Doing Business in Mexico: What to Expect this Year
Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic presses on, Mexican businesses have been forced to adapt to the virtual culture and work from home environment. In Mexico this has been difficult as its culture is so focused on relationships. However, there are opportunities among the challenges. Here is a round-up of the most relevant impacts to doing business in Mexico for 2021.
- Vehicle Production – In 2020, Mexico produced more than three million vehicle units, which was a 20% drop from 2019, according to the National Institute of Statistics and Geography (INEGI). The 2021 forecast indicates a growth in production ranging anywhere from 12% to 24%, according to El Economista.
- Peso vs. Dollar – According to the PNC FX Forecast 1Q report, the Mexican peso will range from 19.6 to 22 pesos per USD this year whereas last year it ranged from 19 to 25 pesos per USD. We do not anticipate as much volatility as in 2020 because businesses have learned how to adapt to the pandemic.
- 2021 Elections – Legislative elections will be held in Mexico in July 2021 and voters will elect 500 representatives to sit in the House of Representatives. In addition, 15 of the 32 states will have governor elections which could bring significant changes.
- Mexico-China Relationship – There are 85 billion dollars of foreign trade transactions between China and Mexico per year. This year, China established the provisional tariff reduction for products imported from Mexico. In total, the plan refers to 883 tariff lines that will have a reduction of around 5%. This impacts raw materials such as machinery and equipment, circuits, and automotive parts, among others.
- Mexico Extends Tax Breaks to Companies Along the Border – The Mexican government extended the tax cuts, which already existed in the northern US-Mexico border, to companies along the southern border. This includes a decrease in value-added tax (VAT) from 16% to 8% and a decrease in income tax (ISR) from 30% to 20%. These incentives will extend until 2024 and exclusively benefit companies doing business along the northern and southern border, including 22 municipalities in the states of Chiapas, Tabasco and Campeche that border Guatemala.
- Working from Home Rule – The pandemic, without a doubt, is an unprecedented event that has generated many changes in our lives and has created a pervasive work from home culture. Considering the growth of this new form of work, the Mexican government has enacted labor reform to address employer and worker rights. Specifically, employers must cover expenses such as ergonomic chairs, the internet, and electricity. Workers must take care of the equipment and abide by company data protection policies.
For more information about doing business in Mexico and what to expect in 2021, please reach out.