7,000 ft elevation, 40% PIB Equal to the # of people in: OHIO KENTUCKY INDIANA
Mexico is North America + = + GDP: 20.5 trillion USD
Solid Macroeconomic Environment Exports 2014 record of 397 billion USD Reserves 2014 record of 193 billion USD Evolution of exports and international reserves in Mexico (1981 2014) Manufactures: 85% BUSD Manufactures Oil Oil: 72% Primary Reserves Source: ProMéxico with information from Central Bank.
Export Platform Through its network of free trade agreements, Mexico has privileged access to 46 countries (more than 1,200 million people). FTAs with 46 countries TPP 6 economic complementation agreements With the TPP, Mexico will increase its presence in Australia, Brunei, Malaysia, New Zealand, Singapore and Vietnam. Source: ProMéxico with information from Brazil: OAS; China: Chinese Ministry of Commerce; Colombia: Colombian Ministry of Commerce; United States: Office of the US Trade Representative; Chile: Direcon; Mexico: Ministry of Economy.
Mexico as Part of North America 50+ border crossings with the US. Total market= 20.5 trillion USD. 16 trillion European Union. Bilateral trade with the U.S.= 2.3 million dollars per minute. 200 thousand vehicles crossing the border daily. NASCO Corridor Source: ProMéxico with information of SCT/ US Department of Transportation.
Mexico: Second Largest Buyer to the U.S. Mexico 2x 5x China Brazil
Mexico s Global Leadership AEROSPACE Mexico is the 6th supplier to the American aerospace industry. AUTOMOTIVE AND AUTO PARTS 8 th producer and 4 th exporter globally of new light vehicles in the world. ELECTRIC ELECTRONIC Leading flat television screen exporter in the world. IT 3rd largest exporter in the world. 380 billions in exports in 2013 50% in medium and high tech manufactures Source: ProMéxico with information of FEMIA, GTA, AMIA y OICA.
Reforms in Action Energy Telecom Competence Finance Education Political Fiscal Labor National Code of Criminal Procedure Law of Citizen Protection Transparency Source: ProMéxico with information of http://reformas.gob.mx
Aerospace There are 287 aerospace companies in Mexico. Australia United States U.K. Italy Germany Japan France Canada Netherlands Mexico According to KPMG, aerospace parts manufacturing costs in Mexico are approximately 13% lower than in the United States. In 2012, exports from this sector accounted for more than 5 billion dollars. Mexico is the 6 th supplier to the American aerospace industry. Mexico is a participating state of the Wassenaar Arrangement. Source: ProMéxico with information of KPMG, US Census Bureau, Mexican Ministry of Economy and Bombardier.
Energy Sector The Energy reform allows foreign businesspeople to participate in profit sharing contracts. 5 th 13 th oil producer in the world. in refining capacity. Enables collaboration with the private sector to engage in transmission and distribution of electricity. 3 rd Mexico is the most attractive country in the world to invest in solar projects. Source: ProMéxico with information of PEMEX and EPIA.
Mining Industry In 2013 Mexico ranked 5 th place as best destination to invest in mining projects. The second global producer of fluorite and bismuth The third largest COPPER producer in Latin America. Mexico is the first destination for exploration investment in Latin America and fourth worldwide. Mexico is the largest producer and exporter of SILVER in the world. The second largest GOLD producer in Latin America. Source: ProMéxico, with information of The Silver Institute, Mexican Mining Chamber (CAMIMEX), Global Trade Atlas, Metals Economics Group, INEGI, Mineral Commodity Summaries, Behre Dolbear and U.S. Geological Survey, 2013.
Major FDI Projects 2008 2014 2008 2009 2010 2011 2012 2013 2014
Ohio s Exports to Mexico 7000 1993 2014 (Millions of US Dollars) 6000 5000 4000 3000 2000 1000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Ohio s Composition of Exports to Mexico by Industry 2014 32% 7% 9% 12% 13% 27% TOTAL: 5,988,395,588
Ohio s Exports to Mexico by Industry Sorted by 2014, total value in 1000s US dollars (NAICS) Rank NAICS Description 2012 2013 2014 Annual % 12 13 Annual % 13 14 1 336 Transportation Equipment 1,496,428,601 1,534,242,736 1,927,425,963 2.5 25.6 2 352 Chemicals 809,173,643 795,705,768 801,994,892 1.7 0.8 3 333 Machinery, Except Electrical 544,307,372 661,880,016 722,416,914 21.6 9.2 4 326 Plastics And Rubber Products 352,611,664 395,436,818 520,418,906 12.2 31.6 5 332 Fabricated Metal Products, Nesoi 279,170,853 341,113,577 425,990,507 22.2 24.9 6 331 Primary Metal Manufacturing 362,224,119 307,530,448 394,945,197 15.1 28.4 7 335 Electrical Equipment, Appliances, And Component 144,577,000 161,013,185 350,297,891 11.4 117.6 8 334 Computer And Electronic Products 174,271,426 193,841,250 215,849,899 11.2 11.4 9 322 Paper 125,329,826 130,076,894 133,765,659 3.6 2.8 10 327 Nonmetallic Mineral Products 79,915,860 71,450,093 83,880,926 10.6 17.4 11 313 Textiles And Fabrics 58,191,693 87,605,820 80,795,951 50.6 7.8 12 339 Miscellaneous Manufactured Commodities 66,344,164 71,835,459 77,636,542 8.3 8.1 13 311 Food And Kindred Products 62,350,896 66,073,103 65,801,607 6.0 0.4 14 316 Leather And Allied Products 47,178,320 56,522,494 55,589,427 19.8 1.7 15 111 Agricultural Products 7,329,823 55,983,507 35,113,182 663.8 37.3
Highlights In 2014, Ohio's exports to Mexico reached $5,988 million, an increase of $5,237 million from their level in 1993. Ohio's exports to Mexico have grown at an annual average rate of 10.4% in the 21 years of NAFTA. In 2014, the exports to Mexico increased by 19.3% with respect to the previous year.
Highlights Since NAFTA, Ohio's exports to Mexico have increased by 697.3%, while those to the rest of the world rose 168.9%. This means that the export growth rate to Mexico is 4.13 times higher than its export growth rate for the rest of the world. Among all US states, Ohio is ranked 9th as an exporter of goods to Mexico in 2014 Mexico is an important trade partner to Ohio. Among all countries, Mexico is ranked as the 2nd largest market for goods from Ohio in 2014, up from 5th in 1993, illustrating the impact of NAFTA for Ohio's growing businesses. Mexico accounted for 11.5% of Ohio's exports worldwide in 2014.
How Important is Mexico to Ohio? Since NAFTA agreement (1993) Over 21 years, Ohio exports have grown at an average of 10.4% per year Exports to Mexico have grown 697.3% vs. 168.9% to the rest of the world (this is 4.13 times higher than the rest of the world) Ohio is ranked 9 th as an exporter of goods to Mexico In 2014 Mexico accounted for 11.5% of the Ohio exports worldwide
How Important is Mexico to Ohio? Ohio exports to Mexico are: 2.37 times larger than exports to the UK 53% larger than exports to China 68.6% enter Mexico via Laredo, Texas NAFTA is the largest free Trade area in the world Bilateral trade is $2.3 Million per minute There are 50 border crossings with the US 200,000 vehicles cross the border every day
Final Suggestions Follow Macro Global Trends Automobile Industry in China or Mexico Follow the Global Leaders The individual companies Their tier 1 suppliers Their tier 2 suppliers
How to Start The large majority of foreign companies w/o physical presence in Mexico start their operations via the use of a SHELTER company. These are leasing companies where foreign organizations can lease almost everything; physical space, equipment, personnel, etc. All your have to bring is your GM to start operations in Mexico.
Use of Shelter Companies Foreign companies can save significant amounts of time by learning how to navigate the system under the umbrella of these SHELTER companies. These are temporary services contracts, typically between 2 and 3 years that provide a strong win win scenario for companies who have decided to enter Mexico w/o local presence.
Wading into the Water Sourcing & Selling Employees & Agents Permanent Establishment
What Activities Create a Taxable Presence? Independent contractors Dependent contractors Employees working from home or office Sales vs. service Construction & installment projects Owning or leasing property
Entity Structure Considerations Operate as a U.S. Branch Separate legal entity Ownership of new legal entity How to establish and register Treatment of new entity for U.S. tax purposes
Mexico s Maquiladoras Established in Mexico by non residents for the processing or assembling of imported inputs to produce goods for export. Benefit greatly reduced from 2014 forward Remaining benefits include: Not considered a permanent establishment for non residents No payment of import duties for temporarily imported raw materials, as long as the related goods produced are exported VAT on temporarily imported raw materials and fixed assets may be credited in the month it is incurred if a special certification is obtained The maquiladora company may be registered into the Certified Company Registry which allows the company to enjoy simplified procedures to process imports and exports
Mexico s Maquiladoras Conditions for maquiladora status include: The non resident must be resident in a country with which Mexico has a tax treaty Must be in compliance with Mexico's transfer pricing provisions 100% of the income derived from the maquiladora activities must be derived from export operations or directly related services At least 30% of the machinery and equipment used in the operation must be owned by the non resident, while the other equipment used in the operation may be: Owned by a non resident third party, as long as the machinery and equipment has not previously belonged to the maquiladora company or to a Mexican related party, Owned by the maquiladora company directly, as long as it was not owned previously by a Mexican related party, or Leased to a non related Mexican or foreign party, as long as it was not owned previously by a Mexican related party of the maquiladora company
Mexican Tax System Corporate income tax rate of flat 30% (effective 2011 through 2015) Value Added Tax (VAT) at standard 16% rate with zero rate or exemption on certain items Payroll taxes levied on gross payroll at general rate of 2% Social security employer contribution of 15.5% 30.65% Property tax range from.05% 1.2% on property value Transfer tax on purchase price of 1% 5% Customs duties on imported goods ranging from 0 35%
Q&A Alfonso Cornejo President Hispanic Chamber acornejo999@gmail.com Lisa Wineland, CPA Clark Schaefer Hackett lwineland@cshco.com Sean McGrory, CPA Clark Schaefer Hackett smcgrory@cshco.com