Expanding a business into Mexico demands a thorough analysis of potential sites for setting up shop. While Mexico’s major cities (Monterrey, Guadalajara, and Mexico City) remain the most popular options for expansion in the tech sector, smaller cities are gaining traction in the eyes of potential investors. Among Mexico’s tier-2 locations, Aguascalientes has managed to stand out as a burgeoning hub for IT.
The following article outlines essential strategies for successful entry into Aguascalientes, focusing on the incentives and government support provided locally to facilitate business operations.
Business incentives offered in Aguascalientes include tax reductions for IT companies hiring over 100 employees, loans and grants via the Aguascalientes Economic Development Financing System (SIFIA) and support from the Mexican government-owned development bank, NAFIN.
The region also offers several initiatives which aim to feed high-skill workers into the pipeline. There’s the Institute for Workforce Training of the State of Aguascalientes (ICTEA), which offers over 300 specialized courses, and the Competitiveness and Innovation Center of the State of Aguascalientes (DICOI), providing subsidies of up to US$2,500 for training and certification.
In addition, the Jovenes Construyendo el Futuro program facilitates hiring and training boot camp graduates under 29 years old, with beneficiaries receiving a monthly scholarship equivalent to US$350 for a year.
The government also offers employment-related assistance to companies investing in the state through dedicated account managers and services from the Servicio Estatal y Nacional de Empleo (SNE),
Landing in Aguascalientes: What You’ll Need
The first thing an IT company should do when establishing operations in Mexico is deciding the type of entity it wishes to create. The most common options are Sociedad de Responsabilidad Limitada (comparable to an LLC) or Sociedad Anonima de Capital Variable (similar to an Inc.). In Mexico, the company’s bylaws are mandatory and require notarization and submission to the Mexican Public Registry of Commerce.
The company must also obtain a Tax Identification Number (RFC) and acquire a digital signature provided by the Servicio de Administración Tributaria (SAT), Mexico’s equivalent to the IRS in the US. This digital signature is essential for electronically signing documents, including invoices and payroll receipts.
The next step is to register as an employer with the Mexican Social Security Institute (IMSS), which, in turn, leads to registration with the National Workers’ Housing Fund Institute (INFONAVIT) and the National Institute for the Savings of Retirement Funds for Workers (SAR).
To complete these registrations, a physical address is required. In Aguascalientes, several companies offer fully equipped offices at various locations.
Some companies facilitate remote company incorporation, eliminating the need for a physical presence. In such cases, a power of attorney must be filed with a notary in the US, often represented by the consultancy.
In Aguascalientes, businesses can access Country Manager as a Service (CMaaS) firms which provide expertise in market entry, local representation, compliance and cultural adaptation for international expansion.
Hiring Employees: Key Considerations
Aguascalientes offers over 10,000 professionals related to IT, a number which grows by almost 10% each year. The following are the mandatory liabilities in Mexico when hiring employees:
- ISR (Income Tax): Employers must withhold and remit federal income tax, ranging from 1.92% to 35%, based on the employee’s income.
- ISN (Payroll Tax): At the state level, employers pay a payroll tax. In Aguascalientes, the rate is 2.5%. This rate is the lowest in Mexico’s central region and is competitive against Mexico City’s and Monterrey’s and similar to Guadalajara’s.
- IMSS (Mexican Social Security Institute): Employers and employees contribute to IMSS, with employer contributions typically ranging from 15% to 25% of an employee’s salary.
- Infonavit (National Workers’ Housing Fund Institute): Employers contribute a percentage of the employee’s salary (5% to 5.5%) to facilitate affordable housing loans.
- SAR (Retirement Savings System): Contributions to the retirement savings system vary based on factors like age and salary, typically ranging from 2% to 6.5%.
- Aguinaldo (Year-End Bonus): Employers must pay an annual bonus equivalent to at least 15 days of the employee’s salary, typically in December.
- Vacations and Vacation Bonus: Employees receive paid vacation days, with a vacation bonus equivalent to 25% of the vacation pay.
- Profit Share (PTU): Companies share 10% of their annual taxable income with employees. Calculations are based on a formula outlined in labor law.
- Termination Severance: When terminating an employee’s contract without just cause, employers must provide severance pay, including three months’ salary plus 20 days’ pay per year of service.
- Seniority Premium: Employees are entitled to a seniority premium, providing a bonus of 12 days’ salary for every year worked.
Additionally, regulations such as NOM-035-STPS and NOM-037-STPS focus on psychological risk factors and workplace safety and health management.
IT Consultancy Companies that plan to have contractors on client facilities within Mexico must adhere to REPSE, a centralized registry for specialized outsourcing services, promoting transparency, legal compliance, and fair labor practices.
Annual Labor Cost for a Senior Java Developer in Aguascalientes
|TOTAL LABOR COST (ANNUAL)|
|Net Employee Salary||$34,502|
|Employers Contribution to Social Security||$8,957|
|Provisions for Vacations, Vacation Bouns, and End-Year Bonus||$3,889|
|Total Cost for Employer||$59,402|
|Employee Contributions to Social Security||$1,352|
|Social Security is a general term for IMSS, INFONAVIT, and SAR|
Companies exploring market entry strategies in Aguascalientes have a range of options, each with its advantages and drawbacks.
- Mergers and Acquisitions (M&As) offer the benefit of swift market entry and access to established local resources.
- The Build-Operate-Transfer (BOT) model allows businesses to leverage local expertise with minimized initial investment and a path to long-term control.
- Subcontracting is another option to take advantage of the rich talent pool of Aguascalientes.
Government support, including tax incentives, subsidies and dedicated account managers, is pivotal for a successful landing in Aguascalientes.
By capitalizing on these incentives and leveraging the government’s backing, IT companies can unlock the region’s potential with confidence.