OSUNA GONZALEZ Y ASOCIADOS, S.C.
ABOGADOS - ATTORNEYS AT LAW
A Mexican Law Firm Specializing in Cross-border Dispute Resolution and Arbitration
Contrary to the view that many foreigners still have, the Mexican economy is open to foreign investments. Since the late 80's, early 90's, and then with the enactment of the North American Free Trade Agreement, Mexico has gradually opened its doors to foreign trade and investment. One the staples of the old system was that foreign investors had to joint venture with Mexicans and were allowed to hold no more than 49% in Mexican Corporations. The modern rule is, unless otherwise indicated in the Foreign Investments Law (FIL), 100% foreign investment is allowed in Mexico.
Under Mexico’s FIL, foreigners are allowed to invest in any proportion in Mexican corporations, and may acquire fixed assets, enter into new economic activities or manufacture new lines of products, open and operate establishments, and expand or relocate those already existing. (See FIL, art. 4)
Article 5 of the FIL. Activities exclusive of the Mexican Government
There however a few activities that the state considers as a national priority or sensitive to the national economy, and therefore imposes some restrictions. For example, article 5 of the FIL lists the activities that only the State may participate, and these include the following: i) oil and other hydrocarbons; ii) basic petrochemicals; iii) electricity; iv) radioactive minerals; v) telegraph; vi) radiotelegraph; vii) mail; viii)issuance of bills; ix) minting of counts; x) control, supervision and vigilance of ports, airports and heliports and xi) others that are expressly restricted in other laws. (Article 5 of the FIL).
Exceptions to article 5 found in the FIL Regulations
However, in spite of the apparent limitation provided under the FIL, the Regulations to the FIL, actually expand the activities by way of interpretation. For example, per article of the Regulations allows foreign investment in the transportation, storage and distribution of gas other than liquefied petroleum gas.
With regards to electricity, the Regulations provide that foreign investments are allowed to generate for self consumption, cogeneration, or small sized production. Under the Regulations, electricity may be produced for sale to the State owned Federal Electricity Commission. Generation for export is also allowed under the Regulations to the FIL. The importation of electricity by individuals or corporations, destined exclusively for their use. Also excluded from the Article 5 restrictions is electricity produced in emergency situations.
Activities solely for Mexican’s? The Open Door of Neutral Investments
The FIL’s article 6 lists activities that may be performed exclusively by Mexican individuals or corporations that have a foreigner exclusion clause. The activities include land transportation of passengers, tourists and goods, without including courier services. The retail sale of gas and the distribution of liquefied petroleum gas; radio broadcasting and other radio and television services, other than cable television, are also restricted from foreigner participation. Also in the “only-Mexicans list”, are services provided by development banks, the rendering of professional and technical services as expressly provided in the applicable statutes. However, these activities do allow foreign investment provided it is made by way of neutral investments. The FIL defines neutral investment as that which is made is made in Mexican corporations or in trusts, which allows an economic benefit to the investor but allowing limited or no voting rights.
Activities with Limited Participation
Per the FIL’s article 7, production cooperatives may allow up 10%; transportation of up to 25% is allowed in national air transportation, air taxi, and specialized air transportation; Up to 49% in insurance, bonding, exchange, general storage warehouses, retirement fund managers, impression and publication of newspapers that circulation in national territory, comprehensive port management, amongst others. As in the case for “Mexicans-only” activities, the specifically regulated activities allow neutral investment.
Activities that Require an Authorization from the Foreign Investments Commission
Article 8 of the FIL, provides a list of certain activities that may allow more than 49% foreign investment provided clearance is obtained from the Foreign Investments Commission (FIC). The FIC was created as a body with authority to make determinations based on objective criteria, as way of eliminating the absolute discretion that the Mexican Government had prior to 1993 enactment of the FIL. The activities that require authorization from the FIC to allow more that 49%, include port services to ships in aid of their navigation through interior waters, such as tug boats; shipping companies dedicated exclusively to high-seas shipping; education services in the primary, secondary, high school, college and university level education; legal services; credit information companies; insurance agents; cellular phone services; construction of ducts for the transportation of oil and its derived products; perforation of oil and gas; and construction, operation and exploitation of railways that are a general means of communication, and the provision of public railway services.
This commentary is meant as an outline of some of the major rules regarding Foreign Investments, and should not be relied upon, save for information purposes. Any actual case requires consultation.
Author Alejandro Osuna obtained his JD from the Universidad Iberoamericana Tijuana, in 1995. He obtained a LLM (Masters in Laws) from the University of Pittsburgh's School of Law.
Copyright, 2015, Osuna González y Asociados, S.C. All rights reserved.