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DOING BUSINESS IN MEXICO:
GENERAL LEGAL, BUSINESS & ENTRY ISSUES

This article is electronically reproduced
with permission from the
Mexico 2000 Business Directory (Click for more info.).
Your Passport to Mexican Business.

Legal Framework

Mexico has embarked on thee modernisation of its legal and judicial systems, and has introduced a substantial deregulation and improvement in the enforcement of its laws.

Mexico’s legal environment has also improved through its membership in international organisations such as the NAFTA, the Organization for Economic Cooperation and Development, the World Trade Organization, and the Asia-Pacific Economic Cooperation. Mexican participation means that Mexico is committed to the development of a competitive field in trade and investment with internationally accepted rules.

As a part of the modernisation process of the Mexican financial system, the commercial banking system was privatised. Some Mexican banks operate representative offices in the world’s leading financial centres. Mexican banks play an important role in the globalisation of Mexico’s economy as they provide financing for different productive activities, offer consumer credit through credit card services and support the real estate sector through mortgage loans. Also, the new commercial banking system can provide investment and banking services and make venture capital investment with banks participating as temporary minority shareholders.

In addition, there are 18 affiliats of foreign banks: ABN, Amro Bank, American Express Bank, Banco Santander de Negocios, Bank of America, Bank of Boston, Bank of Tokyo, BNP Banque Nationale du París, Chase Manhattan Bank, Chemical Bank, First National Bank of Chicago, Fuji Bank, ING: Capital Holding, J.P. Morgan, Nations Bank of Texas, Republic National of New York and Societé Generale.

Foreigners have the option to establish a Mexican company or to acquire stock in an already established one. It all depends on the party's need to have a presence and an involvement in Mexico from a commercial and/or tax point of view. The basic procedures related to the organisation of a new Mexican company (hereinafter the ‘Company’) with 100% of foreign capital participation are as follows:

The General Law of Commercial Companies (Federal Law) provides for several types of companies that can be organised and, depending on the form chosen, there are various differences in their legal and tax treatment.

a. Sociedad Anónima (S.A.) and (S.A. de C. V.)

It is usually recommended to incorporate a limited liability stock corporation, which may adopt the form of a fixed capital company (S.A.) or that of a variable capital company (S.A. de C. V.). The principal difference between the two is that the latter may increase or decrease its capital within the limits established in the by-laws by a mere Stockholders' Meeting resolution without the need to fulfill the formalities applicable to the S.A. Nevertheless, both types of companies must notify the National Registry of Foreign Investments and other applicable Government Agencies of any capital amendment.

Key characteristics of both types of companies:

The shareholder's liability is limited to their stock interest in the company and the directors are fully liable for the loyal and diligent administration of the company. Must have at least two shareholders and a minimum capital of fifty thousand Mexican pesos, of which 20.0% must be paid at the time of incorporation. Must appoint a statutory examiner who is a third party who supervises the operations of the company and represents the interests of the shareholders. The shares which represent the capital stock of the company are freely transferable and can be traded publicly, after the corresponding filings have taken place.

b. Sociedad de Responsabilidad Limitada (S. de R.L.)

Recently, this form of Limited Liability Corporation or limited partnership has become popular among foreign companies that, in particular, want to reduce their tax liabilities in the US. This type of company is viewed for US tax purposes as a partnership and the key characteristics are as follows:

The partners' liability is limited to their partnership interest in the company and the directors will be fully liable for the loyal and diligent administration of the company. It must have at least two partners with a maximum capital of fifty thousand Mexican pesos, and a minimum capital of three thousand Mexican pesos, of which 50% must be paid at the time of incorporation; There is no requirement to appoint a statutory examiner; The tax rate will be the normal corporate tax rate of 34.0%; The shares representing the partnership interest in the company must not be freely transferable and cannot be traded publicly.

c. Sociedad en Nombre Colectivo (SNC)

This entity (General Partnership), if properly structured, will also have many of the same tax advantages as the "S. de R.L." However, a distinct disadvantage of the "SNC" is that all of the partner(s) will have unlimited liability with respect to the obligations and debts. This corporate form is not frequently used in Mexico.

d. Sociedad en Comandita Simple (SCS)

This limited partnership can also have many of the tax advantages of the "S. de R.L." and the "SNC." The "SCS" has two types of partners: the active partners who have unlimited liability, and the silent partners who are liable only for their capital contribution. This corporate form is not frequently used in Mexico.

e. Mexican Branch.

Another possibility for a foreign company is to operate through branch offices in Mexico. As foreign companies are legally recognised in Mexico, they retain their liability characteristics from abroad. However, to carry out business operations, such branches must be approved by the National Commission of Foreign Investments and the Ministry of Foreign Relations, and must be registered at the Public Registry of Commerce.

For tax purposes, the foreign company will receive the same treatment as a permanent establishment in Mexico and will pay taxes on the income generated from such branch offices at the normal corporate tax rate of 34.0%. However, the foreign company should be careful to avoid the possibility of having the income generated by the foreign company outside of Mexico to become attributable to the operations in Mexico. This possibility is due to the "force of attraction" rules contained in Mexico's tax legislation, which will sometimes require a taxpayer to include in his taxable income that generated abroad.

f. Asociación en Participación (AP).

Although not a separate legal entity, the Association in Participation is another common form of doing business "in" Mexico. Generally, an AP is an agreement in which one or more partners ("asociados") give goods or services to a managing partner ("asociante") in exchange for the right to participate in the profits of a commercial operation, which is controlled by such a managing partner.

g. Joint Venture Agreement.

Generally, a joint venture agreement is an association of persons (individuals or legal entities) for a limited period of time in which such persons jointly undertake a specific business enterprise. Although a joint venture agreement is sometimes mistakenly categorised only as an AP. A joint venture agreement can take any form in which the parties agree to develop their business and agree to provide their respective services and contributions of capital or resources, to the by-laws of a new independent company, or both.

The exact type of business venture to be undertaken determines the liability and tax treatment of such an agreement.

To establish a Sociedad Anónima or a Limited Liability Company (the two most common corporate forms), the steps will be essentially the following:

1. File for a Permit of Incorporation for the company under a proposed name before the Secretariat of Foreign Relations. For this, two or three names are needed in order of preference. The authorisation will take about two to three working days.
   
   
2. Incorporate the Company before a Notary Public. The Company's initial capital must be paid in full if contributions are paid in kind, or it can be partially paid at a minimum of 20% if capital contributions are in cash. In the case of the "S. de R.L.", the initial amount is 50%. The Company must issue registered share certificates, and the shareholders must be registered in the Company Stock Registry Book.
   
   
3. At the time of the incorporation, the shareholders should hold a General Ordinary Shareholder's/Partner's Meeting resolving on:
   1. the structure of the capital stock;
   2. appointing a Sole Administrator or a Board of Directors, as the case may be;
   3. appointing at least one "Examiner" (statutory auditor) to monitor the Company's administration on behalf of the shareholders (in the case of a S.A. ) and
   4. appointing a General Manager, and any other officers or agents.

   
   
   

4. The Sole Administrator or Members of the Board of Directors’ meetings may be held in or outside Mexico. If the Sole Administrator or Directors are not Mexican citizens and will be acting in Mexico, they will need a migratory permit.
   
   
5. The Examiner (in the case of a S.A.) is usually an accountant from a firm who regularly audits the Company. A deputy examiner could be appointed due to the fact that this position cannot be delegated at will.

Besides the granting of the prior approval by the Foreign Investments Authorities (if necessary), as indicated below, the incorporation date of the Company is dependent upon:

drafting of the by-laws to be used for the Company; execution and formalisation of the special powers of attorney to incorporate the new Company (if any), the approval of the corporate name by the Ministry of Foreign Relations, and the granting of an appointment date by the Notary Public for the actual incorporation.

The concept of "Company" includes all legal entities incorporated into Mexico´s commercial legislation and partnerships and associations established pursuant to the Civil Code of each State including Mexico City. Equity participation in legal entities will be considered the shares, stock and corporate parts that represent the capital of a legal entity (hereinafter all referred to as "Stock").

The Mexican work force is young and tends to grow at the rate of more than one million employees per year. In general, companies have found that with proper training programs, the skills of Mexican workers can be upgraded and high quality work can be obtained. The young work force is amenable to new management techniques to which an older work force may be unable to adjust.

The Mexican Federal Labour Law (LFT) regulates employment relationships in Mexico regardless of nationality or place of entering into the employment agreement.

1. Profit Sharing: All employers must distribute among their employees an amount equal to 10% of the employer’s pre-tax profit within 60 days after the employer is required to file its year-end income tax return. Fifty percent of this amount is to be distributed in proportion to the number of days worked by each employee during the year, and the remainder according to the wages of each employee.
   
   
2. Christmas Bonus: All employers must pay their employees a year-end bonus equal to at least fifteen day’s wage, payable before December 20th of every year.
   
   
3. Paid Holidays: The Law provides that nine legal paid holidays must be observed. An employee required to work on any of these holidays must be paid overtime at the rate of three times his normal wage.
   
   
4. Holiday Premium: After one year of uninterrupted activity, workers will enjoy an annual paid holiday period, which can in no case be less than six working days, and will grow by two working days each year, until it reaches twelve days. After the fourth year, this period will be extended by two days for each five years service. During this period, workers will receive a 25% minimum vacation bonus above their normal wage.
   
   
5. Legal Holidays: The Federal Labour Law establishes the following obligatory holidays throughout the country: January 1, February 5, March 21, September 16, November 20, and December 25. December 1 is an obligatory holiday every six years for the inauguration of new administrations. Most business offices, banks and large stores observe religious holidays. This includes the Thursday and Friday of Easter week, November 1 and 2, and December 12. These and other holidays may be agreed upon in collective labour contracts.
   
   
6. Training: All employers are obligated by law to provide training to their employees. The employer must have a training program approved by the Ministry of Labour.
   
   
7. Employer Housing Contribution: The Law requires employers to pay an amount equal to 5% of each employee’s wages to the Federal Workers Housing Fund INFONAVIT.
   
   
8. Minimum Wage: The LFTL establishes a minimum amount that must be paid to all employees in cash, without deductions or withholding, on a weekly basis. The minimum wage is reassessed from time to time by the National Minimum Wage Commission. The minimum wage varies for each of three economic regions into which the country is divided. A general minimum wage applies to all employees within each economic region, except those that fall within a series of specific job categories. The general minimum wage for the three regions as of January 1, 2000 was as follows:
   
   
   • Zone A (including Mexico City): $37.90 pesos per day
   • Zone B $35.10 pesos per day
   • Zone C $32.70 pesos per day

   
   
   

9. Maximum hours-Overtime pay: The maximum number of hours which an employer may require his/her employees to work, without having to pay overtime, is 48 hours per week. The employer must pay the first nine hours of overtime at 200%, and overtime exceeding nine hours at 300% of standard pay.
   
   
10. Health and Safety: The employer should provide a safe and sanitary environment for workers. A Mixed Commission for Health and Safety must be created to investigate the causes of illness and accidents and propose remedies.
    
    
11. Paid Maternity Leave: All employers must provide their female employees with a fully paid maternity leave of six weeks prior to the approximate delivery date and six weeks thereafter. After this twelve weeks period, employers must offer such employees their former positions back, including any accrued rights there under such as accrued seniority and holiday pay.
    
    
12. Pension Funds or Sistema de Ahorro para el Retiro (SAR): The Retirement Savings System is a social security benefit additional to those established by the Law on Social Security. Employers are obliged to pay monthly contributions equivalent to 2% of the corresponding wage base. A ceiling isset at the equivalent of twenty-five times the general minimum wage for Mexico City. Contributions are deposited in individual accounts for each worker in financial institutions. These individual accounts have two sub accounts: the retirement insurance and the national housing fund.
    
    
13. Schedule: The law stipulates a maximum 48 hour work week. Day shifts are eight hours long, while night shifts are seven hours long. However, the average work week in almost all companies is between 40 and 45 hours.
    
    
14. Overtime: There is a possibility to extend working shifts, though never exceeding three hours daily or three days a week. In this case, overtime will be paid at 100% over the corresponding wage for a shift. If the overtime is over nine hours per week, workers will be paid two hundred percent over the corresponding wage for a given shift. Triple payment is also provided for work on the seven legal holidays.

Government legislation allows any firm with more than 20 employees to unionise. Union contracts must be re-negotiated every two years. Although unions are given the right to strike during negotiations, strikes, slow-downs and other conflicts, strikes are relatively uncommon. Unions also have the right to strike in sympathy for other striking unions, leading to the possibility of wide spread general strikes. Government labour regulations now contain a provision that in the case of legal interpretation, the most favourable treatment of the employee will always take precedence.

a) Occasion and Basis of Payment:

Mexican employers may not freely dismiss employees without cause. Otherwise, the employer should make the following severance payments:

• Three months of salary.
• 20 days of salary for each year of service rendered (this amount does not apply under certain circumstances)
• A seniority premium, equal to 12 days salary per year (subject to a salary limitation of up to twice the minimum wage);
• Back salary from the date of the dismissal through to the date of payment; and
• Accrued benefits.

An employee dismissed without ‘just cause’ has the option to be reinstated to his former job instead of receiving the severance payment, provided he is not an employee of ‘trust’ as described below in "Employees of ‘Trust’".

b) Just Cause’ for Dismissal

The LFT lists the specific causes for which an employer may dismiss an employee. These causes include, for example, immoral conduct, repeated absenteeism, unauthorised disclosure of trade secrets and unreasonable refusal to follow directions.

c) Termination of Individual Labour Relationship

The Law provides that a labour relationship may be terminated without either party being liable under certain circumstances, including:

• Mutual agreement of the parties;
• Death of the employee;
• Under limited circumstances, the conclusion of a specific job; or
• The physical or mental incapacity or disability of the employee.

d) Employees of ‘Trust’

The LFT creates a special category of employees for managers in general and other employees in positions of trust (‘trabajadores de confianza’). If dismissed without ‘just cause’, an employee of trust will be entitled to severance pay, but she/he will not be entitled to reinstatement. Employees of trust may form unions, but they must be separated from those of other employees.

Determination whether an employee is an employee of trust depends not on her/his title but on actual functions performed by the person. The Law defines functions of ‘trust’ generally as those of direction, inspection, surveillance and supervision and those that involve personal matters of the owner(s) of the company.

a) Social Security

In accordance with the Social Security Law ("LSS"), all employers must register their employees in the Mexican Social Security Institute "IMSS". Such registration relieves the employer of any liability in connection with job-related illnesses or accidents and provides certain benefits to the employee and her/his dependants, including:

• Medical and hospitalisation insurance for any illness, accident or maternity;
• Insurance for disability, old age, unemployment during old age and death, and child care; and
• Retirement 2%

Both the employer and the employee must make contributions to the IMSS. The employer is obliged to withhold from the employee’s salary, the employee’s portion of social security contributions (5.25%) and pay it along with the employer’s own contribution to the IMSS (17.70%). In the case of employees who earn minimum wage, the employer must make the entire contribution to the IMSS.

b) Income Tax

The Income Tax Law (LISR) provides that employers are responsible for withholding personal income taxes from their employee’s salaries and pay the amount withheld to the Mexican tax authorities on a monthly basis. No income taxes are withheld from salaries of minimum wage employees.

c) Penalties

Any employer who fails to properly withhold and pay to the IMSS the corresponding social security contributions or withhold and pay to the federal tax authorities their employees’ income taxes as required by law. The person who submits false information to the IMSS or to the tax authorities, or who otherwise fails to fulfill the employer’s obligations under the LSS or the LISR, could be subject to a range of penalties. Penalties range from fines from 70% to 100% of the tax omission, for ‘fiscal infractions’, to prison terms for ‘fiscal crimes’, aside from being obligated to pay the contributions or taxes due, plus interest, plus inflationary adjustment.

The Mexican tax system has recently undergone a comprehensive inspection. New legislation enacted in recent years has dramatically changed the tax system, making it competitive with those of Mexico’s major trading and investment partners.

Mexico’s tax legislation includes specific taxes on income, capital, commercial transactions and contracts or agreements. Since 1986, tax legislation has been revised in order to place it on the same footing as that of most industrialised nations. As of 1991, corporate income tax is down to 34.0%.

Taxpayers must apply for a federal registration number. Both, subsidiaries or branches of foreign corporations are subject to taxes the same way as Mexican owned corporations, and no further tax is imposed on income already subjected to corporate income tax.

1. Corporate Income Tax

Under the Mexican Income Tax Law (LISR), a Mexican corporation is subject to corporate tax in Mexico on its world-wide net income at the rate of 34%.

2. Withholding Tax Dividends

Dividends distributed to a foreign corporation are not subject to withholding tax if distributed from the company’s ‘net after-tax profit account’. The ‘net after-tax profit account’ is comprised of the company’s net after tax profit for each fiscal year, plus the dividends received by the company from other companies resident in Mexico, minus the dividends distributed in cash or in-kind from that account. The net after-tax profit for a fiscal year is the amount that results from subtracting the company’s taxable income for the year:

1. (i) the worker’s participation in the profits of the company,
2. (ii) the company’s income tax liability, and
3. (iii) its non-deductible expenses.

3. Other Withholding Taxes

Royalties, license fees or other compensation paid by a Mexican licensee to a non-resident for unpatented technology of trademarks are subject to withholding tax at the rate of 35%. When royalties arising under the same contract are paid for both patented and unpatented technology, the withholding tax rate will be 15%

Interest payments to non-residents are subject to withholding tax rates of 15%, 21% or 4.9% or 10% for residents of a tax treaty partner, and 35%, depending on the type of payee. In general, if the payee is a foreign bank or other financial institution registered with the Ministry of Finance, the interest payments will be subject to withholding tax at the rate of 15% or 4.9% for residents of a tax treaty partner. If the payee is:

• A credit institution other than a bank or financial institution registered with the Ministry of Finance,
• A foreign supplier of machinery and equipment that form part of the fixed assets of the purchaser, or
• A foreign resident that finances the purchase of such machinery and equipment or generally provides working capital financing, pursuant to an agreement that sets forth these circumstances and the company is registered with the Ministry of Finance,
• The interest payments will be subject to withholding at the rate of 21% or 10% for residents of a tax treaty partner.

In any other cases, interest is subject to withholding tax at the rate of 35%.

4. Tax on the Sale of Share

The sale of shares of a Mexican company is subject to Mexican income tax, regardless of where the sale takes place. Foreign residents who sell shares of Mexican companies, are subject to a 20% tax on the gross proceeds from the sale, or, at the option of the foreign resident, if it has a legal representative in Mexico, to a 30% tax on the net gain derived from the sale. The net gain, in the latter case, is determined by subtracting from the gross sale proceeds the seller’s tax basis in the shares sold, adjusted for inflation and other factors as determined in the LISR.

5. Asset Tax

The Mexican Asset Tax Law, as amended on December 28, 1989, subjects Mexican business taxpayers (i.e., individuals or companies resident in Mexico engaged in business activities, individuals or companies resident abroad with permanent establishment in Mexico, and other foreign persons who own Mexican assets used in another business activities) to a tax on business assets at a flat rate of 1.8% of the value of such assets per annum. Taxpayers subject to the asset tax, may credit Mexican income tax payments against their asset tax liability for the current year. If the income tax payments exceed the asset tax liability in a given year, the taxpayer may request a refund of asset taxes paid during the ten prior fiscal years in the amount of the excess.

6. Value Added Tax

Mexico imposes a Value Added Tax (VAT) on all purchases of goods and services in the country. The general rate is 15% of the value of the product or service. The VAT normally operates by having each party in the chain of production collect the tax from its customer and pay to the tax authority the difference between the tax paid to its suppliers and the tax collected from its customers.

In the case of an exporter of goods, since they do not collect the tax from their customer, they are refunded by the government the full amount of the tax which they paid in respect for the production of the exported goods.

Thus, an assembly-line industry which exports all of its production, will be refunded any VAT paid in Mexico. In addition, a sale of goods to a maquiladora is considered an export and is therefore not subject to the VAT.

Imports are also subject to VAT at the rate of 10%, assessed on the customs value of the import plus the import duty. Because the importer is entitled to credit all VAT paid against VAT collected from its customers, the ultimate burden of the VAT effectively is passed along to the importer’s customers.

7. Fiscal Policy

The strengthening of public finances has been the fundamental factor in the process of economic stabilisation in Mexico. This strategy will be maintained, as public expenditures are limited, the tax base widened, and the finances of the remaining public enterprises will be improved. Fiscal discipline is considered essential to attaining a permanent reduction in the inflation rate and to laying the foundations for a sound expansion of the economy. It is involved fiscal reform, spending cuts, government downsizing, price retrain, and code changes that lower the tax rate while broadening the tax base.

Mexican import controls have been significantly liberalised in recent years. Most products no longer require prior import permits. Import duties have also been reduced. The maximum import duty is currently 20% of the ‘normal value’ of the products imported into Mexico. Under Mexican law, the ‘normal value’ should correspond to ‘arm’s length’ or free competitive market prices between two independent parties.

The following basic documents are required for freight shipments to Mexico:

a) Commercial Invoice

This is a shipping document that can be obtained through the custom broker, and it should accompany all shipments. This is the case when the valuation method is required for the information value. Invoices should be prepared in Spanish, if they are prepared in any other language, the Spanish translation may follow the original text on the invoice. The invoice must contain the following information:

• Place and date of issuance;
• Complete name and address of buyer or importer in Mexico;
• Complete name and address of exporter;
• Detailed description of the merchandise. This should include all relevant data on brand name, model, marks, serial numbers, manufacturers, weight; etc;
• Unit value and total value of each item listed on the invoice;
• Signature of seller, name and position, and
• Shipper's invoice number and customer's order number.

b) Packing List

It is necessary when more than one package is shipped. This document should be sent together with the commercial invoice, which should include:

• Number of packages;
• A detailed list of merchandise contained in each package;
• Net, gross and legal weight in metric equivalents; and
• Volume or measurements, in the metric system, of each package and of the total shipments.

c) Bill of Lading:

This procedure is required on maritime shipments and generally consists of three original copies plus a varying number of copies. These should be sent to the importer in Mexico. The information on the bills of lading should correspond with that shown on the invoice and the packing list.

d) Special Certificates:

Different types of sanitary certificates are required by the Secretariat of Agriculture, Stockbreeding and Rural Development (Secretaría de Agricultura, Ganadería y Desarrollo Rural) on shipments of livestock or animal products, and for most seeds, plants and plant byproducts. Many agricultural and food products also require a certificate of origin.

e) Import Permits:

At present, approximately 300 of the total 11,960 items on the Harmonised Tariff System still require an import permit. A few of these items are subject to an import quota. Items requiring an import license include some used machinery and cars, some agricultural products vital to Mexico’s economy, such as corn and certain grains, seeds, beans, certain fruits, tobacco, oils, sugar, cocoa, eggs, milk, and so on.

Corporate income tax is 34.0%. This rate is favourable since it is lower than that in Canada, the United States, United Kingdom, Germany and Japan, and also lower than that in some developing nations, which have been successful in attracting foreign capital, such as Malaysia and Thailand.

Companies engaged in services as agriculture, stock breeding, forestry and fishery are exempted from this tax, provided their profits are reinvested.

There is a minimum 1.8% tax on the average value in a year of a company’s fixed and financial assets. It is applied only when the amount exceeds the regular income tax due, in which case the corresponding difference is paid. This tax is mandatory only from the third taxable year after start of operations.

The rate applicable to the value added tax is, generally 15.0%. In order not to affect the competitiveness of Mexican trade in the border region, the general rate of 10.0% is maintained when taxable activities are carried out by residents of the border region or if the delivery of goods or the benefit of the service is carried out in this region. There are some important exemptions such as goods and services exports, as well as the sale of over the counter medicines and certain products such as food whose rate of taxation is zero.

Dividends distribution is not subject to payment of the corresponding tax, provided they are taken from profits after income tax.

Payments related to royalties on literary, scientific or artistic endeavours including motion pictures and recordings for radio and television as well as drawings, models, drafting, formulas or procedures and industrial, commercial and scientific equipment or, the transfer of technology are subject to a 15% tax rate. For the use or temporary enjoyment of patents, certificates for inventions or improvement, factory brand names, commercial names and publicity, the rate is 35%. There are also state and municipal taxes.

The Mexican government has followed a very active policy in matters of agreements to avoid a double payment of taxes. At present, these kinds of agreements are in force with Belgium, Canada, Denmark, Ecuador, Finland, France, Germany, Italy, India, Korea, Netherlands, Norway, Rumania, Spain, Sweden, Switzerland, United Kingdom, Singapore, and United States. New agreements are being negotiated with Australia, Austria, Brazil, Ireland, Israel, Malaysia and Nicaragua.

These agreements contain tax credits for countries where foreign investment has originated from taxes paid in Mexico on such items as salaries, service fees, profits, dividends, royalties and interest paid.

Trade policy is based on tariff schemes. At present, there are just 148 categories subject to import permits from a previous total of 11,072. Moreover, imported used merchandise falling within 67 tariff categories, is subject to the previous mentioned requirement.

The maximum tariff level is 20% ad valorem with a weighted average of 7% for goods imported from North American countries, and 13.5% for the rest of the world. No intermediate rates are applicable with the exceptions of preferential duty rates offered to members of the NAFTA and different Free Trade Agreements with Latin American countries. Mexico uses the Harmonised System of Tariff Nomenclature and applies its tariffs on a non-discriminatory basis.

The foreign exchange regime is structured to systematically avoid overvaluation of the real exchange rate, which might inhibit internal savings and national production. At the same time, in combination with other instruments of economic policy, it will attempt to stabilise price levels.

In the short term, the policy of the monetary authorities ensures that the floating rate be maintained. The devaluation of the peso in December 1994, in conjunction with low levels of international reserves and volatility of capital flows, prompted the Mexican authorities to adopt a floating exchange rate system.

The floating rate of exchange has several advantages. It makes it improbable for the exchange rate to deviate persistently and mainly from the levels that are consistent with economic fundamentals.

Moreover, a floating rate regime promotes investment in real assets. Under this regime shocks are buffered by variations in both interest rates and the exchange rate. In exceptional cases, because of interest rates and upward pressure on them they are reduced.

According to Mexican Legislation, all imports valued at more than US$2,000.00 need to be handled by Mexican customs brokers. The customs broker is usually contracted by the importer to act as a representative to make all necessary foreign trade customs arrangements.

• Obtains necessary permits and authorisation.
• Reviews all documents sent by the exporter. Makes the import petition and prepares the declaration for the determination of import duties;
• Reviews the shipments at the border and making sure they correspond to the invoice and packing list;
• Clears the goods through customs;
• Covers all expenses related to the operation on behalf of her/his customer.
• Provides orientation on letters of credit, insurance, taxes, warehousing, duty drawbacks, etc.
• Provides information on means of transportation and carriers as well as on tariffs and time and distance saving options, and
• Ships the merchandise from the port of entry to the final destination.

Goods entering Mexico are deposited in a customs warehouse or in the case of land or air shipments, they are placed in the customs broker’s warehouse. The goods are cleared upon the presentation of the required documents and the payments of duties and other charges.

It is possible to have goods shipped from the customs warehouse directly to a bonded warehouse. Usually a letter from the warehouse is necessary to have space for the shipment to be stored at their facilities. The import duties on the goods stored are paid as they leave the bonded warehouse.

All samples, gifts and promotional literature are subject to import duties. A value should always be assessed on these items and included on the commercial invoice if shipped with the rest of the items. This is also true for any items included within the package, such as spare parts, tools, etc.

The temporary importation of equipment, parts or other goods is allowed duty free. This is applicable to temporary imports of items to be returned in their original state, such as items to be exhibited at local trade shows or for promotion among potential clients. This also applies to imports of goods to be transformed, manufactured or repaired which are later re-exported, such as raw materials, parts and/or components for the assembly line industry, or for companies operating under special exporting programs.

The importer needs to inform the custom broker about the merchandise being shipped for temporary importation, the destination of the goods, the process they will undergo the percentage of loss through the process and the time the goods will stay in Mexico.

The following are the different steps that a company must accomplish to ship goods to Mexico, and the approximate timing:

• Select the Mexican client, importer, consignee, customs broker or trade show organiser to whom the documentation needs to be sent prior to shipment.
• Hire a Mexican counterpart to initiate all procedures for obtaining the necessary authorisation, permits, etc.
• If any special permits are required, obtain the required documents and send them to the Mexican counterpart.
• Ensure payment by the Mexican client (this can be done through a letter of credit) and send the commercial invoice, the packing list and the bills of lading to the Mexican counterpart and ship the goods, one month prior to the due date in Mexico.

Besides the import and shipment requirements, it is important to know if there are any limitations or requirements to the distribution of products in Mexico. In the case of food products, beverages, cosmetics and toiletries, there are strict labelling requirements. In the case of telecommunications equipment, an homologation permit needs to be obtained from the Secretariat of Communications and Transportation, and most machinery and equipment need to comply with established norms and require a NOM-50*registration. These requirements are the responsibility of the Mexican importer, representative or distributor, and entail basically no requirements from the exporter, except, for example, the manuals and technical specification of the merchandise.

The area restricted to foreigners has been deregulated. This zone is the band of national territory within a width of 100 km. along the borders, and 50 km. along the shoreline. The Law of Foreign Investment permits Mexican corporations with a majority of foreign capital to acquire properties located within said region if these lands are not destined for residential use. These acquisitions must be registered with the Secretariat of Foreign Affairs (Secretaría de Relaciones Exteriores).

On the basis of the Law of Foreign Investment, the Secretariat of Foreign Affairs authorises credit institutions to acquire real estate located within the area restricted to foreigners through trusts. The trust fund is to permit the use and exploitation of such real estate by the trustees without creating rights in favour of said trustees. Authorisation will be necessary in the following cases:

• When Mexican corporations, without the foreigners exclusion clause, seek to acquire rights to the use of properties that are destined to residential ends; and
• When private foreign individuals seek to acquire the rights to the use or exploitation of real estate for any purpose.

The effect of operation for this trust fund is originally granted for a term of 50 years and, it may be indefinitely renewed for equal term periods.

The LIE establishes that foreign companies may not hold direct title to real estate located in Mexico. They may, however, hold the beneficial interest in such real estate under a Mexican trust.

Since 1991, the Industry Property Law (LPI Ley de Propiedad Industrial) and Copyright Law (LDA Ley de Derechos de Autor) assure foreign investors the same protection that exists in industrialised countries, and is usually not found in the legislations of most of the developing countries.

The objectives of the LPI include stimulating research and development to foster innovation, and to encourage foreign investors to bring new technology to Mexico. The law gives specific protection to patents, trademarks, industrial and trade secrets, utility models, industrial designs, sound recordings, commercial names and appellations of origin.

In the amendments to the LPI in 1994, the Mexican Institute of Industrial Property (Instituto Mexicano de Propiedad Intelectual) is responsible for administering the entire national industrial property system.

The amendment of the Copyright Law (LDA) in 1996 includes the protection of production rights of sound and video recordings and copyrights of computer programs and software designs.

Under the Law, patents are protected in Mexico for a period of 20 years from the date of filing. Certain products, such as pharmaceuticals, medicines, animal feed, fertilisers and pesticides which under former statutes were not patentable until 1997, are now eligible for patent registration and protection as of June 28, 1991. Other products such as vegetable variations and microbiological inventions, which in the past were not subject to patent protection, are now patentable.

Under the LPI, any patent license or assignment of patent rights must be registered with SECOFI. If they are not registered such licenses or assignments will not be effective against third parties. The registration procedure before SECOFI should not involve governmental review or approval of the corresponding patent license or assignment.

Patents will be issued for all processes and products, including chemicals, alloys, pharmaceuticals, foods, beverages, biotechnology and plant varieties. Inventions patented abroad and not yet produced in or imported to Mexico, also qualify for national patents. Minor inventions qualify for legal protection as utility models for a ten-year period.

Under the Law, trademarks are protected in Mexico for a period of 10 years, renewable for successive 10-year terms. Any trademark license or assignment of trademark rights must be registered with SECOFI, for trademark registration. No previous use in commerce is required, and a simple affidavit is considered sufficient proof of use for renewal. Formal approval is no longer necessary in franchise agreements, including the transfer of technical and managerial know-how. The tridimensional form is recognised as a trademark and protection is granted to collective trademarks.

The LDA, as amended in December 1996, recognises copyright in literacy, scientific, technical, juridical, pedagogical, photographic, pictorial, musical, architectural and cinematographic works, and expressly recognises computer software as a copyrightable work. Mexico is a signatory of the Universal Copyright Convention and the Bern Convention.

The Law does not require works to be registered in Mexico to secure copyright protection. It establishes an optional registration procedure. Computer software may be registered by depositing the first and last ten pages of a written version of the source or object code with the Copyright Office.

The civil remedies for copyright infringement include damages and injunctive relief. The amount of damages is not limited by statute. Copyright infringement is also a criminal offence under Mexican law.

The LPI also repealed the Transfer of Technology Law and its regulations. With the abrogation of that Law, parties may now freely negotiate technology agreements in Mexico.

The Law expressly addresses industrial and trade secrets and imposes civil and criminal sanctions against persons who, without authorisation, disclose them. Unauthorised disclosure exclusive of information belonging to government authorities and the approval of marketing pharmaceutical and agricultural chemical products manufactures from new chemical substances will be severely penalised.

Mexico is a member of the World Intellectual Property Organization (WIPO), and the World Trade Organization (WTO). Moreover, NAFTA grants a far-reaching protection of intellectual property rights in the country. In fact, NAFTA’s Chapter XVII, is reflected in Mexico’s LPI.

In addition, within the ongoing modernisation process, in January 1995 Mexico adhered to the Patent Cooperation Treaty (PCT), in line with its main trading partners. As part of this treaty, foreign companies can file for patent protection in Mexico, from their national or regional patent offices.

Foreigners account for 90% of patent applications filed in Mexico, and 98% of all foreigners filing for a patent in Mexico are from PCT countries.

These countries are Mexico’s major trading partners and central source of investment and technology. Besides, patent applicants filing in other PCT countries can specifically request protection in Mexico in their applications. In the first half of 1996, Mexico was designated in more than 12,000 applications, and approval is expected to be granted for a further 6,000 to 8,000.

The government of Mexico and its agencies recognise the importance and foreign-exchange generation potential of the world market for conventions, congresses, fairs and exhibitions, today such activities form an integral and economically valuable part of the Mexican life.

International Conventions and Congresses are generically taken to mean conferences, symposiums, meetings and similar events whose purpose is to bring together nationals and foreigners who share common interests in a given field or subject on pre-established dates.

International exhibitions are taken to mean private or public shows or exhibitions organised in order to sell products or services. This term includes:

• Professional exhibitions, that are shows or exhibitions of a private nature held in conjunction with a convention and exclusively for those attending, and
• Commercial or Industrial exhibitions: semiprivate or public shows or exhibitions organised professionally by companies, associations or individuals for the purpose of selling their products or services.

Trade fairs are numerous in Mexico, and Canadian participation in them is increasing. Several Canadian trade missions are now in progress. Missions are organised by SECOFI, Bancomext and by some private-sector associations.

To facilitate the entry of foreign investors, officials, professionals and/or technicians involved in any financial or economic activity in Mexico, authorities in Mexican Consulates abroad are empowered to issue the corresponding visas. Citizens or legal permanent residents of Canada may remain in Mexico for a maximum period of 30 days by obtaining the FMN immigration form, free of charge. This form is extended to "business visitors", "directors", "technicians" and "transferred personnel". The characteristics and requirements of this visa are as follows:

A person looking for investment opportunities, or to carry out direct investment without an employment authorisation must present:

• proof of citizenship;
• documentation demonstrating that the person will be so engaged and describing purpose of entry; and;
• evidence that the activity is international in scope and that the person is not seeking to enter the local labour market

A person involved in substantial trade of goods, services or investments will be granted temporary entry if she or he:

• carries on substantial trade in goods, services or investments principally between the two countries;
• establishes, develops or provides advice or key technical services related to the operation of a substantial investment

These are foreigners hired by any parent company, subsidiary or affiliate aiming to perform managerial, executive or consulting duties in a Mexican company or who provide specialised knowledge on the activities of such company. A person employed by an enterprise that seeks to render services to that enterprise will be granted temporary entry. Authorities may require that the person be employed continuously by the enterprise for one year within the three-year period immediately proceeding the application date for admission.

A person seeking to facilitate the exercise of a remunerated activity in any given company, private or public must present:

• proof of citizenship, and
• documentation demonstrating that the person will be so engaged and describing the purpose of entry.

Each NAFTA country shall grant temporary entry to a businessperson that complies with existing immigration measures applicable to temporary entry.

The FMN Form may also be obtained directly from immigration personnel at any port of entry in Mexico, upon presentation of these documents. Before the 30-day term is over, visitors who require a longer stay may apply for an FM3 non-immigrant visitor form, issued by the National Immigration Institute. The FM3 form authorises the performance of uncompensated activities in the country for up to one year, to be renewed subject to payment of the corresponding duties.

This authorisation will be issued, in most cases, depending on the submitted criteria:

1. Must invest a minimum of the equivalent of 40,000 days of minimum wage in Mexico City ($30.20 pesos), which may consist of shares, social participation or certificates of participation, fixed assets or rights as beneficiary through economic activities.
   
   
2. Must obtain the consent of the National Registry for Foreign Investment. (Comisión Nacional de Inversión Extranjera).
   
   
3. Obtain a formal letter indicating the number of partners and their participation in the company.
   • For companies already organized a certified or comparable copy of corporate charter is necessary. For non-organised companies, a copy of corporate charter should be submitted.
   • A plain copy of the last monthly or annual income tax return of companies already organized.

   
   

4. Must have authorization from the Department of External Affairs of Mexico.
   
   
5. Must present the original receipt of the deposit made before the National Financial Trust (Nacional Financiera).
   
   
6. Hold a photocopy of the passport.
   
   
7. Possess a certificate of good behavior issued to the applicant and spouse by the local police.
   
   
8. Possess a photocopy of the birth certificate of each family dependent.
   
   
9. Possess a photocopy of the marriage certificate (if married).
   
   
10. Indicate in the application where the company intends to establish itself and what kind of industry it will operate. The location of the Consulate or Embassy where the documentation will be processed and name of the port of entry that will be used to enter Mexico.

The preceding requirements (a, b and 7,8, 9) outline the necessity of having these documents duly legalised by the Consulate or Embassy of Mexico in the respective jurisdiction and their translation into Spanish by a language expert.

These documents must be sent to Mexico in order for your associates to request the authorisation from the Immigration Office. If it is approved, they will notify the Mexican Embassy or Consulate to issue the visa.

If the individual decides to change his or her Immigration status in Mexico, the Embassy or Consulate can issue an FM3 (one year, multiple entries). For this, it is necessary to present the above mentioned documents, fill out an application form, present a valid passport, provide two pictures and pay the requisite fee (inquire).

Please call your nearest Mexican Consular Office for an appointment.

To the foreigner who wishes to make a capital investment in industry, commerce and services or other economic activities that contribute to the economic and social development of the National Territory, the following applies:

NON-IMMIGRANTS: Minimum investment must be equivalent to 26,000 days of the current, daily minimum wage in Mexico City. At present, (January, 1998) it is $30.20 pesos.

Documents submitted with the petition include:

• Certification issued by the National Registry of Foreign Investments, or the deeds indicating that the minimum investment is equivalent to 26,000 days of the current, general minimum wage in Mexico City.
• A certified copy of the Corporate Charter of the company;
• A certification issued by a Notario in which the corporate name, corporate purposes and domicile of the company are documented;
• A plain copy of the last tax return; and
• A certification issued by the National Registry of Foreign investments of its registry at the Chamber, association or corresponding entity.

When the investment consists of the acquisition of real estate, it is necessary to produce the public instrument in which the purchase sale or the trust agreement is noted. The foreigner will be entitled to all rights as beneficiary for a minimum amount equivalent to 40,000 days of current minimum wage in Mexico City.

For companies already incorporated in Mexico, a plain copy of the Corporate Charter and of the minutes of the shareholders' meeting must be included, in which the increase of capital or, as in this case, the acquisition of the shares by a foreigner is acknowledged.

To organize a new company, an application detailing the capital stock of the company, the amount of the investment, the corporate name, and the purposes and domicile of the foreigner must be presented.

As a general rule, professionals who practice in Mexico are required to be Mexican by birth or naturalisation: to possess a degree legally granted and duly registered; and to obtain a license to practice, from the General Administration of Professions.

The law, further, provides that foreigners and Mexicans by naturalisation who possess a degree in any of the professions covered by law, may only be: professors in specialities which are not yet taught or in which they show undeniable and marked competence in the opinion of the General Administration of Professions; consultants or instructors engaged in the establishment, organisation or installations of institutions of civil or military instruction, or laboratories or institutes of essentially scientific character, and technical directors in the exploitation of natural resources of the country, within the limitations established by the Federal Law and other relative laws.

The pursuit of these limited activities as granted to foreigners and to naturalised Mexicans, is in every case of a temporary character and subject to any conditions, which the Executive may impose. The Immigration Office may authorise the entry of foreign professionals into national territory only in accordance with these provisions.

The employment of foreigners in Mexico is restricted. The Immigration Laws provide that no foreigner may be accepted for work, unless it is shown to the entire satisfaction of the Central Immigration Office in Mexico City (Secretaría de Gobernación) that there is no Mexican National available for that type of work.

There are, however, some enterprises which are in need of persons with training that still are not available in Mexico and, such being the case, the Immigration Office grants the necessary permit to the employer in Mexico for the admission of such aliens.

Persons being remunerated in Mexico by Mexican firms will need to procure either an FM3 or FM2, based on the length of the work term in Mexico. The Mexican firm will apply for the FM3 or FM2 through the "Secretaría de Gobernación" in Mexico. An FM3 can be renewed upon expiry and an FM2 must be renewed annually.

It is important to remember that contracts or other legal documents signed in Mexico by persons who have not obtained the proper status for the purpose of doing business in Mexico, in other words, business people or individuals conducting business in Mexico who are not in possession of a FM3 or FM2, may not be considered to be legally binding by the parties concerned

The documentation required to obtain a FM3 will include:

• an application,
• two pictures of the individual,
• a valid passport,
• a letter from the employer specifying what the person's activities will be while in the country and by whom that person will be remunerated, and
• payment of a permit fee.

The fee that accompanies a FM3 may vary. The fee to obtain a FM3, in the case of someone who is working for remuneration on a specific job in Mexico, is currently US $119.00. A person travelling to a business meeting in Mexico or attending a trade show will pay only US $73.00 for an FM3. Any Mexican consulate general office will receive the applications and issue the FM3.

It is the employer, and not the individual, who must make the formal request for a FM2 through the Secretaría de Gobernación, the Secretariat of the Interior, in Mexico City.

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