Volume 6, Number 3, Page 3

Mexico's Foreign Investment Law and the Foreign Investments National Registry

By Barrera Siquieros y Torres Landa S.C

Introduction:

Five years after the Mexican Foreign Investment Law (FIL) was passed, specific provisions (or "Regulations") of the Foreign Investment Law and the Foreign Investments National Registry were published in the Federal Official Gazette of September 8, 1998, and became effective October 7 of 1998. The new law and Registry replace the Law to Foster Mexican Investment and Regulate Foreign Investment, which had been in force since 1989.

The Law to Foster Mexican Investment and to Regulate Foreign Investment created a restrictive legal framework with unforeseen obstacles to the economic development of Mexico. Although the law marked liberalized conditions for foreign investment, some of its mechanisms conflicted with the provisions of other regulations.

The FIL has achieved the goal of clearly defining the deregulation of foreign investment and consolidated a policy of more open markets that Mexico adopted at the end of the past decade. The FIL provided for (in the Fourth Transitory Article) a continuation of the standing provisions until new mechanisms for the implementation of the FIL were issued. The regulations implementing the FIL have now been issued.

The Regulations:

The purpose of the regulations is set forth as follows:

a) To define the legal concepts governed by the FIL, including what constitutes a majority of foreign capital, foreign investment participation, activities subject to foreign investment participation limitations or restrictions and the determination of real properties destined for housing and non-housing activities;

b) Establish in a concise, detailed and orderly manner the procedures and requirements that must be ful-filled in order to legally perform any of the activities subject to specific regulation by the FIL.

c) Supervise the authority and operation of relevant regulatory agencies, fundamentally the Foreign Investment National Commission (FINC) and the Foreign Investments National Registry (FINR); and

d) To establish the provisions of general application and periodic obligations for those persons subject to registration with the FINR: (1) Mexican companies with foreign investment participation; (2) foreign individuals or entities that regularly perform commercial transactions in Mexico; (3) trust agreements dealing with shares or equity parts whereby rights are granted in favor of foreign investors.

The Scope of the Regulation's Application:

The new regulations are comprehensive in scope and specifically define the procedures for foreign investment in Mexico as well as the areas in which the FIL applies.

The general topics governed by the Regulations are as follows:

a) Activities reserved for the State or that have specific limitations on foreign investment;

b) The acquisition of real estate for housing and non-housing purposes within the Mexican Republic;

c) The exploration and exploitation of mines and waters with the Mexican Republic;

d) The creation of Trust Agreements with respect to real estate in the restricted area;

e) The creation and modification of Mexican companies;

f) Establishment of branch offices or representative offices of foreign legal entities;

g) Foreign Investment participation through neutral investment; and

h) The authority and operation of the FINC and the FINR

The Regulations also indicate with new clarity the procedures for securing permits and for the submission of required notices with the Ministry of Trade and Industrial Promotion ("SECOFI") and/or the Ministry of Foreign Affairs ("SRE"), as the case may be.

Compliance with Legal Obligations to the FINR:

In order to obtain annual renewal of the FINR registration certificate, “corporate, accounting, financial, employment, production and other data regarding the activity in each establishment” must be filed with the Registry. According to the Regulations, such reports must be submitted within the seven months following the close of each fiscal period.

The Regulations also impose an obligation to file “data to determine the value of revenue and expenses” derived from: (1) new investments or their withdrawal not affecting capital stock; (2) the withholding of the last fiscal period earnings and distribution of accumulated retained earnings; or (3) outstanding loans. Submission of this information to the FINR must be made within the twenty business days following the close of each quarter in cases where the revenue or expenses of the corporation or individual quarterly exceed the equiva-lent of three thousand times the minimum wage of Mexico City.

Acquisition of Real Estate and Trust Agreements:

With respect to the purchase of real estate within the restricted zone by foreign

individuals or legal entities, the Regulations indicate that such purchases are defined by how the real estate is to be used either for housing or non-housing purposes. The Regulations list specific examples to determine housing or non-housing purposes.

The legal structure under which foreigners may acquire real estate is through a Trust Agreement; the Regulations now include specific requirements for setting up such a structure. This particular mechanism assures that only Mexican companies are allowed access to real estate used for housing purposes, whereas foreign individuals or legal entities may only directly acquire real estate for non-housing purposes.

Conclusions:

In general terms the Regulations result in a legal tool that allow a full and complete understanding of the requirements and guidelines in any procedure regarding foreign investment. Likewise, the Regu-lations complete the provisions of the FIL, providing additional detail and specification of the legal concepts governed by that statute.

Barrera Siquieros y Torres Landa S.C is a law firm located in Mexico City. They can be contacted at bstlmex@mail.internet.com.mx