Finding the right location for your startup can be tricky but if you are considering North America, the USA and Mexico are two strong contenders.
The USA is considered one of the economic powerhouses of the world, driving world-class innovation across industries like artificial intelligence, e-commerce and healthcare. With its GDP exceeding £18 trillion, it offers massive potential for new startups entering the market.
Its neighbour, Mexico, is quickly gaining traction as a startup location thanks to its lower costs for starting a business. In an effort to attract more entrepreneurs and investors, many accelerator and incubator programmes have popped up to nurture the growth of new ventures.
Let’s take a look at how these two countries compare side-by-side.
How Startup-Friendly Are The USA And Mexico?
USA: The US is home to more than 82,000 startups, taking the top spot in the Global Startup Ecosystem Index (GSEI). Its availability of capital and world-class infrastructure is a big drawcard for entrepreneurs however, regulations can be stringent and competition remains fierce.
Mexico: The startup ecosystem has improved drastically, with the government actively supporting new ventures. While it ranks within the top 50 according to the (GSEI), a lot of the public services are still developing.
The Cost Of Living In These Countries
USA: The cost will vary depending on your location but cities like New York, Los Angeles and San Francisco are incredibly expensive. Cities like Texas, Florida and North Carolina are more affordable for startups on a tight budget but overall, the US does have higher rent and taxes compared to other countries. An office space could range from £900 – £1,800 per month while basic living expenses vary from £1,400 to £2,200.
Mexico: Here, the cost of living is considerably lower than the US even in main areas like Mexico City. Monthly office rent is approximately £200 – £600 while basic living expenses range between £600 to £1,200.
For the budget-conscious startups, Mexico is cheaper on the pocket but doesn’t necessarily have the same resources that the USA offers.
Tax Regulations In The USA And Mexico
USA: The federal corporate tax rate is 21% and state taxes will vary from state to state. Areas like Wyoming have 0% but others can have up to 12%. The tax process can be quite complex to navigate for foreign entrepreneurs and in most cases will require professional assistance.
Mexico: The corporate tax rate is 30% with Value Added Tax (VAT) at 16%. Some tax processes may be slower but the country is actively developing online tools to speed it up.
What Cultural Or Language Barriers Could You Encounter?
USA: The official language is English so a language barrier isn’t a concern for English-speaking foreigners. In most business settings here, communications are usually very direct and formal, with time being highly valued.
Mexico: Spanish is the official language with very limited English so possible language barriers may exist. Here, the business culture focuses a lot on relationships and hierarchy.
Visa And Residency Requirements For Foreigners
USA: An Investor Visa, or E-2, requires a large amount of investment and while a Startup Visa has been proposed, it is yet to be officially passed. For those transferring between companies, they can apply for a L-1 and highly-skilled individuals can apply for a O-1. The processing of visas can take quite a while and the requirements are strict.
Mexico: A Temporary Resident Visa is ideal for business owners and is valid for up to 4 years. Permanent residency may become available after 4 years and remote workers can apply for a Digital Nomad Visa. The process is generally quicker than the USA’s especially for residents of Latin America or Europe.
Are There Any Potential Challenges To Consider?
USA: The legal fees to enter the country are costly and visa approvals can take some time to get. For businesses, major competition exists in almost every industry and there are high liability risks for owners. Healthcare is also incredibly expensive which is another expense to factor in.
Mexico: Corruption is quite common especially within government offices and safety is an issue in some regions with high crime rates. For those who don’t speak Spanish, a language barrier can be challenging to navigate unless you work with a translator.
How To Start A Business In The USA Or Mexico
USA: Choose whether you want to operate as a sole trader, limited liability company or corporation. Next, you can register the business with your relevant state’s Secretary of State. You can then apply for your Employer Identification Number from IRS and open a business bank account. The registration process usually takes between 1 to 2 weeks but can be longer if visas are needed.
Mexico: Decide on a business structure, the most common option is a limited liability company and reserve a name with the Ministry of Economy. You can then hire a notary to draft the Articles of Incorporation, register with SAT for your tax ID and open a corporate bank account. The process can take 3 to 6 weeks depending on how quickly the documentation can be provided.
Should You Start A Business In The USA Or Mexico?
While the USA and Mexico offer some exciting opportunities for startups, they cater to very different needs which needs to be taken into consideration.
Despite higher costs and strict regulations, the USA can support high-growth startups who want to access a global market and especially those in the tech industry.
On the other hand, Mexico is better suited to startups on a budget or those who want a quick business set up.
Either way, both could be a rewarding venture for an entrepreneur with the right idea.
Good luck!
