Foreign investment issues

Investment restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

Although 100 per cent foreign ownership is permitted in most sectors, Mexican law does provide a series of restrictions on foreign investments in projects and related companies involved in certain specific activities. For this purpose, economic activities may be classified as:

  • activities reserved to the state (eg, transmission and distribution of electricity as a public service, nuclear energy, radioactive minerals);
  • activities reserved for Mexican companies with no foreign investment (eg, land transportation, except for courier services and services related to the oil and gas industry);
  • activities with foreign investment limited to a certain percentage (domestic air transportation, insurance);
  • activities requiring approval by the National Commission on Foreign Investment (CNIE) for participation over 49 per cent (eg, ports, private education);
  • activities with no restriction to foreign investment; and
  • acquisitions above a certain monetary threshold requiring approval.

Until 11 June 2013, telecommunications services (except mobile services) were restricted to 49 per cent foreign investment, while broadcasting services were fully reserved for nationals. These foreign restrictions have changed as a result of a recent constitutional amendment related to the telecommunications sector. Consequently, there are no longer any foreign investment restrictions for telecommunication services, while foreign investment of up to 49 per cent is allowed in radio and television broadcasting services, provided that the country of the relevant foreign investor (or its parent company) allows at least the same foreign investment percentage as the amount that will be invested in Mexico. Moreover, as part of the energy reform enacted in 2014, all of the foreign investment restrictions relating to the oil and gas industry were lifted and, thus, foreign investment participation is now fully permitted in gasoline retail sales, liquified petroleum(LP) gas distribution, shipping services for the oil and gas industry and the development and operation of oil and gas exploration and production fields under contracts entered into with the National Hydrocarbons Commission.

Where foreign investment is subject to restrictions, foreign investors may, nevertheless, participate in reserved activities through ‘neutral investment’, with limited corporate rights, with prior approval of the CNIE.

Foreign nationals are not allowed to directly own real estate for residential purposes within 50km of the coastline and 100km from the country’s borders; however, they may hold beneficiary rights through a trust that, nevertheless, provides full control of their investment.

All of these restrictions are equally applicable to foreign investors or creditors in the event of foreclosure in the project and related companies. Mexico is a party to numerous bilateral investment treaties (BITs), many of which contemplate security interests as investments subject to protection; however, their application in the context of a foreclosure on a project or related companies has not been tested, and therefore it is difficult to anticipate the way the courts will enforce the protection afforded under such treaties and the foreign investment restrictions normally applicable, as this situation is not specifically regulated either under the BITs to which Mexico is a party or under Mexico’s statutory law. No special fees or taxes are applicable to foreign investments, except for nominal fees for the mandatory registration of foreign-owned companies with the National Registry of Foreign Investment.

Insurance restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

As a general rule, Mexican law prohibits risks in Mexico being insured by foreign insurers. Thus, policies contracted with foreign insurers not authorised to operate in Mexico are not enforceable in Mexico. Reinsurance activities are permitted and are not subject to these restrictions (it is not uncommon to see foreign investors or creditors requiring satisfactory reinsurance, but not the assignment of reinsurance proceeds as those are not normally payable to the insured directly, but to the insurer); however, cut-through clauses are not enforceable under Mexican law. Other exceptions may apply under FTAs to which Mexico is a party.

Insurance policies issued by Mexican insurers may be payable to foreign secured creditors.

Worker restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

Except for directors and general managers, Mexican labour law requires that at least 90 per cent of a company’s employees be Mexican nationals. Technicians or professionals shall always be Mexican, except when there are no Mexican individuals available to take positions of a certain speciality; in such case, employers may hire foreign nationals in a proportion not exceeding 10 per cent, with a joint obligation by the foreign employees and the employer to train Mexican employees in the relevant speciality. All medical doctors shall be Mexican nationals. Foreign expertise needs may, nevertheless, be dealt through company-to-company technical assistance agreements, through which foreign employees may be temporarily seconded to a project in Mexico without establishing employment relationships with the Mexican enterprise.

All foreign personnel in Mexico are required to obtain the appropriate immigration visas.

Equipment restrictions

What restrictions exist on the importation of project equipment?

Because of numerous FTAs to which Mexico is a party, the importation of equipment is open, except for regular customs procedures and recordings. There are, however, limitations on the overall volume of importations of specific merchandise and equipment, and licences may be required for highly specialised equipment. Countervailing duties and import taxes may also be applicable.

Nationalisation laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

Expropriation is permitted only for public use purposes, upon payment of indemnification at market value. In addition, under Mexico’s multiple BITs (including Chapter XI of NAFTA and the treaties with Japan and most EU countries), Mexico has various commitments concerning expropriation and even creeping expropriation, including:

  • fair and non-discriminatory treatment to nationals of other treaty countries (protected investors);
  • refraining from impairing, by arbitrary or discriminatory measures, the management, maintenance, use, enjoyment or disposal of the protected investors’ investments;
  • most favoured nation and national treatment;
  • refraining from nationalising, expropriating or subjecting to measures tantamount to nationalisation or expropriation the investments of protected investors, except for expropriations made in the public interest, on non-discriminatory bases, under due process of law, and upon fair, market-value compensation paid in hard currency; and
  • allowing free repatriation of funds.

In addition, under the US-Mexico Agreement for the Promotion of Investment, US businesses may benefit in Mexico from the investment protection, insurance and financing programmes and services offered by the Overseas Private Investment Corporation. Mexico has not joined the ICSID, but it recently became a member of the Multilateral Investment Guarantee Agency, and has signed more than 26 BITs with its main trading partners.