Many freelancers only think of taxes and headaches with the SAT when they hear “legal entity.” For that reason, it's important to clearly understand what it actually means.

In the following lines, you'll discover what it is and the different types of legal entities in Mexico. You'll also learn about the related tax obligations and other useful details to determine if this model fits what you're looking for.

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Legal Entity in Mexico: What It Is, Types, and Tax Obligations

What does it mean to be a legal entity in Mexico?

A legal entity in Mexico is a legal construct represented by two or more individuals with a shared purpose. It may or may not have a profit motive, such as starting a business or forming an organization.

In Mexico, companies, civil associations, and many cooperatives operate under this legal structure. Although they do not have a physical existence, the law recognizes them as a “person.” Therefore, they can sign contracts, acquire assets, exercise rights, and be held accountable before authorities.

This structure allows the separation of assets and responsibilities between the members. It enables structured operations and compliance with tax obligations under a legal name.

Main characteristics of legal entities

Legal entities have features that define their nature and grant them legal personality:

• Company name: This is the legal name used to identify the entity before third parties and authorities.

• Domicile: The physical address where the administration is located and activities are conducted.

• Nationality: Based on the country where it was legally formed. In this case, it is considered Mexican if incorporated according to national laws.

• Assets: Composed of the entity’s own assets, rights, and obligations—separate from those of its members.

• Legal capacity: The ability to act independently in contracts, legal procedures, and official matters.

• Liability: In most cases, partners are liable only up to the amount of their capital contribution, protecting their personal assets.

If you’re planning to start a company, association, or other joint project, forming a legal entity provides you with a legal framework to operate. It also helps protect your assets and formalize your activities.

Difference between a legal entity and an individual

As a freelancer looking to formalize your income, you must understand the difference between a legal entity and a natural person. Why? Because the regime you choose will directly impact your taxes, responsibilities, and growth opportunities.

Although both models allow you to operate legally before the SAT, there are several differences between them.

Here are the main ones:

Types of Legal Entities in Mexico

When we talk about types of legal entities in Mexico, we’re referring to different legal forms that suit various purposes. However, they can be classified into two categories depending on the main objective for which they were created:

1. For-profit legal entities

These are organizations created to carry out economic activities legally and in an organized way. Their main goal is to generate profits by selling products or offering services.

The most common are:

• Commercial companies: These are the typical option for those who want to start a business, grow, and operate under a formal corporate structure.

Among this group, 3 stand out:

1. Corporation (S.A.): Requires at least two shareholders and allows capital to be divided into shares.

2. Limited Liability Company (S. de R.L.): Offers a more flexible model, ideal for small groups.

3. Cooperative Society: Designed for those who want to work together under principles of equity and mutual support.

• Civil Society (S.C.): While not commercial, it can also operate with economic aims. It’s common among professionals who associate to provide services (e.g., legal, accounting, or architectural firms).

This category also includes credit institutions and other financial entities.

2. Non-profit legal entities

These are focused on social, educational, cultural, or community goals. They don’t seek personal profit but rather allocate all resources to fulfilling a cause.

The most common in this category are:

• Civil Associations (A.C.).

• Foundations.

• Decentralized government agencies.

Of course, they must meet certain requirements to maintain their status and be eligible to receive donations or government support.

Common examples of legal entities in Mexico:

Tax obligations for legal entities in Mexico

A legal entity before the SAT must comply with a series of tax obligations once it is legally constituted.

These responsibilities apply to both for-profit and non-profit entities. However, there are variations depending on the applicable tax regime.

Among the main tax commitments of legal entities are:

• Registering with the RFC from the moment the entity is created and keeping tax information updated.

• Requesting the e.firma (advanced electronic signature), necessary to carry out online procedures with the SAT.

• Issuing Digital Tax Receipts via Internet (CFDI) for every income received.

• Withholding taxes when paying for professional services, salaries, or fees, and reporting them correctly.

• Filing an annual tax return, reporting income, expenses, withheld taxes, and other relevant operations.

• Keeping electronic accounting, as required by the Federal Tax Code.

• Storing accounting records for at least 5 years.

• Making provisional ISR payments and final VAT payments, if applicable based on business activity.

• Filing special notices and reports with the SAT, such as the Informative Return of Transactions with Third Parties (DIOT), when applicable.

The degree of complexity and detail may vary according to the regime. But in all cases, it is essential to maintain an orderly and updated tax management.

DolarApp: An alternative to simplify your international payments

Do you work with foreign clients or plan to do so after establishing your legal entity?

DolarApp can help you manage foreign currency income.

That’s right—we operate with digital dollars (USDc) and digital euros (EURc). When receiving your money, you can convert it to pesos whenever you like, at a transparent exchange rate and with no hidden fees.

The perfect ally for any freelancer making the leap to a legal entity.

Frequently Asked Questions

What are the requirements to establish a legal entity in Mexico?

To begin, you must define the type of company and draft the articles of incorporation before a notary. You also need to obtain an RFC from the SAT, request the e.firma, and register the tax domicile.

What taxes must a legal entity pay

Mainly ISR and VAT, but a legal entity may also be subject to other taxes. For example, IEPS if selling specific products like alcohol or tobacco, and ISAN when acquiring new vehicles. It all depends on the economic activity.

Can a legal entity be dissolved?

Yes, a legal entity can be dissolved by the decision of its members or due to causes established in its articles of incorporation. The process requires complying with legal, tax, and accounting procedures to formally close before the authorities.