Investing in Mexico

Are You Contemplating Conducting Business in Mexico?

Overview

Mexico’s government has entered into a process of economic modernization by adopting unprecedented actions to reduce governmental intervention in the economy and open the country to international competition, even in previously sensitive areas.

These objectives have been pursued through an intensive deregulation program directed towards promoting legal and administrative procedures favorable to private investment, national or foreign.

In relation to foreign investment in Mexico, The Foreign Investment Law establishes, as a general rule, that foreign investors may hold 100 percent of the capital stock of any Mexican corporation or partnership, except in those few areas expressly subject to limitations under the same. All investors from NAFTA (North America Free Trade Agreement) and non-NAFTA countries are granted the same investment treatment in Mexico.

To attract further flows of capital, changes have been accelerating to allow even greater foreign capital participation, for example, in railroad services, ports, airports, telecommunications, and certain financial services.

Government Sales and Contracting

Mexico has implemented strong legislation regarding the acquisitions and public works, by governmental entities, as well as the purchase or lease of personal property and the rendering of services by the same. Several laws specify the internal procedure that must be followed in the planning and programming of the corresponding purchase or work, contracting procedures, information and verification requirements, violations and penalties and dispute resolution procedures.

Representatives, Distributors, Franchisees

A foreign vendor can sell goods or services in Mexico directly through its own employees. In other cases, a vendor may decide for various reasons to use other methods to dispose of his merchandise, either through representatives or intermediaries, who may be commission agents, distributors or franchisees.

When dealing through a commission agent, the vendor should be careful to have the agent considered an independent contractor, and not an employee.

Mexican laws do not regulate the amount to be paid as commission. For tax purposes the agent’s commission will be considered as his normal income. The sale by the foreign vendor could be subject to Mexican taxes.

Direct Investment

Mexican and foreign investors, both private and public, may invest in Mexico through different vehicles. Tax advantages, relationships with the parent company, need of technical assistance and technology, availability of deductions, projected business and financial plan including growth expectations, as well as limitation of liability and other similar factors, must be taken into consideration, before choosing an appropriate vehicle or structure.

Setting up a Company in Mexico

The vehicles for foreign and national investments in Mexico are stock corporations, of which the most common is the Sociedad Anónima (S.A.). The S.A. may have fixed or variable capital, in which case the acronym “S.A.” becomes “S.A. de C.V.” It is similar to the corporate structure in the United States.

Any legal entity may adopt the variable capital form, and may increase and decrease its capital after incorporation pursuant to the conditions provided for in the charter and the law.

In most companies the minimum capital is fixed by law, and generally, the variable capital is unlimited. Companies may increase the capital to be subscribed by the shareholders or partners, which shall be paid in the time periods provided for in the charter or in the law.

Labor Law in Mexico

The Federal Labor Law of 1970 governs all aspects of the employer-employee relationship, including collective bargaining, the right to strike, minimum wage rates, work hours, compensation, and occupational health and safety.

Any person rendering services to another individual or entity is considered an employee if that person works under the supervision of, or is subordinate to, the contracting individual or entity. Care must be exercised in drafting service agreements in which the intent is not to form an employment relationship.

In the acquisition of an on-going business, the purchaser becomes a substitute employer for the seller, and acquires all the seller’s labor obligations. The purchaser and seller remain jointly liable for labor obligations for six months after acknowledgment by employees of the notice of the transfer.

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Investing in Mexico