Introduction

Are you thinking of incorporating a company in Mexico but are unsure if the type of activity you want to carry out is allowed to foreign investors? Or perhaps you have heard or read that it is always mandatory to have a Mexican partner in the share capital.

Below, I will try to clarify these doubts.

My name is Giovanni Braccini founder of Braccini & Partners. For over 10 years, we have been providing corporate and tax legal assistance to both individuals and companies that decide to incorporate companies in Mexico. If you need more information, contact me by clicking here.

Indeed, one of the aspects that every entrepreneur must clarify before expanding their business abroad by opening a branch, is the actual possibility that the local rules in the chosen country allow it.

Furthermore, a rule in force in many countries consists precisely in allowing the incorporation of local companies by foreign investors but impeding them to hold a certain percentage of the share capital.

And how does it work in Mexico?

In Mexico, there is a general rule with some (increasingly fewer) exceptions.

General rule

The general rule is that a foreign investor can hold any percentage, even 100%, of the share capital of one or more Mexican companies. Furthermore, they can carry out any type of economic activity, including new, unexplored areas, manufacture new products, open factories, or expand or relocate existing ones.

This general rule, which leaves full freedom to foreign entrepreneurs to do business in Mexico, even holding 100% of Mexican companies, is counterbalanced by some exceptions.

Exceptions (few)

Mexican foreign investment law indeed sets forth two macro-categories:

• The one related to the so called “reserved activities”; and
• The one related to the activities with “specific regulation”.

The first category (reserved activities) includes those that can only be carried out by:

• The Mexican government; or
• Mexican individuals or Mexican companies without foreign investors in their share capital.

The second category (activities with specific regulation) includes activities that can be carried out by:

• Mexican companies whose share capital is also held by foreign investors but only up to 10%;
• Mexican companies whose share capital is also held by foreign investors but only up to 49%;
• Mexican companies whose share capital is held by foreign investors for a percentage higher than 49% but with prior authorization from a special commission of the Mexican Secretariat of Economy.

Mexican Foreign Investment Law

But where can be found the list of the “reserved activities” or the one that are limited to a certain percentage of participation in the share capital of a Mexican company? In the Mexican Foreign Investment Law.

However, as can be observed even by quickly browsing this law, over the years, this list has gradually been reduced.

Moreover, some of the activities “reserved” to the Mexican government as per the Mexican Foreign Investment Law, accordingly to more specific Mexican laws, can, actually, be carried out also by foreign investors, not directly and freely, but only after getting concessions, authorizations, permits, tenders, contracts. An example is in the hydrocarbon sector.

In any case, apart from the (few) activities belonging to the two categories mentioned above (reserved activities and those with specific regulation), incorporating a company in Mexico does not have any restrictions for foreign investors.

Having a Mexican partner in the share capital is mandatory?

And they can do so without being obliged to have a Mexican partner in the share capital.

On this last aspect, I would like to leave two brief considerations.

The first, obvious one is that having a Mexican partner in the share capital does not represent a negative aspect in itself. On the contrary, in some circumstances, it could be an advantage. However, Mexican law, except for the (few) cases mentioned above where it is mandatory, leaves the foreign investor the freedom to choose.

Neutral investment

The second, concerns the existence of a specific investment scheme that actually requires the involvement of a Mexican partner, and which would allow the foreign investor to carry out even some activities “reserved” only to Mexicans. An example is the national transportation of goods, which, under article 6 number 1 of the Mexican Foreign Investment Law, can only be carried out by Mexicans individuals or Mexican companies without foreign investors in their share capital. However, with this investment scheme, called “neutral investment,” even a foreign entrepreneur could carry out national transportation of goods in Mexico. Summarizing as much as possible, they could do so by creating a Mexican company in which only the Mexican partner has the right to vote in the shareholders’ meeting and by getting a specific authorization from the Mexican Secretariat of Economy.

If you need further information or clarification, please write to us using this contact form. We will be happy to respond as soon as possible.