Foreign Investment In Mexico; When Is A Local Partner Required?

When a foreign company or entrepreneur evaluates setting up in Mexico, one of the first questions that arises is whether they need a Mexican partner to operate without complications. The concern is understandable: every country has its own rules. However, in the vast majority of cases, the answer is encouraging: a foreigner can, with a few specific exceptions, retain full control of their company in Mexico. Even so, the idea persists that doing business in the country requires partnering with a national, ceding part of the capital, or obtaining a special permit or authorization. This perception, which is more common than it might seem, can stall investment decisions that, from a legal standpoint, should not be stalled at all.

The reality is that Mexico is one of the most open countries to foreign investment in Latin America. As a general rule, foreign investment may participate in any proportion of the capital stock of a Mexican company, provided that the company does not engage in activities reserved for national companies or the government, or that are subject to specific regulation. In practice, this means that a foreign investor can incorporate and own 100% of a company in the vast majority of business sectors and industries, including technology, services, and commerce, among others, without the need for a local partner.

It is worth noting, however, that although a foreign investor may own 100% of the capital stock of a company in Mexico in most cases, the incorporation of any commercial company in Mexico (with the exception of the Simplified Stock Company, known as SAS) requires the participation of at least two partners or shareholders, who may be either foreign or Mexican nationals.

Exceptions to Foreign Investment

As mentioned, the rule has exceptions, but they are limited and clearly defined in the Foreign Investment Law. It is advisable to be familiar with these reserved and restricted activities to confirm that your company’s line of business does not fall under any of the following categories:

• Activities reserved for the State:Certain strategic activities may only be conducted by the Mexican State. These include, among others:
  • The exploration and extraction of petroleum and other hydrocarbons.
  • The generation of nuclear energy.
  • Radioactive minerals.
  • Other strategic activities expressly reserved under the Constitution or applicable legislation.

• Activities reserved for Mexican nationals:Certain activities may only be carried out by Mexican nationals or Mexican companies whose bylaws contain a foreign exclusion clause. These include:
  • Domestic land transportation of passengers, tourism, and freight, excluding courier and parcel delivery services.
  • Development banking institutions.
  • Professional and technical services expressly reserved under applicable legislation.

Foreign investors generally may not participate directly or indirectly in these activities through corporate arrangements, trusts, agreements, or other mechanisms that provide ownership or control, except where specifically permitted by law.

• Activities subject to foreign investment limits: Certain sectors allow foreign investment up to a limited percentage. Some examples include:
  • Manufacturing and commercialization of explosives and firearms, with a limit of 49% foreign investment.
  • Printing and publishing of newspapers for exclusive circulation in Mexico, with a limit of 49% foreign investment.
  • Freshwater, coastal, and exclusive zone fishing, with a limit of 49% foreign investment.
  • Production cooperatives, with a limit of 10% foreign investment.
  • Other activities defined by the Constitution and applicable legislation.

It is worth highlighting that these restrictions are not necessarily definitive in all cases. Some of the international treaties that Mexico has entered into, such as the USMCA with the United States and Canada, or the Free Trade Agreement with the European Union, may modify certain limitations set forth in the Foreign Investment Law. In that regard, if your company’s line of business falls within a restricted or limited area, it is essential to analyze whether the investor’s home country has a treaty in force with Mexico that may grant preferential conditions. For this reason, before incorporating a company in Mexico, it is advisable to review the activities the company will carry out and to seek expert guidance to verify that those activities are not subject to any applicable restrictions.

The Importance of the National Registry of Foreign Investments

One point that is frequently overlooked by foreign entrepreneurs interested in establishing their businesses in Mexico is that the possibility of holding 100% ownership of a Mexican company does not eliminate the registration and compliance obligations established by Mexican law. Every company incorporated in Mexico with foreign participation in its capital stock, regardless of the investment percentage, must register with the National Registry of Foreign Investments (RNIE), administered by the Ministry of Economy. It is important to clarify that, notwithstanding this requirement, the RNIE does not constitute authorization to invest; rather, it is a registry that allows the government to track foreign investment flows in the country.

Once registered, any company with foreign participation must comply with various obligations related to the RNIE, including the following:

• Report relevant changes to the company related to its ownership structure, corporate name, registered address, or economic activities.
• Submit a quarterly update notice when any modification to the company’s capital or ownership structure occurs that exceeds the threshold established by law.
• Submit the annual economic report when the threshold established by law is exceeded.

Structuring the Investment from Day One

For most foreign investors, a Mexican partner is not legally required. Restrictions exist, but they remain the exception rather than the general rule.

The more important question is whether the investment has been structured to support the company’s actual operation in Mexico.

The selected entity, ownership structure, corporate purpose, governance model, powers of attorney, regulatory permits, tax obligations, and RNIE filings should work together so that the company can enter into contracts, hire employees, open bank accounts, obtain permits, and conduct business without unnecessary delays.

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.