Investing In... 2024

Chevez Ruiz Zamarripa


CRZ is a leading tax firm in Mexico, known for its expertise in tax advisory, consulting, transfer pricing, social security and litigation. The range of its professional practice also includes an expanded specialized international trade and customs division and the recent integration of anticorruption, anti-money laundering and administrative & regulatory law practices.
The Mexican legal system is based on civil law. Its supreme law, the Constitution enacted in 1917, forms the foundation of its legal framework.
Mexico Government, Public Sector
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Law and Practice

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1. Legal System and Regulatory Framework

1.1 Legal System

The Mexican legal system is based on civil law. Its supreme law, the Constitution enacted in 1917, forms the foundation of its legal framework. Legislation, jurisprudence, custom, individualised rules and general legal principles collectively form the Mexican legal system.

There is a hierarchy among Mexican laws and regulations. The highest level of supremacy is the Constitution and international treaties for the protection of human rights; other international treaties rank second below the Constitution; federal laws and local constitutions rank third; and local laws and regulations rank last. Mexico, which comprises free and sovereign states united in a Federation, dictates that federal laws are binding nationwide, while local laws hold jurisdiction only within their issuing locality.

As established in the Constitution, the supreme power of the Federation is divided into three powers for its exercise: (i) executive power, which is granted to the President of the United Mexican States, who shall enact and execute the laws issued by the Congress of the Union, direct the foreign policy and conduct the federal public administration, through the Secretaries of State and the administrative departments; (ii) legislative power, which is vested in the Congress of the Union, which is composed of the Senate and the Chamber of Deputies, whose members act as lawmakers on the subjects set forth in the Constitution; and (iii) judicial power, which is vested in the Supreme Court of Justice of the Nation, the Electoral Tribunal, the Collegiate and Unitary Circuit Courts and the District Courts, which are in charge of imparting justice and protecting the constitutional order, interpreting the laws, and intervening in controversies that occur when a law or an act of an authority violates individual guarantees.

1.2 Regulatory Framework for FDI

Foreign direct investment (FDI) is, generally, open and liberalised in Mexico. In 2022, Mexico was the second largest receiver of FDI in Latin America.

Notwithstanding the foregoing, there are certain economic and strategic sectors and activities where foreign investment is subject to restrictions. These restrictions vary from a full ban to being limited to certain percentages of participation, where participation beyond those allowed percentages may be conditional upon obtaining an authorisation from the Ministry of Economy (Secretaría de Economía, or SE), through the National Foreign Investment Commission (Comisión Nacional de Inversiones Extranjeras, or CNIE).

Foreign investment in Mexico is governed by the Foreign Investment Law (Ley de Inversión Extranjera, or LIE), which establishes that foreign investment exists when (i) there is participation of foreign investors, in any proportion, in the capital stock of a Mexican company, or (ii) an investment made by a Mexican company consists of a majority of foreign capital.

The LIE provides that foreign investment may participate in any proportion of the capital stock of Mexican companies, as well as acquire fixed assets, manufacture new products, and open and operate establishments; however, as mentioned above, there are sectors and activities which are reserved exclusively for the State, such as the issuance of money and coin; the exploration for and extraction of oil and other hydrocarbons; the planning and control of the national electric system; the transmission and distribution of electric energy; the generation of nuclear energy; and the control, supervision and surveillance of ports, airports and heliports, among others. However, foreign investment is allowed to participate in companies that aim to be awarded with concessions granted by the Mexican government in connection with those activities.

Additionally, the LIE provides that the following activities may only be carried out by Mexicans or Mexican companies with an exclusion clause for foreigners: (i) domestic land transportation of passengers, cargo and tourism, (ii) development banking institutions and (iii) professional and technical services expressly indicated in the applicable legal provisions.

Also, there are certain economic activities and companies in which foreign investment may participate in a limited percentage, or, in other cases, a favourable resolution of the CNIE will be required for foreign investment to participate in a percentage over 49%. Please refer to 8.1 Other Regimes for a list of restricted activities.

Some restrictions are not applicable in cases provided by international treaties subscribed by Mexico (to be analysed on a case-by-case basis and depending on the country of origin of the investment).

The Mexican Constitution and the LIE state that, unless expressly authorised by the Mexican Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores, or SRE) following prior submission of the corresponding application before such authority, foreigners may not: (i) acquire direct ownership over properties in restricted areas (100 km along the borders and 50 km along the coast); or (ii) obtain concessions for the exploration and exploitation of mines and waters.

To acquire real estate properties within a restricted area for residential purposes, a permit from the SRE is required in order to allow the use and exploitation of such real estate through a trust agreement. The beneficiaries of such trust agreement can be Mexican companies without a foreign investment exclusion clause, and foreign individuals or entities.

Additionally, foreign entities that intend to habitually carry out commercial acts in the national territory must obtain authorisation from the SRE.

2. Recent Developments and Market Trends

2.1 Recent Developments and Market Trends

Mexico is currently facing its next presidential election, which will take place in July 2024. The global and the country's current economic condition, a responsible fiscal and monetary policy and Mexico's proximity to the United States of America have solidified the Mexican peso and the economy after the pandemic, which has increased the appetite of foreign investors to participate in different sectors of Mexico's industry and promote economic stability in the country despite a global inflation crisis. Notwithstanding the fact that contesting political sides have contrasting approaches to various government policies, steady growth and the promotion of foreign investment are not expected to be negatively impacted by the results of the 2024 election.

Although certain reforms in strategic sectors such as energy and electricity have allegedly discouraged the participation of foreign investment, other sectors have bloomed due to the nearshoring advantages that Mexico offers, which have shaped the growth in the maquiladora and manufacturing industry in different regions of the country.

Due to companies' and investors' nearshoring strategies, FDI has been favoured and has rapidly grown in Mexico in recent years due to the country's strategic geographical location, low labour costs, skilled human resources, and fast and secure supply chains. This has made Mexico an attractive country for foreign investment and has become an important factor in the growth of the country's foreign trade.

Additionally, recent amendments to the Securities Market Law (Ley del Mercado de Valores, or LMV) and the Investment Funds Law have been approved to (i) include a simplified process for public offers to promote the growth and competitiveness of the Mexican stock market and provide financing alternatives for small and medium-sized companies, and (ii) create hedge funds in Mexico to enhance investor returns and improve risk management. These reforms will promote foreign investment in the country as well as the growth of small and medium-sized companies.

3. Mergers and Acquisitions

3.1 Transaction Structures

The most common structures used for transactions in Mexico are the acquisition of shares, the acquisition of assets or lines of business, and joint ventures.

The acquisition of public companies in Mexico is subject to the approval of the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, or CNBV); therefore, the acquisition structure must comply with the applicable laws such as the LMV, as well as regulations issued by the CNBV and the Mexican stock exchanges.

Acquisitions of private companies are not subject to the aforementioned regulations, so investors, sellers and targets have complete control over the structure they wish to use in the transaction.

Relevant findings derived from due diligence reports, such as any current or future tax, corporate or labour contingencies and liability exposure that the target company might have, are key in selecting a transaction structure. For example, if the target company has a tax or corporate contingency, it might be more suitable to opt for an asset purchase transaction instead of a share acquisition or a direct investment in a company's capital. By those means, an investor would only acquire the target's assets and carry out the business through its own company or a specific purpose vehicle.

Regarding minority investments, it is common to set up joint venture projects and execute shareholder agreements clearly defining and outlining minority shareholder rights, protections and obligations (ie, voting and economic rights, investment commitments, restrictions for capital increases and transfer of shares, and so on), in addition to those set forth by applicable laws.

3.2 Regulation of Domestic M&A Transactions

Mexican antitrust law establishes that only certain M&A transactions that exceed the thresholds established therein (and detailed in 6. Antitrust/Competition) shall be subject to prior approval of the Federal Commission for Economic Competition (Comisión Federal de Competencia Económica, or COFECE).

Additionally, other specific industries require regulatory review and approval, such as the telecommunications sector. The Federal Telecommunications Institute (Instituto Federal de Telecomunicaciones, or IFT) is the constitutional authority in charge of resolving any matters regarding economic competition in the telecommunications and broadcasting sectors and the corresponding relevant markets, which include the radio frequency spectrum, orbital resources, satellite services, public telecommunications networks, and provision of broadcasting and telecommunications services, as well as access to passive and active infrastructure.

Likewise, as mentioned in 3.1 Transaction Structures, the acquisition of public companies is subject to the approval of the CNBV.

4. Corporate Governance and Disclosure/Reporting

4.1 Corporate Governance Framework

The most common types of commercial entities used in Mexico are the "sociedad anónima" (SA) (limited liability stock corporation) and the "sociedad de responsabilidad limitada" (SRL) (limited liability commercial partnership), which are regulated by the General Law of Business Organisations (Ley General de Sociedades Mercantiles, or LGSM).

Some common characteristics between SAs and SRLs are: (i) they require a minimum of two individuals or entities as shareholders/partners; (ii) the by-laws of the entity must state that it admits foreign investment and must further include the commitment of the shareholders/partners to consider themselves as Mexicans with respect to their investments and waive the protection of their foreign governments; and (iii) there is no statutory minimum amount of capital stock for both entities; the SA and the SRL must have a minimum fixed capital and may have a variable capital, which allows increases and reductions of capital without major formalities.

The main differences between SAs and SRLs are: (i) SAs have shareholders (any number) and SRLs have partners (up to 50); (ii) the corporate capital of an SA is represented by shares, evidenced in stock title certificates which are negotiable instruments and may be issued with or without par value, while the corporate capital of an SRL is represented by partnership interests, which are non-negotiable and are not physically issued or represented with negotiable instruments; (iii) an SA is governed by the shareholders' meeting and a board of directors or a sole director, while an SRL is governed by the partners' meeting and a board of managers or sole manager; and (iv) the appointment of one or more examiners, which are in charge of the surveillance of the entity's operations, as internal "auditors", is required for an SA, whereas such appointment is optional for an SRL.

An SA may adopt the modality of "promotora de inversión" (investment promoter) (SAPI) or can be directly incorporated as an SAPI. There are several common characteristics between an SA and an SAPI, but the following differences between them should be considered when deciding the type of entity:

  • SAPIs are governed by the LMV and, in a supplementary manner for matters not regulated in said law, by the LGSM.
  • SAs may be managed by a sole director or a board of directors, while SAPIs must be managed by a board of directors.
  • SAPIs are lawfully required to consider additional rights for minority shareholders. Notwithstanding the above, SAs may also consider additional minority rights in their by-laws and go beyond the provisions of the LGSM.
  • SAPIs may acquire their own shares with prior authorisation from their boards of directors, while this is not allowed for SAs.
  • SAPIs allow more flexibility on profit distribution, as the LMV allows SAPIs to approve the issuance of special shares that limit or extend the distribution of profits or other special economic rights of their shareholders.

In terms of public entities, these entities adopt the "sociedad anónima bursátil" (SAB) (public stock company) regime. SABs are entities whose shares representing their capital stock are registered in the National Securities Registry (Registro Nacional de Valores). SABs are subject to the provisions of the LMV and, as not provided therein, to the provisions of the LGSM. SABs have similar regulation to SAs and SAPIs, but have more obligations due to their public nature, as provided in the LMV.

4.2 Relationship Between Companies and Minority Investors

The minority rights included in Mexican laws for Mexican private entities are regulated in the LGSM, while those for public entities are regulated in the LMV. These minority rights protect minority partners and/or shareholders and encourage private investment in entities. The rights of minority shareholders in a Mexican entity are granted either according to law or under the entity's by-laws, which may give additional rights and/or reduce the threshold required to exercise such rights.

The main minority rights established in the LGSM include (i) the right to appoint at least one member to the board of directors, for holders of at least 25% of the capital stock; and (ii) the right of shareholders representing at least 33% of the capital stock to (a) request the board of directors to call a shareholders' meeting if no meeting has been held for two consecutive years or if, in the annual meeting, issues that the law requires to be discussed in the annual meeting were not discussed; and (b) object to a resolution before a court.

In connection with SAPIs and SABs, the LMV provides the following minority rights: (i) shareholders with voting rights that individually or jointly represent at least 10% of the capital stock can (a) appoint a member of the board of directors and/or an examiner; and (b) request the examiner or president of the board of directors, at any time, to call a shareholders' meeting regarding issues related to their voting rights; (ii) shareholders with voting rights that individually or jointly represent at least 20% of the capital stock can object to a resolution related to their voting rights that is taken in a general meeting.

Notwithstanding the foregoing, additional rights may be agreed upon by shareholders or partners of a company, either in the company's by-laws, in a shareholders' agreement, or in both. Such rights may include concepts such as tag along, drag along, right of first refusal, call and put options, restrictions for share transfers, restrictions for carrying out capital contributions, voting rules, and determination of matters which require unanimous or qualified majority approval. It is usual that international companies carrying out an investment in a Mexican company with a minority or non-controlling participation will aim at obtaining additional protection for their investment through the execution of detailed and comprehensive shareholder agreements.

4.3 Disclosure and Reporting Obligations

Foreign investors and Mexican entities with foreign investment are required to register before the National Registry of Foreign Investments (Registro Nacional de Inversión Extranjera, or RNIE).

Entities registered before the RNIE may be required to file periodical reports to said registry if certain details need to be updated (ie, amendments to the entity's corporate name, tax address or economic activity).

Foreign investors are not obliged under Mexican law to notify the holding or disposing of their FDI, as the filings described in the previous paragraph fulfil that purpose. Acquisition of participation in a Mexican company by a foreign investor or sale of the investor's FDI in a Mexican company can be subject to reporting or prior authorisation, as described in 7.1 Applicable Regulator and Process Overview.

Notwithstanding the foregoing, pursuant to the LMV, certain information must be disclosed in the event of an acquisition or sale of shares of a publicly traded company.

In addition, Mexican companies must file before the tax authorities, within the first three months of each fiscal year, a statement of the partners or shareholders with foreign tax residency when such partners or shareholders opt not to register before the Mexican Taxpayers Registry.

5. Capital Markets

5.1 Capital Markets

Funding of Mexican entities can be carried out organically, through funding provided directly by the shareholders/partners via capital increases, or through loans granted by third parties, such as banks or even by the same shareholders/partners of the entity.

Capital contributions are one of the most common ways a company can fund itself. Through capital contributions, the shareholders/partners of the entity or interested third parties contribute funds as capital increases, which in turn (i) increase their participation in the company's capital and/or (ii) give them the status of shareholders/partners, with all the corporate and economic rights related to such status. Capital contributions are considered as tax cost basis for purposes of determining a potential gain or loss upon a sale of shares.

The other most common way of funding an entity is through financing. This alternative might be more flexible since the shareholding of the entities is not modified, as the funds received are registered as part of the companies' liabilities in its book records. It is important to consider that, in the case of funding through third-party loans, there are very strict tax regulations with respect to the form in which interest derived from loans received, either national, international, intragroup or from third parties, could be deducted for income tax purposes.

Mexico offers a 10% reduced tax rate regime on capital gains derived from securities sold through the Mexican stock markets to the extent those are held by investors as portfolio investments. Founding or original investors disposing of their shares through an initial public offering of their company's shares are usually not subject to this beneficial tax regime.

5.2 Securities Regulation

Capital markets in Mexico are mainly regulated by the LMV as well as by regulations issued by the CNBV, particularly the General Regulations Applicable to Security Issuers and other Securities Market Participants (Disposiciones Generales Aplicables a las Emisoras de Valores y a otros Participantes del Mercado de Valores).

Limitations for FDI are the same as the ones provided in the LIE, as described in 7. Foreign Investment/National Security.

5.3 Investment Funds

Investment carried out through foreign investments funds is subject to the limitations provided for in the LIE (as described in 7. Foreign Investment/National Security). As a result, direct investment may not be possible if the industry in which the investment is intended is included as one of the industries that are reserved for Mexicans or that are limited to Mexican entities with participation of foreign investment in their social capital. As a result of these limitations, the incorporation of special purpose vehicles (trusts or Mexican entities) is usually carried out to allow for such investment.

Foreign vehicles used as investment funds have had their tax treatment changed recently, especially those that are incorporated under foreign legislations such as trusts, limited partnerships, etc, as for Mexican tax purposes, they are considered as Mexican tax persons, which ultimately may affect the transparent status of those vehicles whenever Mexican assets are held through them.

6. Antitrust/Competition

6.1 Applicable Regulator and Process Overview

The regime applicable for merger control in Mexico is established in the Federal Law on Economic Competition (Ley Federal de Competencia Económica, or LFCE) and the regulations relating to such law issued by the relevant authorities, which are the IFT and COFECE.

COFECE has established a merger control system to prevent concentrations by one or more economic agents and to diminish any adverse effects that an asset accumulation carried out by one economic agent may have. Mergers must be notified prior to closing to prevent illicit concentrations and asset accumulations from occurring. In addition, sanctioning systems such as illicit concentrations investigations have been implemented to establish corrective measures and impose fines as opposed to the concentration notice administrative process which prevents asset accumulation, by means of a prior written submission, provided that the thresholds in the LFCE are met.

Pursuant to the LFCE, mergers, acquisitions of control, or any other acts by means of which companies, associations, stock, partnership interests, trusts or assets in general are consolidated, and which are carried out among competitors, suppliers, customers or any other economic agents, and which meet the following thresholds, shall be submitted for authorisation by COFECE or the IFT, as applicable, prior to closing the transaction:

  • Whenever the acts involved, regardless of their place of execution, are worth in Mexico, directly or indirectly, over approx. USD103,740,000.
  • Whenever the acts involved would result in the accumulation of 35% or more of assets or stock of an economic agent with annual sales originated in Mexico, or assets in Mexico, worth over approx. USD103,740,000.
  • Whenever the acts involved would result in the accumulation in Mexico of assets or capital stock worth over USD48,000, and the transaction involves two or more economic agents with annual sales originated in Mexico, or assets in Mexico (jointly or severally), worth over approx. USD276,640,000.

The LFCE provides for certain exceptions where the authorisation is not required (ie, corporate reorganisations within the same corporate group).

Once the filing has been submitted and the same has been accepted by COFECE, it could take between 80 and 110 business days for COFECE to approve the concentration and, in certain complex cases, such period can be extended by COFECE (or the IFT, as the case may be).

Failure to obtain prior authorisation from COFECE to carry out the transaction, provided that the thresholds were met, will result in a maximum fine equivalent to 5% of the economic agent's income.

6.2 Criteria for Review

COFECE (or the IFT, as the case may be) will verify whether or request the economic agents to state whether any of the sellers, buyers, investors or economic agents involved and their direct and indirect equity holders up to the level of individuals, as applicable, holding 5% or more participation participate, directly or indirectly, in the capital stock, management or any other activity of other economic agents that offer equal, similar or substantially related services in Mexico to those offered by the other sellers, buyers, investors and economic agents involved (including target companies themselves), and their direct and indirect shareholders up to the individual equity holders, directly and indirectly, in Mexico.

Based on the foregoing, COFECE will be able to determine whether the transaction will result in any horizontal overlap or vertical link in Mexico and, therefore, whether the market structure in Mexico should be modified as a result of the transaction.

6.3 Remedies and Commitments

In connection with the concentration notices submitted by economic agents that meet or exceed the thresholds established in the LFCE, COFECE may issue a resolution authorising the concentration of certain economic agents subject to certain conditions which may be intended to prevent any damage to the competition process and to free market access.

Parties have the right to submit before the COFECE Board of Commissioners conditions intended to avoid hindering, damaging or impeding the process of economic competition and free market access as a result of the concentration.

6.4 Enforcement

Concentration notices submitted before COFECE (or the IFT, as the case may be) may not be approved or may be subject to certain conditions precedent such as non-compete provisions or divestiture of certain assets, among others. In the event that conditions are imposed, remedies may be proposed by the notifying parties to comply with such conditions and ensure the transaction will not have the object or effect of preventing, hindering or impairing the conditions of competition in any possible relevant market.

Only definitive resolutions may be appealed through an amparo trial within the 15 days following the effective notification of the resolution.

Concentrations that were not notified but required authorisation by COFECE must be reviewed through an incidental procedure, which will conclude with the authorisation of said concentration and the imposition of a fine, unless it is an illegal concentration, in which case a corresponding investigation shall be initiated.

In the event of an illegal concentration, COFECE may (i) order the partial or total divestiture, the termination of control or suppression of the acts thereof, as the case may be, without prejudice to any fine that may be applicable; and/or (ii) impose a fine equivalent to a maximum of 8% of the economic agent's income, for having taken part in an illegal concentration, regardless of the civil liability.

When an economic agent fails to notify a concentration when it was legally required to do so, or when it was required to comply with the conditions specified in a concentration resolution, without prejudice to an order for divestiture, the authority may impose a fine equivalent to a maximum of 5% of the economic agent's income.

7. Foreign Investment/National Security

7.1 Applicable Regulator and Process Overview

Mexico has developed certain regulations for national security purposes, which limit the possibility of foreign investors to acquire real estate in certain areas of the country, known as the 'restricted zone', which consists of the strips of land within 100 km along the borders and 50 km along the beaches, as referred to in section I of Article 27 of the Mexican Constitution.

Limitations on foreign investment in Mexico are regulated by the LIE. According to such law, individual foreigners or foreign entities may acquire real estate in the restricted zone intended for non-residential activities and must give notice of such acquisition to the SRE within 60 working days following the acquisition of the real estate property.

Also, the LIE provides for certain restrictions to foreign investment related to the involvement of such foreign investment in certain economic activities for some strategic industries and sectors, as described in 8.1 Other Regimes.

In addition, any acts, agreements or social or statutory covenants that have the intention or effect of circumventing these prohibitions may be declared null and void by the SE and will not have any legal effects between the parties and will not be enforceable against third parties, for being contrary to the provisions of the LIE.

7.2 Criteria for Review

The LIE does not establish different treatments for foreign investment depending on the vehicle in which the foreign investment is involved, as the purpose of the LIE is not to restrict foreign investment per se but to regulate it and protect certain priority industries that are important to the Mexican government. Such limitations apply independently from the regime or scheme used for a specific transaction or industry. For instance, there is no difference whether the activity is carried out through a trust, partnership or joint venture, or whether it is done through foreign government or government-affiliated entities.

Notwithstanding the above, the LIE does provide for an exemption in which foreign investment is not considered within the percentages established by the LIE (as described in 7.1 Applicable Regulator and Process Overview). Such exemption is known as "neutral investment", which consists of investments made in the corporate capital of Mexican entities or in Mexican trusts which: (i) are not considered when calculating the percentage of foreign investment in the capital of Mexican entities; and (ii) are authorised by the corresponding authorities in accordance with the LIE. Holders of "neutral" shares, the issuance of which must have been previously approved by the CNIE, may only be granted economic rights and, if applicable, certain limited corporate rights.

7.3 Remedies and Commitments

According to the LIE, in the case of acts carried out in violation of the provisions of the LIE, the SE may revoke the authorisations, concessions, licences or permits previously granted. Also, financial penalties may be imposed for acting in disregard of the CNIE's resolution in cases where it is necessary, or in the case of performing acts of commerce in Mexico without obtaining the authorisation of the SE, among others.

There are no specific remedies for non-compliance with the obligations imposed by the LIE or for violations of the prohibitions or limitations imposed on foreign investment.

7.4 Enforcement

The SE is the authority responsible for the imposition of sanctions in connection with breaches of foreign investment regulations, except for infractions relating to the acquisition of real estate in the restricted zone, which are applied by the SRE.

For the determination and imposition of penalties, the infringer must have been previously heard and, in the case of pecuniary penalties, the nature and seriousness of the infringement, the economic capacity of the infringer, the time elapsed between the date on which the obligation should have been complied with and the date of compliance or regularisation, and the total value of the operation must be taken into consideration.

The imposition of penalties shall be without prejudice to any civil or criminal liability that may be applicable. The resolutions of the foreign investment authorities are final and may not be appealed. However, there are additional mechanisms such as the amparo proceeding (juicio de amparo).

8. Other Review/Approvals

8.1 Other Regimes

The LIE complies with the principle of sectorial openness, whereby foreign investment may participate in any proportion in the capital stock of Mexican entities and participate in any activity, except for what is reserved by law.

The LIE refers to capital inflows from abroad. A capital inflow is the investment made by an individual or a legal entity of one country in a legal entity of another country or in an entity in another country.

Examples of specific industry/sector restrictions according to the LIE would be the following:

  • Activities that can only be carried out by the Mexican government, among others:
    1. Exploration for, and extraction of, oil and other hydrocarbons.
    1. Planning and control of the national electric power system, as well as the transmission and distribution of electric power as a public service.
    1. Generation of nuclear energy.
    1. Radioactive minerals.
    1. Mail.
    1. Issuance of banknotes and minting of coins.
    1. Control, supervision and surveillance of ports, airports and heliports.
  • Activities that can only be carried out by Mexican companies or individuals:
    1. Domestic land transportation of passengers, tourism and cargo, not including courier and parcel services.
    1. Development banking institutions.
  • Activities and acquisitions with specific regulations, among others:
    1. Cooperative production companies (up to 10% of FDI participation).
    1. Manufacture and marketing of explosives, firearms, cartridges, ammunition and fireworks (up to 49% of FDI participation).
    1. Printing and publication of newspapers for exclusive circulation in Mexico (up to 49% of FDI participation).
    1. Freshwater, coastal and exclusive economic zone fisheries (up to 49% of FDI participation).
    1. Integral port administration (up to 49% of FDI participation).
    1. Port services for pilotage of vessels to carry out inland navigation operations (up to 49% of FDI participation).
    1. Supply of fuels and lubricants for ships and aircraft and railway equipment (up to 49% of FDI participation).
    1. Shipping companies engaged in the commercial operation of vessels for inland navigation and cabotage (up to 49% of FDI participation).
    1. Broadcasting (up to 49% of FDI participation).
    1. Scheduled and non-scheduled domestic air transportation service; non-scheduled international air transportation service in the form of air taxi; and non-scheduled international air transportation service in the form of air taxi (up to 49% of FDI participation).
  • Activities that need prior authorisation by the CNIE to be carried out by Mexican companies with more than 49% participation of FDI:
    1. Port services to vessels for their inland navigation operations, such as towing, mooring of lines and launching.
    1. Shipping companies dedicated to the operation of vessels exclusively in deep-sea traffic.
    1. Companies holding concessions or permits for public service aerodromes.
    1. Education services.
    1. Legal services.

In addition to the above, special laws may also establish certain prohibitions for FDI, for instance the Credit Institutions Law (Ley de Instituciones de Crédito), which provides that only Mexican companies can act as banks.

The CNIE resolves queries on foreign investment matters requested by agencies and entities of the Federal Public Administration to obtain information on the behaviour of FDI in Mexico, only with respect to the information reported to the RNIE.

9. Tax

9.1 Taxation of Business Activities

Companies doing business in Mexico are subject to Mexican income tax whenever they are considered as tax residents. A legal entity, either incorporated under Mexican law or even under non-Mexican legislation, is deemed to be a Mexican tax resident whenever its management, which is the place where day-to-day decisions are taken, is located in Mexico. The form in which a Mexican tax resident entity is incorporated (ie, SA, SRL, SAPI, or other type of entity) does not imply any significant differences in the income tax regime applicable.

Aside from Mexican fideicomisos (trusts) and asociaciones en participación, which are Mexican joint ventures, whenever they perform non-business activities, Mexican tax legislation does not consider the existence of entities which could be considered as pass-through partnerships, where the corresponding tax effects are recognised by the partners, as could happen in other jurisdictions (eg, a limited liability company incorporated under US legislation).

Non-Mexican resident persons are subject to income tax in Mexico when performing transactions herein either (i) through a permanent establishment, which means that business activities are being carried out in Mexico directly or through dependent or independent agents in certain situations, or (ii) when obtaining Mexican sourced income derived from passive activities performed with Mexican residents, such as interest, royalties, certain types of services, capital gains, rental income, etc.

Value-added tax is also applicable on certain transactions, such as transfer of assets, rendering of services, leasing activities, importation or exportation, to the extent that those activities are performed on Mexican soil.

9.2 Withholding Taxes on Dividends, Interest, Etc

Mexican sourced income, such as interest and dividends paid by Mexican tax resident entities to foreign resident persons, is subject to Mexican income tax withholding.

Interest withholding tax rates provided in the Mexican tax provisions range between 4.9%, which might be applied depending on the type of lender (foreign resident bank resident in a tax treaty country), the type of security upon which interest is payable (public securities in certain cases), or the type of borrower (Mexican bank or financial institution), and 40%, which is applicable when interest payments are made to foreign related parties residing in countries with which Mexico does not have a Broad Information Exchange Agreement.

The 4.9% reduced withholding rate could be disallowed, and in turn a 35% rate would be applicable, when the beneficial owner of a portion of such interest payments is a foreign related party that holds, directly or indirectly, more than 10% of the voting shares in the borrower, or when the borrower holds more than 20% of the voting shares issued by the lender.

Interest deriving from intragroup financing is generally subject to a 35% withholding income tax rate under Mexican tax provisions. Such rate, depending on the country of residence of the lender, could be reduced if there is a tax treaty in effect between Mexico and the respective country. The reduced rate applicable under tax treaties could range between 10% and 15%, depending on the respective tax treaty.

Dividends paid to foreign residents are subject to withholding income tax under Mexican tax legislation at a 10% rate provided that the profits being distributed were generated as of 2014. Profits obtained before 2014 are not subject to any withholding tax when being distributed.

Such withholding tax rate could be reduced to 5% if the recipient of the dividend resides in a country with which Mexico has a tax treaty in effect. Certain tax treaties amongst the tax treaty network that Mexico has in place contemplate that there should not be any withholding tax whenever the foreign resident holds more than 10% of the shares in the Mexican company distributing the dividend.

Mexico has included in its tax treaties various types of anti-avoidance rules, and recently, due to changes motivated by the BEPS initiative, Mexico has adopted the position within the MLI to include the principal purpose test in order to determine whether the foreign resident is able to claim treaty benefits, which should be reviewed on a case-by-case basis whenever a foreign investment is being made in Mexico to understand whether the relevant tax treaty would offer protection under the new regulations.

9.3 Tax Mitigation Strategies

Tax mitigation strategies depend widely on the specific form and situation in which each investment is being made. Mexico has evolved significantly in narrowing the spaces for tax avoidance by strengthening the applicable tax legislation and by adopting international standards, such as certain recommendations under the BEPS initiative, as well as anti-avoidance rules.

Mexican tax legislation provides a ten-year carry-forward period in order to amortise net operating losses suffered within a company, against future income. There are no carry-back provisions.

Mexican tax regulations do not offer a consolidation tax regime anymore. Instead, there is an optional regime, known as the Integration Tax Regime, which in general terms allows companies within a group to defer income tax payable for a three-year term, based on certain rules and requirements.

Mexican legislation offers tax-neutral regimes whenever mergers and spin-offs, as part of internal reorganisations, are being performed, in the sense that assets and liabilities being transferred are not considered to be sold, and consequently, there is no step-up in the basis of assets being transferred. Several requirements should be complied with for such purposes, and failure to comply with those would trigger a tax sale.

9.4 Tax on Sale or Other Dispositions of FDI

Capital gains are deemed to be Mexican sourced income whenever (i) Mexican issued shares are being transferred or (ii) when the value of the shares being transferred derives more than 50%, directly or indirectly, from real estate located in Mexico.

Mexican income tax on foreign investors when obtaining capital gains is 25% on the price of the shares. Alternatively, foreign investors that are subject to taxation in their country of residence could be subject to a 35% tax rate on the net gain obtained, which is determined by subtracting the tax basis on the shares from the purchase price obtained. To be able to apply this option, different compliance obligations should be performed, such as appointing a legal representative and filing a tax report issued by a Mexican certified public accountant.

Tax treaties usually provide reduced tax rates or exemptions depending on the interest participation held in the Mexican entity. To claim the benefits of such tax treaties, certain requirements should be complied with as well, such as providing proof of residence and, as of 2024, considering the new provisions contained in the MLI.

Capital gains derived from selling shares issued by public companies are generally subject to a 10% rate on the gain obtained to be withheld by the Mexican financial intermediary holding custody of the shares. Such withholding tax would not be applicable when the foreign investor resides in a tax treaty country and provides evidence to the Mexican custody.

Capital gains derived from selling real estate properties are also considered as Mexican sourced income. The income tax applicable is 35% on the net gain. Tax treaties do not provide protection or reductions in this type of transaction.

9.5 Anti-evasion Regimes

Mexico has different specific anti-avoidance rules within different parts of its legislation. Additionally, it has recently incorporated a General Anti-avoidance Rule (GAAR) to prevent transactions from being performed whenever there is no business reason behind their implementation. The obtainment of tax benefits in the implementation of a transaction is not considered to be an economic benefit that may be used as an argument to claim the existence of a business reason for such transaction. There are no precedents as of the time of writing with respect to the form in which this GAAR would be applied by the tax authorities.

Due to the adoption of BEPS recommendations, there are within the Mexican tax provisions certain regulations that restrict deductions on payments made to foreign residents that are related parties, whenever they are not subject to taxation abroad (or are subject to a tax rate that is below 22.5%) by virtue of the tax rate, or when the recipient is not subject to tax due to the existence of a hybrid mechanism. Certain exceptions are available in this respect.

Transfer pricing rules are also applicable whenever transactions between related parties are performed. Mexican rules contemplate certain obligations to file informative returns, including local files, country-by-country and master files which should be filed by certain taxpayers.

10. Employment and Labour

10.1 Employment and Labour Framework

The Federal Labour Law (FLL) is the statute that governs the relationship between employers, employees and unions, and it also regulates the activities of labour authorities. As Mexico is politically organised as a federation, the FLL is applicable in the entire Mexican territory.

The FLL recognises employees' minimum rights, above which employers can grant as many additional benefits as they wish but which prevent the possibility of agreeing on reduction of benefits below legal limits. As a consequence, any stipulation waiving employees' rights protected by the FLL is considered null and void.

Also, the FLL provides that at least 90% of the employees within a company shall be of Mexican nationality. In the technical and professional categories, all employees shall be Mexican unless there are none available for a given specialism, in which case the employer may temporarily employ foreign workers, provided that the number of foreign workers shall not exceed 10% of the total number of employees.

The general rule when entering into employment agreements between employers and employees is to execute such agreements for an indefinite period of time, allowing employees to have a more stable position vis-à-vis other forms of limited term agreement.

Concerning collective affairs, a deep reform to the FLL aimed to empower labour unions and unionised employees took place in 2019. Nowadays, any labour union that evidences the support of at least 30% of the unionisable employees is entitled to seek the execution of a collective bargaining agreement (CBA) even through the initiation of a strike.

The FLL states that CBAs shall be revised (negotiated) on a yearly basis with regard to the unionised employees' wages, and on a basis concerning wages and the rest of the benefits stated in the CBA. In Mexico, CBAs are most common in the manufacturing industry; notwithstanding this, the FLL makes no distinction regarding the kind of activity or work that could be subject to the execution of a CBA.

Finally, in 2021 a reform to labour, social security and tax laws entered into force with the purpose of banning illegal outsourcing or subcontracting of employees. Outsourcing can still be carried out subject to compliance with the requirements of the law, which mainly provide that employees may only be outsourced to carry out activities which are not the main purpose or activity of the hiring company. Outsourcing services providers must register before a special registry (Registry of Companies that Provide Specialised Services or Works, or REPSE) and comply with obligations in connection therewith.

10.2 Employee Compensation

The FLL states the minimum standard benefits and work conditions to which an employee is entitled and which an employer is consequently bound to provide to the employee or comply with under the FLL. Regarding benefits, a general principle applicable in Mexico is that all benefits established by law are minimum benefits: any benefit granted above the minimums (fringe benefits) is permitted, and any benefit granted or reduced below the minimum is, in general terms, forbidden. Fringe benefits could derive from an individual agreement between the employer and the employee, from a CBA entered into and between the employer and a labour union, or even from the mere practice and benefits actually provided by an employer to the employee, even if not recognised in a specific document.

Minimum standard benefits and work conditions are:

  • Salary.
  • Year-end bonus. Workers are entitled to receive from their employer a year-end bonus, which shall be equivalent to at least 15 days of daily base salary per a complete year of service, or the proportion thereof for the effective days worked during said year if the employee worked for the employer for less than a year.
  • Vacation. Employees who have been employed for a term greater than a year are entitled to an annual fully-paid vacation period, which under no circumstance may be less than 12 business days; said paid vacation period will increase by two business days for each additional year of service, until it reaches 20 business days. After the fifth year, the vacation period will increase by two business days for each five additional years of service.
  • Vacation bonus. Employees have the right to be paid a vacation premium of at least 25% of their daily salary for the vacation days enjoyed each year.
  • Profit sharing. The FLL provides that employees are entitled to share in the employer's profits in a percentage determined by the National Profit Sharing Commission. Profit sharing is currently 10% of the employer's taxable revenue, to be distributed among all employees. The officers with the highest levels of authority (ie, CEO and General Manager) are not entitled to profit sharing; however, other employees holding positions of trust will have a share in the company's profits; nevertheless, if the salary of such an employee is higher than that of the highest paid unionised/based worker, such salary plus 20% will be considered as the maximum salary for purposes of calculating his or her share in the distribution. However, the payment of profit sharing is capped to three months of the employee's salary, or the average of the profits received in the last three years, whichever is more favourable to the employee. Newly-formed companies are exempt from profit sharing during the first year of operation. Profit sharing paid can be deducted from the income obtained on a yearly basis for purposes of determining the annual income tax.

In the event of a merger or acquisition, the FLL provides that none of the employees' seniorities, salaries or benefits shall be affected, which entails that the company that becomes the new or substitute employer shall respect all benefits and work conditions of the employees subject to the transfer.

10.3 Employment Protection

Mergers and acquisitions that entail a transfer of employees imply a de facto employer substitution.

In that regard, the FLL states the following requirements: (i) the employer substitution shall not affect the employment relationships; (ii) the new employer shall be jointly liable with the former employer for a six-month term after the effective date of substitution; and (iii) there shall be a transfer of assets from the substituted employer to the new employer in order for the employer substitution to be effective.

Labour unions that have executed a CBA with a company engaged in a merger or acquisition shall be consulted. The CBA could be transferred to the new employer or terminated, for which it is mandatory to obtain the consent of the majority of the unionised employees.

11. Intellectual Property and Data Protection

11.1 Intellectual Property Considerations for Approval of FDI

Intellectual property (IP) is a crucial factor in evaluating FDI in Mexico. It serves as a mechanism to guarantee adequate protection and exclusive use for a company's intangible assets while avoiding non-authorised use or infringement on the IP rights of third parties. The review process must start with a proper due diligence on the intangibles to be exploited in Mexican territory and may include all or some of the following steps:

  • Conducting clearance and comprehensive searches for trade marks with the Mexican Institute of Industrial Property (IMPI).
  • Performing searches based on technical data to determine the novelty of an invention before the IMPI.
  • Carrying out searches for prior registrations with the National Institute of Copyrights (INDAUTOR).

The industries that face heightened scrutiny in Mexico include:

  • The alcoholic beverage and agricultural industries, where certain goods such as distilled spirits and dairy products may need authorisations or have restrictions when it comes to the use of certain appellations of origin or geographical indications. Additionally, certification trade marks may be associated with these products, implying a need for producers to adhere to specific production methods and standards.
  • The pharmaceutical industry, because the products involved are subject to strict regulation by the Federal Commission for the Protection against Sanitary Risks (COFEPRIS) to enter the Mexican market.
  • The entertainment and advertising industries, with additional regulatory provisions such as the Consumer Protection Act enforced by the Consumer Protection Federal Agency (PROFECO).

11.2 Intellectual Property Protections

Mexico has pushed towards an effective and standardised regime of IP rights based on the harmonisation of domestic legislation and international provisions. Overall, Mexico has a legal framework that provides a strong level of protection for intangible assets.

Despite the border measures available to enforce IP rights, Mexico continues to encounter significant amounts of infringing goods at customs that can easily enter the Mexican market if legal actions are not pursued with all speed. Foreign investors should bear in mind that the delays and costs associated with these actions may pose obstacles to the efficient enforcement of IP rights. For instance, while there are provisions in place, the destruction of counterfeit products does not always unfold seamlessly. Certain industries, such as pharmaceuticals, luxury goods and consumer electronics, may face higher risks of counterfeiting.

In the invention field, a few years ago undue administrative delays in the granting of patent rights were common among certain industries, such as pharmaceuticals. Patent holders pursued litigation for the purpose of extending the validity of such granted rights, which caused the Mexican Supreme Court to allow the extension of time if the delays were significant and unjustifiable. Based on the foregoing, any innovation-driven entity with an interest in investing in Mexico should be aware that the Federal Law for the Protection of Industrial Property introduced a legal instrument, ie, a supplementary certificate, that allows a patent holder to extend the term of protection aiming to compensate unreasonable delays by the competent authority, ie, the IMPI.

11.3 Data Protection and Privacy Considerations

Mexico has two main data protection laws: the General Law on the Protection of Personal Data Held by Obligated Individuals and the Federal Law on the Protection of Personal Data Held by Private Individuals (LFPDPPP). The former establishes all obligations of government agencies that collect, transfer and process personal data, while the latter establishes the obligations to be observed by private individuals (such as natural persons and companies) in connection with data processing activities, regardless of the industry or economic sector in which they operate and which becomes relevant for the purposes of doing business in Mexico.

The LFPDPPP can have an extraterritorial scope for foreign investors in their own jurisdictions depending on the data processing scheme in place. For example, data processors acting on behalf of a controller established in Mexican territory are subject to Mexican law regardless of their location. Further, data controllers not established in Mexico can be bound by the LFPDPPP if agreed through a contract or in terms of international law.

The National Institute for Transparency, Information Access and Personal Data Protection (INAI) is the government authority in charge of the protection of personal data in Mexico and has the capacity to enforce and verify compliance with the aforementioned laws. As part of said attributions, the INAI can impose several penalties for violations or non-compliance which range between USD600 and USD1,911,720 approximately. Such sanctions may be increased by the same amounts if the violations persist. Likewise, the penalties may be doubled if the data protection violations involve sensitive personal data.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Investing In... 2024

Mexico Government, Public Sector


CRZ is a leading tax firm in Mexico, known for its expertise in tax advisory, consulting, transfer pricing, social security and litigation. The range of its professional practice also includes an expanded specialized international trade and customs division and the recent integration of anticorruption, anti-money laundering and administrative & regulatory law practices.
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