Mexico has become one of the main countries with foreign investment due to its strategic geographic position, macroeconomic and political stability, strong national market, economic growth, capacity to produce advanced manufacturing products (high technology), among other qualities.

It has an open economy that guarantees access to international markets through a network of Free Trade Agreements (FTAs), a strategic geographic location and competitive costs to service global markets, as well as a young and highly qualified labor force.

The largest sectors receiving foreign direct investment in the country are the following:

Sector	$ (MDD)	%
Total	31,621.2	100.0
Manufacturing	12,558.5	39.72
Mining	4,800.5	15.18
Financial Services	4,750.4	15.02
Transportation	2,767.2	8.75
General Commerce	2,697.8	8.53
Temporary housing services	1,644.1	5.20
Media information	577.2	1.83
Electricity and water	450.7	1.43
Real Estate	253.4	0.80
Rest	1,121.4	3.55

Now, we will explain below some of the legal implications related to Foreign Investment.

- Commission: National Foreign Investment Commission (Entity in charge of regulating Foreign Direct Investment. It is in charge of making decisions regarding Foreign Direct Investment and promoting Foreign Direct Investment in accordance with the Foreign Investment Law).

- Foreign Direct Investment. (FDI)

- General Corporations Law (GCL)

- Foreign Investment Law. (FIL)

Generalities.

Restrictions on Foreign Shareholders:

Specific Industries.

According to the FIL, there are certain activities reserved exclusively for the following entities:

• The State:
  • Petroleum (including all other hydrocarbons).
  • Electricity.
  • Nuclear energy.
  • Radioactive minerals.
  • Telegraphs and radiotelegraphy.
  • Control, supervision and surveillance of ports, airports and heliports.
  • Postal services.
  • Currency issuance.

• Mexican or Mexican companies:
  • Domestic land transportation of tourism and cargo, not including courier services and development banking.
  • The provision of professional and technical services expressly provided for in the applicable laws.

• Sectors subject to specific regulations (FDI is limited to 49% in the following sectors):
  • Manufacture and marketing of explosives, arms and firearms.
  • Printing and publication of newspapers with exclusive circulation in Mexico.
  • Series "T" shares of companies related to agriculture, livestock and forestry industries.
  • Freshwater and frontier sea fishing.
  • Port administration industries.
  • Port services.
  • Naval vessel or shipping company industries (except for tourist cruise ships).
  • Supply of fuels and lubricants for ships, aircraft and railroads.
  • Radio transmissions.
  • National air transport services.

• FDI in producers cooperatives is allowed up to 10%.

• A favorable resolution from the Commission is required when investors wish to acquire more than 49% participation in:
  • Port services companies engaged in internal navigation.
  • Shipping companies engaged in the commercial operation of vessels solely for deep-sea traffic.
  • Certain air transportation service providers.
  • Private education providers.
  • Legal services companies.
  • Companies engaged in the construction, operation and operation of general railways and public rail transport services.

Commission authorization is also required when the FDI exceeds 49% of the capital stock of a Mexican company with an aggregate value of assets in excess of an amount determined by the Commission.

Foreign investment vehicles in Mexico.

It is important to mention that a company cannot have authorization to carry out commercial acts and to have a representative office at the same time, that is to say, one excludes the other, when a company has a branch office authorization it is because such company carries out commercial acts and therefore it cannot have a representative office.

Compliance (Regulatory Compliance).

Likewise, different specific rules may apply to each business activity, so it is extremely important to analyze each specific case.

Incentives for Foreign Investment in Mexico.

Mexico is a country that offers various incentives to promote foreign investment in the country. The following are some federal and some local incentives, specifically in the State of Nuevo Leon:

Federal Incentives:

The Mexican Federal Government has taken several measures to offer tax, labor and commercial incentives to foreign investors.

Some of these measures are the creation of federal programs to reimburse import duties and/or VAT under certain conditions, benefiting companies that export goods. Some examples are the following:

• Manufacturing, Maquiladora and Export Services Industry (IMMEX) Program.
• Program for the Promotion of Specific Industrial Sectors ("Sector Promotion Programs") (PROSEC).
• Certification of VAT/SPECIFIC TAXES.
• Import Tax Refund or Refund Program for Exporters (DRAWBACK):

Local Incentives (for example Nuevo Leon).

Mexican States have local incentives that they can offer, in the case of Nuevo Leon, the Law for the Promotion of Investment and Employment for the State mentions the following:

• Tax incentives:
  • Subsidy in the payment of the Payroll Tax in the percentage determined according to the specific case.
  • Subsidy for the payment of state duties in the percentage determined on a case-by-case basis.

• Economic incentives, which will consist of the reimbursement of the transfer of monetary resources for the execution of acts, activities or projects:
  • For the education and training of workers.
  •  For the total or partial execution of infrastructure works that favor the installation or expansion of the company.
  •  For the implementation or connection of basic public services such as water, sanitation, gas or energy.
  •  To realize studies or research.
  • For the purchase, lease and/or exchange of real estate owned by the State, in order to establish the new investment.
  • For the donation and/or loan of State-owned real estate.
  • Financial contributions of up to 100% for leasing contracts and/or sale of real estate.

• Non-financial incentives, which will consist of:
  • Advice for the installation, start-up and operation of the investment, its growth or expansion.
  • Management of procedures before federal, state or municipal authorities.
  • Support in the management of public or private financing.
  • Investor relations with authorities, universities, unions, suppliers, companies and in general with people or institutions of interest to the company.
  • Training and education of the company's employees.
  • Advice for the internationalization of companies.
  • Advice for the development of suppliers.

Depending on the investment project, the State, through the International Economic Development Council, will determine the type of incentive to be applied and the percentage to be applied.

The states may also approve other types of incentives depending on the project.

In Nuevo Leon, each project will be analyzed individually in order to be able to give an opinion on incentives depending on the area in which it is to be installed, due to the great diversity of geographic areas and the different state legislations.

For the concession of incentives, in the case of Nuevo Leon, the International Economic Development Council evaluates factors such as the following:

• Number of jobs generated;
• Amount of the investment;
• Geographic location in which the investment is made;
• Impact on the environment;
• Rational and efficient use of water and electricity;
• Technological and scientific development;
• Increase in direct and indirect exports;
• Integration of national and regional production chains;
• Import substitution;
• Promotion of strategic alliances with regional investors;
• Development of regional input suppliers;
• Promotion on cooperation with the education sector, in relation to training; and
• Preparation of technicians and professionals.

Remember that our team has specialists with extensive experience in both domestic and foreign investment, so if you have any questions please do not hesitate to contact us.

M.D.E. Luis A. González Sánchez.

lgonzalez@g-r.mx