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Investing in Mexico Checklist for investing in Mexico
Summary of Foreign Investment Law

Foreign investment in Mexico is governed by the Foreign Investment Law (“FIL”), its Regulations (“Regulations”) and Special Resolutions (“Resolutions”) of the National Commission on Foreign Investment (“Commission”), the federal agency charged with compliance enforcement and receiving applications for foreign investment in areas that would otherwise be restricted.
The text of the FIL may be found at:

The FIL addresses foreign investment in many sectors of the Mexican economy.  This article summarizes the reserved and restricted sectors.  First, however, because it is such a popular topic, we address the FIL’s regulation of investment in real estate.

Investment in Mexican Real Estate:  The General Rules

With respect to foreign ownership of real property for residential purposes the FIL provides restrictions depending on where the property is located.

If the property is intended to be used for residential purposes, the Mexican Constitution establishes that foreigners cannot directly acquire title to a property located within 50 kilometers of the coastline or within 100 kilometers of the land borders (the “Restricted Zone”).  Foreign purchasers may indirectly own such real estate through a Mexican real estate trust, in which a local banking institution acts as fiduciary and foreign purchasers as beneficiaries. 

If the property is for a non-residential purpose, foreign buyers may acquire non-residential properties in the Restricted Zone through a Mexican entity such as a stock corporation or limited liability company, instead of using the real estate trust.

The FIL’s Treatment of Economic Activities by Sector 

Although most economic activities are open to foreign investment, some are classified by the FIL as "Restricted", "Reserved" and "Regulated". A description of these classifications follows.  It should be noted that some activities in the following categories have been opened to specific projects by foreign investors through Resolutions of the Commission.
 
Restricted Activities. Certain activities are reserved to the Mexican Government. Since they are regarded as strategic, foreigners are not allowed to directly or indirectly participate in them. These activities include:

  • Petroleum and Hydrocarbons
  • Basic Petrochemicals
  • Electricity
  • Generation of Nuclear Energy
  • Radioactive minerals
  • Telegraph
  • Radiotelegraphy
  • Issuance of paper money
  • Coin minting
  • Mail
  • Control, supervision and vigilance of ports, airports and heliports
  • Other activities specifically restricted in other laws
The Mexican Constitution grants the Mexican Congress the authority to determine which economical activities are classified as "strategic" according to the economic, social and political environment. Therefore, the "restricted" activities may vary. For example, the Mexican Government opened to limited foreign investment the formerly heavily restricted activities of petrochemicals and airport and railroad operations.

Reserved Activities. These are activities open only to Mexican nationals or Mexican corporations with charters with a clause that excludes foreign shareholders.  However, the FIL permits foreign investment in these activities by means of a category called “neutral investment”.

The principal reserved activities are:

  • Passenger, tourist and cargo transportation by land throughout the Mexican territory, excluding messenger or courier services
  • Radio and television broadcasting services, excluding cable television
  • Professional and technical services if restricted by applicable law
  • Retail sale of gasoline and distribution of liquid petroleum gas
  • Development of banking institutions if restricted by applicable law

Regulated Activities. Foreign investment in these activities is subject to percentage limitations. The principal examples:

1. Up to 10%: Cooperative production companies
2. Up to 25%:

  • Domestic air transportation
  • Air taxi transportation
  • Specialized air transportation

3. Up to 49%:

  • Insurance companies
  • Bonding institutions
  • Currency exchange houses
  • Bonded warehouses
  • Companies referenced under Article 12 of the Stock Market Law
  • Retirement funds management companies
  • Fabrication and commercialization of explosives, firearms, cartridges, munitions and fireworks (excluding acquisition and use of explosives for industrial and extractive activities)
  • Printing and publishing periodicals exclusively for national circulation
  • "T" series shares (i.e. par value at value of contributed capital) of stock of companies that own agricultural, ranching and forestry lands
  • Fresh water, coastal, and exclusive economic zone fishing not including fisheries;
  • Integral port administration
  • Port pilot services for inland navigation as restricted under applicable law
  • Navigating companies dedicated to the commercial exploitation of water traveling vessels for interior navigation and pilotage (coasting trade), (not including tourist cruisers and exploitation of dredgers and naval artifacts for construction, conservation and port operation)
  • Supply of fuel and lubricants for ships, airplanes, and railway equipment
  • Telecommunications Concessionaire companies as provided by articles 11 and 12 of the Federal Telecommunications Law

4. Commission approval is required for investment in excess of 49% in certain areas:

  • Port services in order to allow ships to conduct inland navigation operation, such as towing, mooring and barging.
  • Shipping companies engaged in the exploitation of ships solely for high-seas traffic
    • Concessionaire or permissionaire companies of airfields for public service
  • Private education services of pre-school, elementary, middle school, high school, college or any combination
    • Legal services
    • Credit information companies
    • Securities rating institutions
    • Insurance agents
    • Cellular telephony
  • Construction of pipelines for the transportation of petroleum and products derived therefrom
    • Drilling of petroleum and gas wells
  • Construction, operation and exploitation of general railways, and public services of railway transportation
  • When the aggregate value of the assets of the company in which the investment is made, as of the date of acquisition, exceeds the amount determined annually be the Commission (as of June 2010, Mex$2,686,461,748, or USD$227,612,233.48 (converted 4.6.11).

The National Registry of Foreign Investments.

In addition Commission, the FIL establishes the National Registry of Foreign Investments, now also within the Economy Secretariat (http://www.economia.gob.mx/swb/es/economia/p_Direccion_General_Adjunta_del_RNIE). The Registry grants the permits that prospective foreign-owned companies must obtain prior to their formation.  All such companies also must an annual financial and economic report with the Registry, which is due by April 30 of the year following the report year.  Such companies must also notify the Registry of any modifications to their capital structure no later than forty (40) days after the modifications are made.

 

Prepared by Chapter member David D. Spencer, www.davidspencerlaw.com

 
 
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