Doing Business with Mexico, Part II

Common Methods of Conducting Business with or in Mexico

Sales Agent

This person acts as an agent for a foreign company performing business transactions in Mexico in the name and on behalf of the foreign concern. Even though this arrangement has the appearance of doing business from abroad, it in fact results in doing business in Mexico.

Commission Agent (Commercial Intermediary)

The appointment of a commercial intermediary implies the existence of a relationship whereby the contractor has appointed an agent with powers of limited agency. The extent of authority vested in this kind of agent should not include activities that make the foreigner have a permanent establishment in Mexico.

The intermediary conducts market research and promotes, solicits, and negotiates the sale of the principal's products. The intermediary will only be furnishing the prospective Mexican clients with information such as pricing and payment policies. The intermediary can also process and forward orders, and can even accept payments on behalf of the foreign resident. Hence, the intermediary performs “preparatory” or “auxiliary” services for the foreign resident. These activities fall within the exceptions to what is considered a permanent establishment as discussed above.

The principal abroad maintains authority to accept the purchase orders made by the Mexican customer and, in general, determines the policy to be followed in the acceptance of the different offers.

The typical fee for a commercial intermediary may consist of a straight commission on orders accepted, or a retainer plus commission.

If an independent contractor is hired in Mexico for such purposes, it is customary to advise the commercial intermediary to refrain from using the name and logo of the principal in his/her offices, business cards, or letterhead. This will avoid the appearance of having an establishment in Mexico and insure that the intermediary agreement is not a sham transaction.

This route is most commonly taken by a foreign company having a significant export volume or an extensive product range. It is probably best to contract with a company rather than hire an individual for these activities due to the fact that Mexican labor laws favor the dismissed.

Distributor

As a third alternative, a distributorship agreement provides the foreign company with the opportunity to further develop sales and offer adequate service through a third Mexican company or individual. The distributor acquires the products outside of Mexico from the foreign company and resells them on its behalf in Mexico.

The distributor may not appear as an attorney-in-fact of the foreign seller, but shall only function as a purchaser and further wholesaler/retailer of foreign merchandise to its customers in Mexico, without authority to bind the foreign company and therefore avoiding the "permanent establishment" issue.

Transfer of Technology (Licensing)

Another way of doing business with Mexico without creating a permanent establishment is to enter into a technology transfer or licensing agreement with a Mexican party. Such agreements include: a) the license or authorization of exploitation of trademarks, patents or improvements, or industrial designs and utility models; b) the assignment of trademarks or patents; c) the supply of technical know-how and technical assistance in any form; d) the supply of basic or detailed engineering; e) the rendering of advisory, consulting and supervisory services; f) the license of copyrights that involve an industrial application; and g) the licensing of software.

This text was provided by Santistevan Abogados S.C.

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