Which Legal Structure Should U.S. Companies Use to Expand into Mexico?
U.S. companies expanding into Mexico typically evaluate three primary legal structures โ subsidiary, Employer of Record (EOR), or shelter model โ based on liability exposure, operational control, and scalability requirements.
Why Mexico Remains a Strategic Expansion Destination
According to official data from Mexicoโs Secretariat of Economy (Data Mรฉxico), the United States was the leading source of foreign direct investment into Mexico in 2024, totaling approximately US$14.5 billion.
Yet increased investment does not eliminate structural risk. For U.S. companies entering Mexico, the critical decision is not whether opportunity exists, but which legal and operational structure best aligns with risk tolerance and long-term objectives.
- Direct incorporation (Mexican subsidiary)
- Employer of Record (EOR)
- Shelter model
1. Mexican Subsidiary
Under this model, the U.S. company establishes its own legal entity in Mexico. The subsidiary becomes the direct employer of local staff and assumes full responsibility for compliance under Mexican law.
Core Responsibilities
- Compliance with the Ley Federal del
- Trabajo (Mexican Federal Labor Law)
- Social security registration (IMSS)
- Housing fund contributions (INFONAVIT)
- Mandatory profit sharing (PTU)
- Payroll tax reporting before SAT (Mexican tax authority)
- Corporate tax and accounting compliance
This model provides maximum structural control while assigning full legal and compliance responsibility to the companyโs Mexican entity.
Typical timeline: 6โ12 months, depending on permits, banking setup, and regulatory registrations.
2. Employer of Record (EOR)
An Employer of Record hires employees on behalf of a foreign company. The EOR manages payroll, statutory benefits, and employment compliance, while the foreign company directs daily work activities.
When EOR Structures Are Commonly Used
- Hiring a few remote employees
- Testing a new market
- Avoiding entity formation
- Operating without physical infrastructure
EOR arrangements are commonly structured for distributed individual hires rather than building multi-department operations.
3. Shelter Model
The shelter provider:
- Acts as a legal employer
- Manages payroll and statutory contributions
- Oversees labor compliance
- Handles government registrations and inspections
The U.S. company retains:
- Hiring decisions
- Operational control
- Process ownership
- Technology systems
- Performance governance
Originally developed under Mexicoโs IMMEX framework for export-oriented operations, the model has evolved to support professional service environments, including finance, healthcare administration, legal support, and back-office teams.
Structural Comparison: Risk and Control Dimensions
| Expansion Model | Legal Liability | Operational Control | Scalability | Administrative Burden | Typical Use Case |
|---|---|---|---|---|---|
| Subsidiary | High โ Direct employer exposure | High | High (slower to restructure) | Heavy โ Internal legal and tax infrastructure required | Long-term permanent presence |
| EOR | Moderate โ EOR is legal employer | High for individuals | LowโModerate | Low | Individual remote hires |
| Shelter | Minimized โ Liability handled by local entity | High | High | Light โ Admin centralized with provider | Building scalable captive teams |
Legal Liability Exposure
Under Mexican labor law, the legal employer assumes responsibility for severance, wrongful termination claims, statutory benefits, and compliance with mandatory profit-sharing rules (PTU).
Subsidiary model: The U.S. parent company bears direct exposure through its Mexican entity.
EOR model: The EOR is the legal employer.
Shelter model: Legal employer responsibility remains with the shelter entity.
Operational Control and Data Governance
International expansion often raises concerns about process control and data security.
Subsidiary: Full control, but full responsibility for building compliant infrastructure.
EOR: Suitable for managing individuals, but less structured for department-level governance.
Shelter: Enables captive team structures, where systems, workflows, KPIs, and quality assurance remain under the U.S. companyโs direction within a compliant framework.
Scalability and Structural Flexibility
Expansion strategies evolve over time, and structural decisions affect not only headcount growth but also infrastructure readiness and procurement capacity.
- A subsidiary requires significant upfront legal and financial commitment, including securing office space, establishing vendor relationships, negotiating local contracts, and building internal procurement capabilities.
- An EOR may work for early-stage hiring, but it typically does not provide integrated infrastructure, facilities management, or centralized procurement support for larger operational setups.
- A shelter structure allows companies to expand within an established operational environment that already includes facilities, IT infrastructure, vendor management, and local procurement frameworks.
Decision Matrix: When Each Model Makes Strategic Sense
A subsidiary may be appropriate when:
- Long-term capital investment is planned.
- Physical assets are required.
- Full legal ownership is strategically necessary.
An EOR may be appropriate when:
- Hiring one or two remote professionals
- No physical presence is required.
- Short-term market testing is the objective.
A shelter model in Mexico may be appropriate when:
- Building a dedicated team or department
- Scaling beyond isolated hires
- Maintaining operational control without forming a legal entity
- Reducing employer liability exposure
- Preserving flexibility during growth phases
A shelter model may be appropriate when:
- Mexican Subsidiary = Maximum operational control + Direct legal and compliance liability under Mexican law.
- Employer of Record (EOR) = Fast market entry + Suitable for limited headcount + Lower structural scalability.
- Shelter Model = Operational control retained by the U.S. company + Legal employer responsibility managed locally + Scalable infrastructure without entity formation in Mexico.
Final Consideration: Structure Precedes Speed
Many expansion decisions focus primarily on launch timelines or labor cost comparisons. However, structural alignment typically carries greater long-term impact than speed alone.
The appropriate expansion model should:
- Align with risk tolerance
- Support compliance under Mexican labor and tax law
- Enable process governance and operational oversight
- Allow future scalability without structural disruption
