DOING
BUSINESS IN MEXICO:
GENERAL LEGAL, BUSINESS & ENTRY ISSUES
Legal Framework
Mexico has embarked on thee modernisation of
its legal and judicial systems, and has introduced a substantial
deregulation and improvement in the enforcement of its laws.
Mexico’s legal environment has also improved
through its membership in international organisations such
as the NAFTA, the Organization for Economic Cooperation and
Development, the World Trade Organization, and the Asia-Pacific
Economic Cooperation. Mexican participation means that Mexico
is committed to the development of a competitive field in
trade and investment with internationally accepted rules.
Corporate Law
Banking System
As a part of the modernisation process of the
Mexican financial system, the commercial banking system was
privatised. Some Mexican banks operate representative offices
in the world’s leading financial centres. Mexican banks play
an important role in the globalisation of Mexico’s economy
as they provide financing for different productive activities,
offer consumer credit through credit card services and support
the real estate sector through mortgage loans. Also, the new
commercial banking system can provide investment and banking
services and make venture capital investment with banks participating
as temporary minority shareholders.
In addition, there are 18 affiliats of foreign
banks: ABN, Amro Bank, American Express Bank, Banco Santander
de Negocios, Bank of America, Bank of Boston, Bank of Tokyo,
BNP Banque Nationale du París, Chase Manhattan Bank, Chemical
Bank, First National Bank of Chicago, Fuji Bank, ING: Capital
Holding, J.P. Morgan, Nations Bank of Texas, Republic National
of New York and Societé Generale.
Types
of Business Organization and Incorporation of a Mexican Company
Foreigners have the option to
establish a Mexican company or to acquire stock in an already
established one. It all depends on the party's need to have
a presence and an involvement in Mexico from a commercial
and/or tax point of view. The basic procedures related to
the organisation of a new Mexican company (hereinafter the
‘Company’) with 100% of foreign capital participation are
as follows: A. Corporate
Forms The General Law of Commercial
Companies (Federal Law) provides for several types of companies
that can be organised and, depending on the form chosen, there
are various differences in their legal and tax treatment.
- a. Sociedad Anónima (S.A.) and
(S.A. de C. V.)
- It is usually recommended to incorporate a limited liability
stock corporation, which may adopt the form of a fixed
capital company (S.A.) or that of a variable capital
company (S.A. de C. V.). The principal difference
between the two is that the latter may increase or decrease
its capital within the limits established in the by-laws
by a mere Stockholders' Meeting resolution without the
need to fulfill the formalities applicable to the S.A.
Nevertheless, both types of companies must notify the
National Registry of Foreign Investments and other applicable
Government Agencies of any capital amendment.
- Key characteristics of both types
of companies:
- The shareholder's liability is limited to their stock
interest in the company and the directors are fully liable
for the loyal and diligent administration of the company.
Must have at least two shareholders and a minimum capital
of fifty thousand Mexican pesos, of which 20.0% must be
paid at the time of incorporation. Must appoint a statutory
examiner who is a third party who supervises the operations
of the company and represents the interests of the shareholders.
The shares which represent the capital stock of the company
are freely transferable and can be traded publicly, after
the corresponding filings have taken place.
- b. Sociedad de Responsabilidad
Limitada (S. de R.L.)
- Recently, this form of Limited Liability Corporation
or limited partnership has become popular among foreign
companies that, in particular, want to reduce their tax
liabilities in the US. This type of company is viewed
for US tax purposes as a partnership and the key characteristics
are as follows:
- The partners' liability is limited to their partnership
interest in the company and the directors will be fully
liable for the loyal and diligent administration of the
company. It must have at least two partners with a maximum
capital of fifty thousand Mexican pesos, and a minimum
capital of three thousand Mexican pesos, of which 50%
must be paid at the time of incorporation; There is no
requirement to appoint a statutory examiner; The tax rate
will be the normal corporate tax rate of 34.0%; The shares
representing the partnership interest in the company must
not be freely transferable and cannot be traded publicly.
- c. Sociedad en Nombre Colectivo
(SNC)
- This entity (General Partnership), if properly structured,
will also have many of the same tax advantages as the
"S. de R.L." However, a distinct disadvantage of the "SNC"
is that all of the partner(s) will have unlimited liability
with respect to the obligations and debts. This corporate
form is not frequently used in Mexico.
- d. Sociedad en Comandita Simple
(SCS)
- This limited partnership can also have many of the tax
advantages of the "S. de R.L." and the "SNC." The "SCS"
has two types of partners: the active partners who have
unlimited liability, and the silent partners who are liable
only for their capital contribution. This corporate form
is not frequently used in Mexico.
- e. Mexican Branch.
- Another possibility for a foreign company is to operate
through branch offices in Mexico. As foreign companies
are legally recognised in Mexico, they retain their liability
characteristics from abroad. However, to carry out business
operations, such branches must be approved by the National
Commission of Foreign Investments and the Ministry of
Foreign Relations, and must be registered at the Public
Registry of Commerce.
- For tax purposes, the foreign company will receive the
same treatment as a permanent establishment in Mexico
and will pay taxes on the income generated from such branch
offices at the normal corporate tax rate of 34.0%. However,
the foreign company should be careful to avoid the possibility
of having the income generated by the foreign company
outside of Mexico to become attributable to the operations
in Mexico. This possibility is due to the "force of attraction"
rules contained in Mexico's tax legislation, which will
sometimes require a taxpayer to include in his taxable
income that generated abroad.
- f. Asociación en Participación
(AP).
- Although not a separate legal entity, the Association
in Participation is another common form of doing business
"in" Mexico. Generally, an AP is an agreement in which
one or more partners ("asociados") give goods or services
to a managing partner ("asociante") in exchange for the
right to participate in the profits of a commercial operation,
which is controlled by such a managing partner.
- g. Joint Venture Agreement.
- Generally, a joint venture agreement is an association
of persons (individuals or legal entities) for a limited
period of time in which such persons jointly undertake
a specific business enterprise. Although a joint venture
agreement is sometimes mistakenly categorised only as
an AP. A joint venture agreement can take any form in
which the parties agree to develop their business and
agree to provide their respective services and contributions
of capital or resources, to the by-laws of a new independent
company, or both.
- The exact type of business venture to be undertaken
determines the liability and tax treatment of such an
agreement.
B. Steps for the incorporation
To establish a Sociedad Anónima or a Limited
Liability Company (the two most common corporate forms), the
steps will be essentially the following:
- File for a Permit of Incorporation for the company under
a proposed name before the Secretariat of Foreign Relations.
For this, two or three names are needed in order of preference.
The authorisation will take about two to three working
days.
- Incorporate the Company before a Notary Public. The
Company's initial capital must be paid in full if contributions
are paid in kind, or it can be partially paid at a minimum
of 20% if capital contributions are in cash. In the case
of the "S. de R.L.", the initial amount is 50%. The Company
must issue registered share certificates, and the shareholders
must be registered in the Company Stock Registry Book.
- At the time of the incorporation, the shareholders should
hold a General Ordinary Shareholder's/Partner's Meeting
resolving on:
- the structure of the capital stock;
- appointing a Sole Administrator or a Board of Directors,
as the case may be;
- appointing at least one "Examiner" (statutory auditor)
to monitor the Company's administration on behalf
of the shareholders (in the case of a S.A. ) and
- appointing a General Manager, and any other officers
or agents.
- The Sole Administrator or Members of the Board of Directors’
meetings may be held in or outside Mexico. If the Sole
Administrator or Directors are not Mexican citizens and
will be acting in Mexico, they will need a migratory permit.
- The Examiner (in the case of a S.A.) is usually an accountant
from a firm who regularly audits the Company. A deputy
examiner could be appointed due to the fact that this
position cannot be delegated at will.
C. Time frames
Besides the granting of the prior approval by
the Foreign Investments Authorities (if necessary), as indicated
below, the incorporation date of the Company is dependent
upon:
drafting of the by-laws to be used for the Company;
execution and formalisation of the special powers of attorney
to incorporate the new Company (if any), the approval of the
corporate name by the Ministry of Foreign Relations, and the
granting of an appointment date by the Notary Public for the
actual incorporation.
The concept of "Company" includes all legal
entities incorporated into Mexico´s commercial legislation
and partnerships and associations established pursuant to
the Civil Code of each State including Mexico City. Equity
participation in legal entities will be considered the shares,
stock and corporate parts that represent the capital of a
legal entity (hereinafter all referred to as "Stock").
Real Estate
1. Restricted Zone
The area restricted to foreigners has been deregulated.
This zone is the band of national territory within a width
of 100 km. along the borders, and 50 km. along the shoreline.
The Law of Foreign Investment permits Mexican corporations
with a majority of foreign capital to acquire properties located
within said region if these lands are not destined for residential
use. These acquisitions must be registered with the Secretariat
of Foreign Affairs (Secretaría de Relaciones Exteriores).
On the basis of the Law of Foreign Investment,
the Secretariat of Foreign Affairs authorises credit institutions
to acquire real estate located within the area restricted
to foreigners through trusts. The trust fund is to permit
the use and exploitation of such real estate by the trustees
without creating rights in favour of said trustees. Authorisation
will be necessary in the following cases:
- When Mexican corporations, without the foreigners exclusion
clause, seek to acquire rights to the use of properties
that are destined to residential ends; and
- When private foreign individuals seek to acquire the
rights to the use or exploitation of real estate for any
purpose.
The effect of operation for this trust fund
is originally granted for a term of 50 years and, it may be
indefinitely renewed for equal term periods. 2.
Foreign Corporate Ownership of Land The
LIE establishes that foreign companies may not hold direct
title to real estate located in Mexico. They may, however,
hold the beneficial interest in such real estate under a Mexican
trust. Intellectual
Property Since 1991, the Industry
Property Law (LPI Ley de Propiedad Industrial) and Copyright
Law (LDA Ley de Derechos de Autor) assure foreign investors
the same protection that exists in industrialised countries,
and is usually not found in the legislations of most of the
developing countries.
The objectives of the LPI include stimulating
research and development to foster innovation, and to encourage
foreign investors to bring new technology to Mexico. The law
gives specific protection to patents, trademarks, industrial
and trade secrets, utility models, industrial designs, sound
recordings, commercial names and appellations of origin.
In the amendments to the LPI in 1994, the Mexican
Institute of Industrial Property (Instituto Mexicano de Propiedad
Intelectual) is responsible for administering the entire national
industrial property system.
The amendment of the Copyright Law (LDA) in
1996 includes the protection of production rights of sound
and video recordings and copyrights of computer programs and
software designs. Patent
Protection Under the Law, patents
are protected in Mexico for a period of 20 years from the
date of filing. Certain products, such as pharmaceuticals,
medicines, animal feed, fertilisers and pesticides which under
former statutes were not patentable until 1997, are now eligible
for patent registration and protection as of June 28, 1991.
Other products such as vegetable variations and microbiological
inventions, which in the past were not subject to patent protection,
are now patentable.
Under the LPI, any patent license or assignment
of patent rights must be registered with SECOFI. If they are
not registered such licenses or assignments will not be effective
against third parties. The registration procedure before SECOFI
should not involve governmental review or approval of the
corresponding patent license or assignment.
Patents will be issued for all processes and
products, including chemicals, alloys, pharmaceuticals, foods,
beverages, biotechnology and plant varieties. Inventions patented
abroad and not yet produced in or imported to Mexico, also
qualify for national patents. Minor inventions qualify for
legal protection as utility models for a ten-year period.
Trademark Protection
Under the Law, trademarks are protected in Mexico
for a period of 10 years, renewable for successive 10-year
terms. Any trademark license or assignment of trademark rights
must be registered with SECOFI, for trademark registration.
No previous use in commerce is required, and a simple affidavit
is considered sufficient proof of use for renewal. Formal
approval is no longer necessary in franchise agreements, including
the transfer of technical and managerial know-how. The tridimensional
form is recognised as a trademark and protection is granted
to collective trademarks. Copyright
The LDA, as amended in December 1996, recognises
copyright in literacy, scientific, technical, juridical, pedagogical,
photographic, pictorial, musical, architectural and cinematographic
works, and expressly recognises computer software as a copyrightable
work. Mexico is a signatory of the Universal Copyright Convention
and the Bern Convention.
The Law does not require works to be registered
in Mexico to secure copyright protection. It establishes an
optional registration procedure. Computer software may be
registered by depositing the first and last ten pages of a
written version of the source or object code with the Copyright
Office.
The civil remedies for copyright infringement
include damages and injunctive relief. The amount of damages
is not limited by statute. Copyright infringement is also
a criminal offence under Mexican law. Transfer
of Technology The LPI also repealed
the Transfer of Technology Law and its regulations. With the
abrogation of that Law, parties may now freely negotiate technology
agreements in Mexico. Trade
Secrets The Law expressly addresses
industrial and trade secrets and imposes civil and criminal
sanctions against persons who, without authorisation, disclose
them. Unauthorised disclosure exclusive of information belonging
to government authorities and the approval of marketing pharmaceutical
and agricultural chemical products manufactures from new chemical
substances will be severely penalised.
Mexico is a member of the World Intellectual
Property Organization (WIPO), and the World Trade Organization
(WTO). Moreover, NAFTA grants a far-reaching protection of
intellectual property rights in the country. In fact, NAFTA’s
Chapter XVII, is reflected in Mexico’s LPI.
In addition, within the ongoing modernisation
process, in January 1995 Mexico adhered to the Patent Cooperation
Treaty (PCT), in line with its main trading partners. As part
of this treaty, foreign companies can file for patent protection
in Mexico, from their national or regional patent offices.
Foreigners account for 90% of patent applications
filed in Mexico, and 98% of all foreigners filing for a patent
in Mexico are from PCT countries.
These countries are Mexico’s major trading partners
and central source of investment and technology. Besides,
patent applicants filing in other PCT countries can specifically
request protection in Mexico in their applications. In the
first half of 1996, Mexico was designated in more than 12,000
applications, and approval is expected to be granted for a
further 6,000 to 8,000. Exhibitions,
Fairs and Missions The government
of Mexico and its agencies recognise the importance and foreign-exchange
generation potential of the world market for conventions,
congresses, fairs and exhibitions, today such activities form
an integral and economically valuable part of the Mexican
life.
International Conventions and Congresses are
generically taken to mean conferences, symposiums, meetings
and similar events whose purpose is to bring together nationals
and foreigners who share common interests in a given field
or subject on pre-established dates.
International exhibitions are taken to mean
private or public shows or exhibitions organised in order
to sell products or services. This term includes:
- Professional exhibitions, that are shows or exhibitions
of a private nature held in conjunction with a convention
and exclusively for those attending, and
- Commercial or Industrial exhibitions: semiprivate or
public shows or exhibitions organised professionally by
companies, associations or individuals for the purpose
of selling their products or services.
Trade fairs are numerous in Mexico, and Canadian
participation in them is increasing. Several Canadian trade
missions are now in progress. Missions are organised by SECOFI,
Bancomext and by some private-sector associations.
Traders and Investors
A person involved in substantial trade of goods,
services or investments will be granted temporary entry if
she or he:
- carries on substantial trade in goods, services or investments
principally between the two countries;
- establishes, develops or provides advice or key technical
services related to the operation of a substantial investment
Investor immigrant
This authorisation will be issued, in most cases,
depending on the submitted criteria:
- Must invest a minimum of the equivalent of 40,000 days
of minimum wage in Mexico City ($30.20 pesos), which may
consist of shares, social participation or certificates
of participation, fixed assets or rights as beneficiary
through economic activities.
- Must obtain the consent of the National Registry for
Foreign Investment. (Comisión Nacional de Inversión Extranjera).
- Obtain a formal letter indicating the number of partners
and their participation in the company.
- For companies already organized a certified or comparable
copy of corporate charter is necessary. For non-organised
companies, a copy of corporate charter should be submitted.
- A plain copy of the last monthly or annual income
tax return of companies already organized.
- Must have authorization from the Department of External
Affairs of Mexico.
- Must present the original receipt of the deposit made
before the National Financial Trust (Nacional Financiera).
- Hold a photocopy of the passport.
- Possess a certificate of good behavior issued to the
applicant and spouse by the local police.
- Possess a photocopy of the birth certificate of each
family dependent.
- Possess a photocopy of the marriage certificate (if
married).
- Indicate in the application where the company intends
to establish itself and what kind of industry it will
operate. The location of the Consulate or Embassy where
the documentation will be processed and name of the port
of entry that will be used to enter Mexico.
The preceding requirements (a, b and 7,8, 9)
outline the necessity of having these documents duly legalised
by the Consulate or Embassy of Mexico in the respective jurisdiction
and their translation into Spanish by a language expert.
These documents must be sent to Mexico in order
for your associates to request the authorisation from the
Immigration Office. If it is approved, they will notify the
Mexican Embassy or Consulate to issue the visa.
If the individual decides to change his or her
Immigration status in Mexico, the Embassy or Consulate can
issue an FM3 (one year, multiple entries). For this, it is
necessary to present the above mentioned documents, fill out
an application form, present a valid passport, provide two
pictures and pay the requisite fee (inquire).
Please call your nearest Mexican Consular Office
for an appointment. Non-Immigrant
investors To the foreigner who
wishes to make a capital investment in industry, commerce
and services or other economic activities that contribute
to the economic and social development of the National Territory,
the following applies:
NON-IMMIGRANTS: Minimum
investment must be equivalent to 26,000 days of the current,
daily minimum wage in Mexico City. At present, (January, 1998)
it is $30.20 pesos. Processing
Procedures Documents submitted
with the petition include:
- Certification issued by the National Registry of Foreign
Investments, or the deeds indicating that the minimum
investment is equivalent to 26,000 days of the current,
general minimum wage in Mexico City.
- A certified copy of the Corporate Charter of the company;
- A certification issued by a Notario in which the corporate
name, corporate purposes and domicile of the company are
documented;
- A plain copy of the last tax return; and
- A certification issued by the National Registry of Foreign
investments of its registry at the Chamber, association
or corresponding entity.
When the investment consists of the acquisition
of real estate, it is necessary to produce the public instrument
in which the purchase sale or the trust agreement is noted.
The foreigner will be entitled to all rights as beneficiary
for a minimum amount equivalent to 40,000 days of current
minimum wage in Mexico City.
For companies already incorporated in Mexico,
a plain copy of the Corporate Charter and of the minutes of
the shareholders' meeting must be included, in which the increase
of capital or, as in this case, the acquisition of the shares
by a foreigner is acknowledged.
To organize a new company, an application detailing
the capital stock of the company, the amount of the investment,
the corporate name, and the purposes and domicile of the foreigner
must be presented. FM2
/ FM3 The documentation required
to obtain a FM3 will include:
- an application,
- two pictures of the individual,
- a valid passport,
- a letter from the employer specifying what the person's
activities will be while in the country and by whom that
person will be remunerated, and
- payment of a permit fee.
The fee that accompanies a FM3 may vary. The
fee to obtain a FM3, in the case of someone who is working
for remuneration on a specific job in Mexico, is currently
US $119.00. A person travelling to a business meeting in Mexico
or attending a trade show will pay only US $73.00 for an FM3.
Any Mexican consulate general office will receive the applications
and issue the FM3.
It is the employer, and not the individual,
who must make the formal request for a FM2 through the Secretaría
de Gobernación, the Secretariat of the Interior, in Mexico
City.
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