Snapshot: foreign investment law and policy in Mexico

Law and policy

What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?

Until recent years, the Mexican government’s policy regarding the oversight and review of foreign investment focused only on confirming whether the foreign investment raised any national security issues. Nonetheless, in recent practice, the government’s policies and practice have shifted into a more holistic approach. Under this new approach, the government analyses each case depending on the project’s characteristics – for example, size of the company, sector, type of investment and origin of the investor’s resources.

Specifically, the limitations on foreign investments are applied to foreign investors that want to participate either directly or indirectly in the equity of companies with a certain volume of sales in Mexico or engaged in certain activities.

It needs to be taken into account that the officials from the National Foreign Investment Commission (Comisión Nacional de Inversiones Extranjeras) (CNIE) have taken a policy-based approach to review, and request additional information in foreign direct investment (FDI) review processes. Under this new approach, it is advisable to contact the CNIE’s officials before submitting the filing to discuss the proposed transaction, and what information they would like to see explaining the potential benefits of the transaction in Mexico and prepare the notice considering such discussions.

Although this implies submitting additional information to the formal documentation and information required in this type of process, it helps to accelerate obtaining clearance.

Finally, it is important to point out that Mexico does not have currency controls.

What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

The Foreign Investment Act and its Regulations (jointly, the FIA) constitute the main statutory framework governing FDI in Mexico.

Although the FIA is the law generally applicable to FDI, foreign investments can be further limited or restricted by specific regulations or permits applicable to the target company. In any process involving the analysis of potential FDI, investors should review the terms and conditions provided in the specific regulatory framework applicable to the target company.

This regulatory framework can be identified in the permits, authorisations or concessions (or all of these) granted to the target company, as well as by reviewing the legislation applicable to the activities of the target entity (eg, financial services, energy sector, transportation services and any kind of public service).

Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

The scope of the FIA applies to any kind of acquisition over shares that grants voting rights in the target company. Specifically, under the FIA, foreign investments are generally allowed without prior authorisation from any administrative agency, except with regard to legal entities that are:

• engaged in the activities described in article 6 of the FIA (ie, ‘restricted investments’); or
• engaged in the activities provided in articles 7 and 8 of the FIA, or with assets valued in excess of the monetary threshold set forth in article 9, in an amount in excess of the corresponding cap (ie, ‘capped foreign investments’).

Restricted investments entail the acquisition of a stake – in any amount – of the equity of Mexican companies engaged in land passenger and freight transport services within the Mexican territory, or development banking.

Pursuant to the FIA, investments in these types of ventures are limited solely to Mexican nationals. Foreign investors are statutorily precluded from undertaking a restricted investment.

Foreign investors cannot acquire more than a 10 per cent capital stake in a Mexican cooperative production company, which is a special low-revenue company dedicated to a certain primary activity (such as fishing, artisanal products and agricultural production) with a preferential tax regime.

Foreign investors cannot acquire more than 49 per cent of the capital stock of Mexican legal entities that are engaged in one of the following reserved activities:

• manufacture and marketing (commercialisation) of explosives, firearms, cartridges, ammunition and fireworks;
• printing and publication of newspapers for exclusive commercialisation and distribution within the Mexican territory;
• ownership of agricultural, livestock and forest lands;
• fishing activities in freshwater, inshore and exclusive economic zones;
• integral port administration;
• piloting services in ports located within the Mexican territory;
• freight maritime shipping within Mexican waters;
• ship, aircraft and rail equipment fuel and lubricant supply;
• broadcasting; and
• air transport services (including scheduled flights and charter flights).

The CNIE may still authorise any foreign investment entailing an acquisition of more than 49 per cent of the capital stock of a Mexican legal entity engaged in:

• manoeuvering services in ports located within the Mexican territory;
• freight shipping via coastal and ocean navigation;
• aerodrome management or operation;
• education services (including pre-school, elementary school, middle school and college);
• legal services;
• construction or operation of railways (or both), as well as railway transportation services; and
• holding assets with a book value that exceeds 19.55 billion Mexican pesos (however, this amount is updated each year).

Additionally, the sectorial agencies have broad authority to review the mergers and acquisitions of their regulated entities. Thus, if the target company has a permit, concession or authorisation – or is subject to a specific regulatory framework – that requires the prior authorisation of the sectorial agency, the proposed transaction may be prevented. In other cases, a specific permit may preclude any type of foreign investment in the equity of the permit holder. Due to the lack of homogeneity of the existing permits in Mexico, this analysis has to be made on a case-by-case basis during the due diligence process.

How is a foreign investor or foreign investment defined in the applicable law?

Foreign investment: (1) any kind of direct or indirect participation of foreign investors, in any proportion, in the equity of companies incorporated in Mexico (excluding neutral investments that do not grant voting rights); and (2) any kind of direct or indirect participation of companies incorporated in Mexico (controlled by foreign investors), in any proportion, in the capital stock of Mexican companies.

Foreign investor: any individual or legal entity with a non-Mexican nationality.

Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

The main statutory framework governing FDI in Mexico provides specific rules for investments made by foreign SOEs and SWFs.

Nonetheless, it is advisable to review whether the target company has a permit, concession or authorisation – or is subject to a specific regulatory framework – that may provide additional specific provisions over foreign investments.

Additionally, it should be noted that during the review process before the CNIE, the case handler may consider it relevant to analyse the specificities of the applicable regulatory framework to the foreign SOE or SWF making the investment. The purpose of this is to understand the potential characteristics of the project and their benefits to Mexico.

Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

There are no regulatory agencies in Mexico reviewing mergers or acquisitions solely on national interest grounds. Nonetheless, the main regulatory body reviewing foreign investments is the CNIE and it can only deny a foreign investment request for national security purposes.

However, the target company may have a permit, concession or authorisation – or be subject to a specific regulatory framework – that includes additional provisions governing reviewing processes with sectorial regulators and emphasising national interest policies. There is a low likelihood of this scenario, but considering there is no standard form for the permits, concessions and authorisations granted in Mexico, it is advisable to review these documents for this purpose.

Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

The CNIE can only deny a foreign investment request for national security purposes and has broad discretion to approve or reject any transaction based on these grounds. Aside from the Mexican competition authorities (which must sustain their decision based on economic analysis), the sectorial agencies have broader authority to approve or reject transactions. Therefore, they also could base their rejection in any case on national interest grounds.