Choosing the Right Business Entity Across Borders in Mexico or Vietnam

For international executives and investors, the decision to expand operations into Mexico or Vietnam often hinges on more than just labor costs or logistics. The legal vehicle you choose to house your operations is a foundational strategic decision that impacts liability, tax exposure, operational agility, and corporate governance. As supply chains realign—driven by the "nearshoring" boom in Mexico and the "China Plus One" strategy in Vietnam—understanding the nuances of local corporate structures is essential.

Both nations offer robust frameworks for foreign direct investment (FDI), but they operate under vastly different legal traditions. Mexico follows a civil law system heavily influenced by Napoleonic and Spanish codes, often requiring formal notarization. Vietnam, while also a civil law jurisdiction, operates a socialist-oriented market economy where pre-licensing and government approvals play a central role. This guide details the primary entity choices in both jurisdictions to help you navigate your market entry.

Entering Mexico: The Dominance of S.A. de C.V. and S. de R.L. de C.V.

Mexico provides a welcoming environment for foreign capital, allowing 100% foreign ownership in the vast majority of economic sectors. For most foreign businesses, the choice comes down to two types of commercial societies, both of which offer limited liability to their shareholders.

1. Sociedad Anónima de Capital Variable (S.A. de C.V.)

The S.A. de C.V. (Stock Corporation) is the closest equivalent to a US C-Corporation. It is the most traditional and widely used entity for large-scale manufacturing, trading companies, and businesses planning to raise capital. The "Capital Variable" suffix indicates that the company can increase or decrease its capital with relative ease, without amending its main bylaws significantly.

Key characteristics include:

• Shareholders: Requires a minimum of two shareholders (individuals or entities). There is no limit on the maximum number.
• Management: Can be managed by a Sole Administrator or a Board of Directors.
• Governance: Requires a Statutory Auditor (Comisario), a third party appointed to oversee the board on behalf of shareholders—a distinct requirement not found in US structures.
• Transferability: Shares are generally freely transferable, making this the preferred vehicle if you anticipate bringing in new investors or eventually exiting.

2. Sociedad de Responsabilidad Limitada de Capital Variable (S. de R.L. de C.V.)

The S. de R.L. de C.V. (Limited Liability Company) has gained immense popularity among US parent companies because it acts similarly to a US LLC. Crucially, it can be treated as a "pass-through" entity for US tax purposes (via a "check-the-box" election), preventing double taxation on income.

Key characteristics include:

• Partners: Requires a minimum of two partners and is capped at 50 partners.
• Capital: The equity is represented by "partnership interests" rather than shares, and these are not freely tradeable; admitting a new partner requires a majority vote.
• Flexibility: It has fewer corporate governance formalities than an S.A. (e.g., no mandatory Statutory Auditor).

Entering Vietnam: The Investment Registration Certificate (IRC) System

In Vietnam, the corporate structure is inextricably linked to the investment project itself. Unlike Mexico, where you incorporate a company and then operate, Vietnam often requires foreign investors to first obtain an Investment Registration Certificate (IRC) for their specific project before they can form the legal entity via an Enterprise Registration Certificate (ERC).

1. Single-Member Limited Liability Company (LLC)

This is the most common structure for foreign investors wanting total control. It is owned by a single organization or individual. The owner is liable for debts only to the extent of the charter capital contributed.

Key characteristics include:

• Structure: Streamlined management. You appoint a Legal Representative (who must reside in Vietnam) and a President or General Director.
• Control: 100% foreign ownership is permitted in most manufacturing and trading sectors.
• Simplicity: It avoids the complexity of shareholder meetings required in joint stock companies.

2. Multiple-Member Limited Liability Company (LLC)

If you have two to 50 members (shareholders), you will form a Multiple-Member LLC. This is often used for Joint Ventures (JVs) between a foreign investor and a local Vietnamese partner. While 100% foreign ownership is the goal for many, certain conditional sectors (like advertising, logistics, or tourism) still enforce foreign ownership caps, necessitating a JV structure housed in a Multi-Member LLC.

3. Joint Stock Company (JSC)

The JSC is the only vehicle in Vietnam that can issue shares and list on the public stock exchange. It requires a minimum of three shareholders.

Key characteristics include:

• Complexity: Governance is rigorous, requiring a General Meeting of Shareholders, a Board of Management, and an Inspection Committee.
• Capital: Suitable for medium-to-large enterprises planning significant equity fundraising or an IPO.
• Usage: Due to its administrative burden, it is generally not recommended for a simple manufacturing subsidiary unless the investor specifically needs to issue shares.

Comparative Analysis: Tax and Liability Implications

When choosing between these jurisdictions, the fiscal landscape is a major differentiator. Mexico’s proximity to the US often simplifies logistics but comes with a sophisticated tax regime. Vietnam offers competitive incentives but requires strict adherence to licensing.

Corporate Income Tax (CIT)

Mexico currently levies a flat Corporate Income Tax rate of 30%. However, under the US-Mexico-Canada Agreement (USMCA), there are significant duty advantages. Vietnam offers a standard CIT rate of 20%, but the government aggressively uses tax holidays (e.g., 0% tax for the first 2-4 years) to attract high-tech manufacturing and large-scale projects, effectively lowering the effective rate significantly for early entrants.

Profit Repatriation

Mexico allows for the relatively free flow of capital, though dividends are subject to a 10% withholding tax (which may be reduced by tax treaties). Vietnam allows foreign investors to repatriate profits only after the completion of the financial year and full tax clearance. You cannot remit profits if the company has accumulated losses from previous years, a restriction that requires careful cash flow planning.

Strategic Recommendation

If your primary market is North America and speed-to-market is critical, the Mexican S. de R.L. de C.V. is often the superior choice. It offers tax efficiency for US parents and robust legal protections under USMCA, despite the higher corporate tax rate.

If your goal is cost diversification or tapping into Asian supply chains, a Vietnamese Single-Member LLC is the standard. While the setup process is slower due to the licensing (IRC) requirements, the lower labor costs and tax incentives provide a powerful long-term margin advantage.