2022 INVESTMENT POLICY AND REGULATORY REVIEW Mexico © 2022 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. 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Photo Credits: Shutterstock.com TABLE OF CONTENTS ACKNOWLEDGEMENTS 2 GLOSSARY 3 1. INTRODUCTION 5 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK 7 A. Domestic Legal Instruments Regulating Foreign Investment 7 B. International Legal Instruments Regulating Foreign Investment 8 C. Key Institutions for Investment Promotion 11 D. Foreign Investment Promotion Strategy 12 3. INVESTMENT ENTRY AND ESTABLISHMENT 13 4. INVESTMENT PROTECTION 17 5. INVESTMENT INCENTIVES 19 6. INVESTMENT LINKAGES 20 7. OUTWARD FOREIGN DIRECT INVESTMENT 21 8. RESPONSIBLE INVESTMENT 21 9. CITY SPECIFIC REVIEW—MEXICO CITY 22 10. FDI IN THE DIGITAL ECONOMY 23 ENDNOTES 30 LIST OF REFERENCE MATERIALS 32 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO |1 ACKNOWLEDGEMENTS The report was prepared by a core team led by Legal research for the preparation of this report was Priyanka Kher comprising Peter Kusek and carried out by the international law firm Kilpatrick Maximilian Philip Eltgen. The report benefited from Townsend & Stockton LLP, in collaboration with a valuable inputs and support from Rafael Munoz country-based law firms. Moreno, Esperanza Lasagabaster, Karim Omar Lara Ayub, Jose Ernesto Lopez Cordova, Daniela The team would like to thank Aichin Jones for Gomez Altamirano and Yago Aranda-Larrey. The providing design, layout, and production services. team would like to thank Asya Akhlaque, Yira J. The report was prepared under the Analyzing Mascaro and Ivan Nimac for their guidance. The Barriers to Investment Competitiveness Project, team is also grateful to the Ministry of Finance and supported with funding from the Prosperity Fund Ministry of Economy of the Government of Mexico of the United Kingdom. for their valuable inputs. | 2 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO GLOSSARY BIT Bilateral Investment Treaty CONAMER Regulatory Improvement Commission CPC Central Product Classification CPTPP Comprehensive and Progressive Agreement for Trans-Pacific Partnership CSR Corporate Social Responsibility DTAA Double Taxation Avoidance Agreements FDI Foreign Direct Investment FET Fair and Equitable Treatment FIL Foreign Investment Law FONDESO Trust for the Social Development of the City GATS General Agreement on Trade in Services ICS Investment Court System ICSID International Centre for Settlement of Investment Disputes IIA International Investment Agreement IMF International Monetary Fund IPR Intellectual Property Rights IPRR Investment Policy and Regulatory Review ISDS Investor-State Dispute Settlement L/C Letter(s) of Credit MFN Most-Favored Nation NAFTA North American Free Trade Agreement NMX Mexican Voluntary Standards NRFI National Registry of Foreign Investment NT National Treatment OFDI Outward Foreign Direct Investment PEMEX Petróleos Mexicanos SCM Agreement on Subsidies and Countervailing Measures SEDECO Economic Development Ministry SOE State-Owned Enterprises TIP Treaty with Investment Provision 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO |3 TRIMs Agreement on Trade-Related Investment Measures TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights UNCTAD United Nations Conference on Trade and Development USMCA United-States-Mexico-Canada Agreement VAT Value-Added Tax WTO World Trade Organization | 4 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 1. INTRODUCTION This Investment Policy and Regulatory Review designated local counsel, under the supervision (IPRR) presents information on the legal and of the World Bank Group. The research was regulatory frameworks governing foreign primarily based on a review of currently applicable direct investment (FDI) that affect businesses policies, laws and regulations. In some cases, and foreign investors in Mexico. Since legal and consultations with regulators were conducted to regulatory frameworks are constantly evolving, a collect up to date information. cut-off date was set for the research. This country review therefore covers information available as of The research was guided by a standardized December 31, 2021, unless otherwise indicated in questionnaire, covering a limited set of the review. IPRRs are available for the following topics, including foreign investment entry, middle-income countries (MICs): Brazil, China, establishment, protection and select dimensions India, Indonesia, Malaysia, Mexico, Nigeria, on FDI in the digital economy. The questionnaire Thailand, Turkey, and Vietnam. focused on de jure frameworks as generally applicable to a foreign investor, not located in any The research for preparing this IPRR was specialized or preferential regime (such as special undertaken by the international law firm economic zones). It primarily focused on national, Kilpatrick Townsend & Stockton LLP and economy-wide (rather than sector-specific) laws Figure 1. Overview of Topics Covered in IPRR ■ Key institutions for investment policy/rule making, implemention and FDI promotion ■ Key legal instruments ■ FDI Restrictions ■ Transparency/consultation in laws and ■ IPRs ■ Intermediate Liability Main Policy & regulations ■ Data Governance Legal Instruments ■ Content Access and Institutions ■ E-commerce ■ Prohibited and Restricted FDI in Digital Investment Entry Sectors ■ Equity ceiling Economy and ■ Minimum investment Sectors Establishment requiremeent ■ FDI approval IPRR ■ R&D, local sourcing, Questionnaire employment, quantitative, geographic, export ■ Schemes to Increase Other Areas Local Sourcing and (Linkages, OFDI, Investment Build Capacity of Local Responsible Protection Suppliers Investment) ■ Restrictions on OFDI ■ Expropriation ■ Transfer of currency Investment ■ Dispute Settlement Incentives ■ Fair administrative conduct ■ Source of Tax and financial incentives ■ Accessibility of tax and financial incentives 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO |5 and regulations. For the purpose of the research, it This IPRR is organized as follows: was assumed that the foreign investor is a private multinational company with no equity interest or n Section 2 provides an overview of the country’s management control by the government of its home investment policy framework, including the country (that is, not state-owned enterprise). legal instruments regulating foreign investment, key institutions involved in investment There are aspects that this IPRR does not cover. promotion, as well as the country’s foreign It is not a comprehensive review of the entire legal investment promotion strategy; it also delineates and regulatory framework affecting investment. the country’s international investment legal Information presented is not exhaustive, but framework, including the country’s commitments illustrative of the main topics and issues covered (for under the World Trade Organization (WTO) example, it does not exhaustively list all available and select international investment agreements tax and financial incentives in the country). It does (IIAs); not present recommendations on reform areas. Notably, it does not capture de facto implementation n Sections 3-6 cover the country’s policies and of laws and regulations in the country. Given these domestic legal framework concerning different limitations, information presented in this IPRR dimensions of the lifecycle of an investment: should be interpreted and used while keeping in entry and establishment (Section 3), protection view the overall country context and realities. (4), incentives (5) and linkages (6); Further, it contains information in summary form n Sections 7-8 explore emerging investment and is therefore intended for general guidance only. policy and regulatory areas — Section 7 It is not intended to be a substitute for detailed legal considers outward FDI and Section 8 responsible research. investment; n Section 9 focuses on city-specific investment policy and regulatory measures in the largest commercial center; and n Section 10 focuses on FDI in the digital economy. | 6 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK A. Domestic Legal Instruments expropriation; and iii) equal treatment for foreign Regulating Foreign Investment and national citizens. Mexico has a foreign direct investment (FDI) The FIL superseded the prior Law to Promote law that governs foreign investment. In addition Mexican Investment and Regulate Foreign to this law, sector specific laws and bilateral and Investment of 1973 (Ley para Promover la international agreements also regulate FDI in the Inversión Mexicana y Regular la Inversión country (alongside the general legal framework that Extranjera) (1973 Law) as the main law governing applies to all businesses). investment, shifting emphasis to the promotion of foreign investment. The 1973 Law had been focused on investments by the Mexican government FDI Law and Regulation and Mexican nationals rather than the promotion of The primary legislation governing FDI in foreign investment in Mexico. Thus, under that law, Mexico is the Foreign Investment Law of 1993 foreign investors faced several hurdles with respect as amended (Ley de Inversión Extranjera) (FIL) to investing in Mexico, such as a statutory limit of and its implementing regulation, the Regulation 49% of participation in any Mexican company, and of the Foreign Investment Law and the Foreign even lower thresholds in some industries, such as Investment National Registry of 1998 as amended the exploration of mines and quarries, secondary (Reglamento de la Ley de Inversión Extranjera y products from the petrochemical industry, and del Registro Nacional de Inversiones Extranjeras). fabrication of automobile components. In 1993, the The FIL expressly states that a foreign investor Mexican Congress approved and enacted the FIL may participate in any portion in the capital of to facilitate foreign investment in most sectors and Mexican companies, acquire fixed assets, enter target economic growth through the promotion of new fields of economic activity or manufacture new foreign investment in the country. product lines, open and operate establishments, and expand or relocate existing establishments, except Sector Specific Laws as otherwise provided in the FIL. Therefore, as a general rule the FIL permits foreign investors to Foreign investors are also subject to sector- hold up to 100% of the capital stock of any Mexican specific laws and regulations depending on the corporation or partnership, except in the few areas sector in which the investment is contemplated. expressly subject to limitations under the FIL (discussed in sections below). Under the FIL, foreign Public Access to Foreign Investment investment is defined as (i) the participation in any Laws and Policies percentage by foreign investors in the corporate The Mexican Federal Constitution obligates the capital of Mexican entities, (ii) investments by Congress and the President of Mexico to publish Mexican companies controlled, in its majority, all laws and regulations, and amendments by foreign investors, or (iii) the participation thereto, in the Official Federal Gazette (Diario by foreign investors in the activities and sectors Oficial de la Federación). The official website of specified in the FIL. Regardless of the industry or the Federal Gazette contains up-to-date information sector, the FIL requires all foreign investment to be of the new laws and regulations, as well as reforms registered with the National Registry of Foreign to such laws and regulations. Every state has its Investment (NRFI) for statistical purposes. The FIL own Official Gazette in which new state laws and embodies three main principles: i) most-favored reforms to state laws are published. nation treatment; ii) fair price and due process for 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO |7 Consultation with Stakeholders commitments in their domestic legal framework to ensure consistency as well as to monitor their Regulatory impact assessments, public compliance. consultations and stakeholder engagement on draft regulations are mandatory for all Having been a member of the World Trade regulatory proposals and primary laws coming Organization (WTO) since 1st of January 1995, from the executive. The 2018 General Law of Mexico has commitments under several WTO Regulatory Improvement (Ley General de Mejora Agreements. Under the General Agreement on Regulatoria) creates the Regulatory Improvement Trade in Services (GATS), Mexico grants rights Commission (CONAMER) in charge of issuing to services suppliers from other WTO member guidelines and tools that give access to bills, prior countries. This includes services supplied through to their publication, to stakeholders who can then commercial presence (defined as establishment of issue non-binding comments on the draft bills. a territorial presence), in other words through FDI. These rights are granted through commitments B. International Legal Instruments undertaken in “schedules”. The “schedules” list sectors being opened, the extent of market access Regulating Foreign Investment being given in those sectors (for example, whether Mexico has undertaken legally binding there are any restrictions on foreign ownership), international investment commitments through and any limitations on national treatment (whether a variety of international investment agreements some rights granted to local companies will (IIA) and other agreements directly affecting foreign not be granted to foreign companies). Mexico investments — signed at the bilateral, plurilateral has made commitments on market access and and multilateral level. These commitments cover national treatment in 10 out of 12 services areas such as the establishment of investments, their sectors that feature in the WTO Classification1: protection and the avoidance of adopting investment (i) Business services, (ii) Communication services, measures which may distort trade, among others (see (iii) Construction and related engineering services, Table 1). It is important for Mexico to reflect these (iv) Distribution services, (v) Educational services, Table 1. Mexico’s International Investment Framework Agreement(s) as Basis of Commitments Type of Agreement Investment Policy Dimensions Covered WTO GATS Agreements Multilateral Entry and Establishment WTO TRIMs Agreement Multilateral Entry and Establishment, Incentives WTO SCM Agreement Multilateral Incentives WTO TRIPS Agreement Multilateral Protection Treaties with Investment Provisions Plurilateral or Bilateral Entry and Establishment, Protection (16 signed, 15 in force) (incl. dispute settlement), Incentives Bilateral Investment Treaties Bilateral Protection (incl. dispute settlement), (34 signed, 31 in force) Incentives International Centre for Settlement of Multilateral Protection (Dispute settlement) Investment Disputes (ICSID) Convention Convention on the Recognition and Multilateral Protection (Dispute settlement) Enforcement of Foreign Arbitral Awards (New York Convention) IMF “Articles of Agreement” Multilateral Protection (Art. VIII Acceptance) Double Taxation Avoidance Agreements Bilateral Taxation (60 treaties in force) Source: World Bank Analysis | 8 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO (vi) Financial services, (vii) Health related and with Investment Provisions (TIPs) of which 15 social services, (viii) Tourism and travel related are in force (see UNCTAD Investment Policy Hub). services, (ix) Transport services, and (x) Other The latter category comprises treaties that include services not included elsewhere In these 10 sectors, obligations commonly found in BITs (for example Mexico has made partial commitments for specific a preferential trade agreement with an investment services in 31 sub-sectors. “Partial” means that chapter). Table 2. provides an overview of select although commitments have been made, there are IIAs: Mexico’s IIA with the largest home country still limitations/reservations, which may differ in measured by that country’s share in Mexico’s their restrictiveness. For example, they may be total FDI stock (Agreement between the United more restrictive by limiting the equity contribution States of America, the United Mexican States, and of the foreign investor, or less restrictive by merely Canada/USMCA, 2018), an IIA with expansive requiring foreign service suppliers to become a regional coverage (Comprehensive and Progressive member of a union chamber. Across all sectors, Agreement for Trans-Pacific Partnership, CPTPP, Mexico has reserved the right to deviate from 2018) as well as its latest IIA (Hong Kong, China national treatment commitments to grant research SAR – Mexico BIT, 2020). The table shows that and development subsidies and incentives to generally the main protection guarantees are small enterprises owned by Mexican nationals. In provided in the reviewed agreements, but investor- addition, under GATS every member is obligated State dispute settlement under the USMCA is to unconditionally extend to service suppliers of all limited. other WTO members Most-Favored Nation (MFN) Treatment. However, Mexico has made reservations Compared to the 1994 North American in that regard – it reserves differential treatment of Free Trade Agreement (NAFTA), USMCA’s service providers from the United States of America investment chapter curtails investor-state in specific tourism and travel related services as dispute settlement (ISDS). Recourse to ISDS is not well as in road transport services. available between Canada and Mexico (although access to ISDS is available under CPTPP). Between Under the WTO Agreement on Trade Related Mexico and the United States, the USMCA includes Investment Measures (TRIMs), Mexico has a 30-months local remedies requirement and strictly committed to not apply certain investment circumscribes the substantive provisions subject to measures that restrict or distort trade (local ISDS. Access to ISDS is available only in alleged content requirements, trade balancing cases of a breach of national treatment, most- requirements, foreign exchange restrictions and favored-nation treatment, or direct expropriation. export restrictions). These measures are prohibited However, a special regime is provided for resolving both when the obligation for the foreign investors disputes through ISDS for government contracts is mandatory and when it is tied to obtaining an in “covered sectors.” Covered sectors include oil advantage (that is, an incentive). Incentives are and gas, power generation, telecommunications, further regulated by the WTO Agreement on transportation and infrastructure. Investors who are Subsidies and Countervailing Measures (SCM), parties to a “Covered Government Contract” are which among others prohibits certain types of export granted minimum standard of treatment, protection subsidies. Under the WTO Agreement on Trade- against risks of indirect expropriation and transfer, Related Aspects of Intellectual Property Rights and exemptions from the requirement to commence (TRIPS), foreign investors’ intellectual property legal proceedings in national courts as a prerequisite rights are protected. In case of a violation of any of before initiating investment arbitration. its WTO commitments, Mexico may be sued under the WTO dispute settlement mechanism. Some of Mexico’s reviewed IIAs contain commitments to liberalize. Both USMCA and Mexico has further entered into obligations CPTPP include such commitment, granting national through international investment agreements treatment and MFN in the pre-establishment phase. (IIAs) – it has signed 34 Bilateral Investment In both cases, the treaty partners make reservations: Treaties of which 31 are in force, and 16 Treaties Annex I lists measures that do not comply with 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO |9 Table 2. Comparison of Mexico’s Select IIAs Largest Home Country Latest IIA (date of signing): Expansive Regional IIA (% of total FDI stock): Hong Kong, China SAR - Coverage IIA (highest Agreement between the Mexico BIT (2020) number of members): United States of America, Comprehensive and the United Mexican States, Progressive Agreement and Canada (USMCA) for Trans-Pacific (2018) (USA (in force)) Partnership (CPTPP, 2018) Scope of Application Covers pre-establishment Yes No Yes Exclusions from scope No No Government procurement, Subsidies or grants (both for NT, MFN) Standards of Treatment National Treatment (NT) Pre- and post-establishment Post-establishment Pre- and post- establishment Most-Favored-Nation Pre- and post-establishment Post-establishment Pre- and post- Treatment (MFN) establishment Fair and Equitable Yes Yes Yes Treatment (FET) Full Protection & Security Yes Yes Yes Expropriation Direct and indirect Direct and indirect Direct and indirect expropriation, payment of expropriation, payment of expropriation, payment of compensation compensation compensation Rights to Transfer Funds Yes Yes Yes Prohibition of TRIMs+ (Prohibiting a larger No TRIMs+ Performance number of performance Requirements requirements than in TRIMs) Dispute Resolution State-State Dispute Yes Yes Yes Settlement Investor-State Dispute Yes, but limited to Mexico- Yes Yes Settlement US, and to claims based on post-establishment NT or MFN, as well as direct expropriation (except for investment disputes related to covered government contracts) Source: World Bank Analysis based on IIAs obtained from United Nations Conference on Trade and Development (UNCTAD) Investment Policy Hub the commitments, and Annex II lists sectors and other party’s market will automatically be locked- activities in which countries may maintain existing, in under the Agreement and therefore cannot or adopt new or more restrictive, measures. The subsequently be made more restrictive. In addition, two agreements also contain “standstill” and the two agreements further include a prohibition “ratchet” mechanisms, which ensure that any on performance requirements. The provision goes future regulatory or legal change that makes it beyond TRIMs in scope and includes a higher easier for investors from one party to access the | 10 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO number of performance requirements that are C. Key Institutions for Investment prohibited (a so-called TRIMs+ standard). Promotion In April 2020, Mexico concluded negotiations Before the current administration took office, with the EU on a new trade agreement, ProMéxico was the main foreign investment including rules on investment. This agreement promotion agency to facilitate foreign includes a substantive procedural reform: Instead investment into the country as well as outbound of conventional investor-state dispute settlement investments, including Mexican exports. Formed (ISDS) through investment arbitration, a so-called in 2007, ProMéxico had offices in 31 countries. In investment court system (ICS) is introduced. The April 2019, the current administration officially investment court system consists of a first instance dissolved ProMéxico and set up a coordination tribunal and an appeal tribunal. Party-appointed strategy between the Ministry of Foreign Affairs arbitrators (selected by the disputing parties) are and the Ministry of Economy to attract foreign replaced by tribunal members appointed by State investment. Parties, assigned to specific cases on a rotational basis. National Level Institutions Mexico is participating in WTO negotiations The National Foreign Investment Commission on an agreement on investment facilitation (Commission) established under the FIL is a for development. The aim of the agreement is government body reporting to the Ministry to improve the investment and business climate, of Economy. The Commission is comprised by improving transparency, efficiency, and of the Ministers of Government; Foreign effectiveness of investment-related administrative Affairs; following Treasury and Public Finance: procedures. This agreement will not cover Social Development; Environment and Natural market access, investor protection and ISDS. In Resources; Energy; Economy; Communications December 2021, Mexico together with 111 other and Transportation; Labor and Social Welfare; WTO members co-sponsored a Joint Statement on and Tourism, who may appoint a Sub-Secretary as Investment Facilitation for Development, stating an alternate. The Commission may invite private the objective to conclude text negotiations by the and social representatives, subject matter experts end of 2022. and stakeholders to participate (but not vote) in Mexico is a member of treaties covering its sessions. The Minister of Economy chairs the investment arbitration. It is a member of the Commission and has an Executive Secretary and Convention on the Recognition and Enforcement a Committee of Representatives for its operation. of Foreign Arbitral Awards of 1958 (New York The Committee of Representatives is comprised Convention) and the ICSID Convention that of the civil servants appointed by each of the facilitate the enforcement of arbitral awards. It has Ministers who sit on the Commission, is mandated been a respondent in 35 publicly known investor- to meet at least once every four months and has the State arbitrations. Nine of these disputes have been authority delegated to it by the Commission. The decided in favor of the investor, ten in favor of Commission is mandated to meet at least twice a Mexico, three have been discontinued, one settled, year and decide upon the issues within its scope by and twelve are currently pending. a majority vote. In case of a draw, the Chairman of the Commission has a casting vote. Acceptance of Art. VIII of the IMF Articles Agreement requires Mexico to maintain current The FIL empowers the Commission with the account convertibility, enabling investors to following authority: transfer certain payments related to their n To issue political guidelines on foreign investments. Mexico is also party to 60 Double investment matters and to design mechanisms to Taxation Avoidance Agreements (DTAAs) that promote foreign investment in Mexico; are in force, influencing its ability to tax foreign investors and investments. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 11 n To resolve, through the Ministry, issues on the promotion activities, which are part of each state’s viability and, as the case may be, on the terms government, including, amongst others: and conditions for the participation of foreign investment in activities or acquisitions with n The Sustainable Economic Development Ministry specific regulation, pursuant to Articles 8 and of the State of Guanajuato; 9 of the FIL (where FDI exceeds 49% or other n The Economic Development Ministry of Jalisco; specified thresholds); n The Ministry of Competition, Labor and n To be the mandatory consulting entity on foreign Economic Development of the State of Puebla; investment matters for governmental agencies and, and entities of the Federal Public Administration; and, n The Ministry of Economic Development of Nuevo León. n To establish the criteria for the application of legal and regulatory provisions on foreign n Aguascalientes, Chihuahua, Coahuila, Colima, investment, through the issuance of general Durango, Guanajuato, Jalisco, Michoacán, resolutions. Nuevo León and Tamaulipas formed the Invest in Mexico Facilitation Board (IMFB) agency, In addition to establishing guidelines and policies with the objective of positioning Mexico regarding foreign investment, the Commission is internationally to attract foreign investment. also in charge of granting all authorizations for FDI in Mexico, as further described in Section 3, below. These sub-national agencies have the objective of attracting business investments in the relevant state. The FIL also establishes the National Foreign Investment Registry (Registro Nacional de Inversion Extranjera) (Registry) and stipulates D. Foreign Investment Promotion the various subjects for registration with Strategy the Registry, including foreign investment The 2019-2024 National Development Plan in Mexico. The Registry is maintained by the (Plan Nacional de Desarrollo) published on July Ministry of Economy. All foreign investors and 12, 2019 in the Federal Official Gazette sets forth Mexican companies with foreign participation are the national objectives, strategy, and priorities subject to the registration and periodic reporting for Mexico’s development. The Plan defines the requirements. The main purpose of the Registry country’s strategy on different economic matters. is to account, track and pool the information it The National Plan is issued by each new President receives and prepare reliable, timely statistics at the beginning of his/her term pursuant to Article under international standards on FDI flows in 26 of the Federal Constitution. The President Mexico. Specific information about investors may amend the National Plan from time to time and investments registered with the Registry is during the presidential term. The main economic not publicly accessible except for statistical data objectives under the 2019-2024 National Plan are available through the Registry’s website portal. to stimulate growth, maintain the stability of public finances, and boost national and foreign private Sub-National Investment Promotion investment. Further, the “Programa Sectorial de Agencies Economía 2020-2024” specifically spells out the Mexico has a number of sub-national agencies government’s strategy regarding FDI. It emphasizes (that is, state government agencies) engaged the need to close gaps that exist among different in investment policy making as well as some regions to attract FDI. | 12 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 3. INVESTMENT ENTRY AND ESTABLISHMENT Market Entry and Sectoral Limitations For sectors and business activities not included in the FIL, the general position is that foreign The FIL expressly prohibits foreign investment in investors are accorded equal treatment as afforded certain sectors or business activities specifically to domestic investors and FDI is permitted without reserved for Mexican Government and for the restrictions, subject to applicable sector-specific participation of Mexican citizens or for Mexican and other laws and regulations. companies with a “foreigner exclusion” clause in their bylaws, pursuant to Articles 5 and 6 of the FIL (Prohibited Sectors). The “foreigner Prohibited and Restricted Sectors exclusion” clause defined in Article 2 of the FIL Table 3. lists the Prohibited and Restricted is an express agreement or covenant forming an Sectors based on the FIL. In Restricted Sectors integral part of the corporate bylaws prohibiting where less than 100% FDI is permitted, foreign the corporation to admit directly or indirectly any investors are (by implication) required to form joint foreign investors as partners or stockholders. ventures with a local partner. A foreign investor may not bypass the foreign equity restrictions The FIL further restricts foreign equity through mergers and acquisitions. participation in certain sectors and business activities set forth in Article 7 (Restricted Effective on May 5, 2021, Mexico passed changes Sectors). It also enumerates a handful of business to its Hydrocarbon laws, essentially reviving the activities set forth in Article 8 in which up to 100% dominance of the state-owned company Petróleos FDI is permitted, but any FDI beyond 49% requires Mexicanos (“PEMEX”) in the oil and gas the Commission’s prior authorization. sector. Among various changes, the Hydrocarbon Table 3. List of Major Prohibited and Restricted Sectors Prohibited Sectors Scope Reserved for Mexican Government Petroleum and Gas Exploration and extraction of oil and other hydrocarbons (subject to Note (a) below) Electricity generation and Planning and control of the national electric system, as well as the public services transmission of transmission and distribution of electricity Nuclear energy Generation of nuclear energy Mining and Quarrying Radioactive minerals Bank note issuing Bank note issuing Minting of Coins Minting of coins Ports Control, supervision and surveillance of ports, airports and heliports Telegraph n Telegraph n Radiotelegraphy Reserved for Mexican Nationals and Mexican Companies Logistics, Transport and Tourism Domestic land transportation for passengers, tourism and freight, not including messenger or courier services Banking Development banking institutions Services Rendering of professional and technical services 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 13 Restricted Sectors Scope and Foreign Equity Caps Cooperatives Up to 10% in cooperative companies for production Explosives and Firearms Up to 49% in manufacture and commercialization of explosives, firearms, cartridges, ammunitions and fireworks, not including acquisition and use of explosives for industrial and extraction activities nor the preparation of explosive compounds for use in said activities Printing and Publication Up to 49% in printing and publication of newspapers for circulation solely throughout Mexico Land Use Up to 49% in series “T” shares in companies owning land used for agriculture, livestock or forestry purposes Fishery Up to 49% in fresh water, coastal, and exclusive economic zone fishing not including fisheries Ports Up to 49% in integral port administration Port Services Up to 49% in port pilot services for inland navigation Shipping Up to 49% in shipping companies engaged in commercial exploitation of ships for inland and coastal navigation, excluding tourism cruises and exploitation of marine dredges and devices for port construction, conservation and operation Fuel Up to 49% in supply of fuel and lubricants for ships, airplanes, and railway equipment Broadcasting Up to 49%, subject to reciprocity with foreign investor country Air transport Up to 49% in scheduled and non-scheduled domestic air transport service; nonscheduled international air transport service in air taxi modality; and specialized air transport service. Sectors requiring Commission’s Scope — Foreign equity permitted up to 100% but above 49% requires approval Commission approval Port Services Port services to allow ships to conduct inland navigation operations, such as towing, mooring and barging Shipping Shipping companies engaged in exploitation of ships solely for high-seas traffic Public Air Transport Concessionaire or permissionaire companies of airfields for public service Education Private education services of pre-school, elementary, middle school, high school, college or any combination Services Legal services Railways Construction, operation and exploitation of general railways and public services of railway transportation Source: Analysis by Kilpatrick Townsend and Stockton based on country’s laws and regulations. Note: The table is based on a review of 32 specific sectors identified for the purpose of this research. The list of sectors is therefore not exhaustive 2. Note (a): While Petroleum and Gas is a reserved sector, private companies, both national and international, can compete for contracts to do exploration and production with lease from the National Hydrocarbons Commission. reform provides (i) greater regulatory control over These measures have been challenged in the the distribution, storage, import, and export of Mexican courts and implementation of the reforms fuels and oil, (ii) broad discretionary powers to has been stalled due to injunctions against them. regulators to suspend or refuse permits to private companies for reasons of national security, energy Similarly, the Electricity sector law reforms security, national economy, and for violations or were published in the gazette on March 9, 2021. non-compliances with the regulators’ requirements, Among other changes, these proposed reforms and (iii) PEMEX the right to take over facilities of grant dispatch preference to electricity generated by companies that lost permits without compensation. state-owned company Comisión Federal de | 14 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO Electricidad (CFE), strengthening the economic Quantitative Limits position of the CFE. These reforms were subsequently subject to constitutional challenge. There are generally no mandatory quantitative In September 2021 a constitutional reform bill to limits on the number of foreign service providers, eliminate energy regulators and grant absolute enterprises or market players that can operate power of the electricity sector to CFE was submitted in a given sector. to the parliament. Thereafter, Congress announced a series of public consultations (parlamento abierto) Restrictions on Expatriate Appointments on the reform bill to take place in early 20223. While there are no overarching limitations on the appointment of foreigners to the boards Restrictions on Non-Equity Contract of local companies, there are limitations on Based Investments appointments to key managerial and technical Generally, no special restrictions or conditions positions under sector specific laws. For example, are imposed on foreign investors with respect in the aviation sector, commercial pilots and flight to domestic investors as regards non-equity crew of commercial planes registered in Mexico contract-based investments such as franchising, must be Mexican by birth. outsourcing, licensing, and so on. Further, the Federal Labor Law (Ley Federal del Trabajo) in Article 7 states that all companies Forms of Establishment in Mexico must employ at least 90% Mexican workers. In addition, for technical and professional There is generally no special requirement or positions, the workers should be Mexican. If restriction on the type of local entity a foreign no Mexican candidates are available due to the investor may invest in or establish provided the specialty of such positions, the employer company necessary regulatory approvals are obtained. may temporarily hire foreign workers (but no more Foreign investors can hold any type of shares in a than 10% of workers with that specialty) and the Mexican company other than a company owning hiring company has the obligation of training land used for agriculture, livestock or forestry Mexican workers for such positions. In Article 154, purposes, in which cases up to 49% foreign equity employers are required to select Mexicans over is permitted. In such a type of company, foreign non-Mexicans for positions and promotions when investors can only hold series “T” shares. The “T” they are similarly qualified. stands for “Tierra” (Land) which indicates that the company was set up to hold farming/ranching land Medical doctors working for companies must be and the foreigners may acquire ownership of this Mexicans. These provisions do not apply to people series of stock (which Series does not exceed 49% hired in the positions of directors, administrators of the total corporate ownership/capital). Series and general managers and they do not count towards “T” shares are equivalent in value to the capital the prescribed percentage. contributed in agriculture, livestock or forestry land, or those funds destined for the acquisition of For a foreign national to work in Mexico, a work such land, depending on the value of the land at the permit and a visa must be obtained through moment of the contribution or acquisition. the National Migration Institute. The General Guidelines for the Issuance of Visas (Lineamientos Minimum Investment Requirements Generales para la Expedición de Visas) describe the rules to obtain work permits for foreign citizens Under Mexican law, there is no mandatory to work in Mexico. minimum investment requirement for FDI. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 15 Local Sourcing and R&D Requirements Policy provides clear guidelines on the process. FDI applications must be submitted to the Commission There is no overarching national level legal for approval with the necessary documentation requirement that subjects foreign investors and fees. to local sourcing requirements or local R&D investments in order to establish business in In evaluating the proposals, the Commission Mexico. However, technological contribution considers the following criteria (per Article 29): of foreign investors can be used as a basis for evaluating projects requiring approval by National n Impact on employment and training of workers Foreign Investment Commission (see below). n Technological contribution Foreign Investment Approval n Compliance with environmental provisions included in the ecological regulations governing FDI approval is required from the National the matter Foreign Investment Commission in the following cases: (i) if the contemplated foreign n Its contribution to increase the competitiveness investment exceeds 49% in a regulated sector of the country’s productive system. pursuant to Article 8 of the FIL (see Table 3), or if (ii) the foreign investment exceeds 49% of the Further, in determining whether to grant capital stock of a Mexican entity with an aggregate approval, the Commission is empowered to value of assets higher than the amount annually prevent acquisitions by foreign investors for determined by the Commission per Article 9 reasons of national security. Notably under (the threshold was increased to approximately Mex Article 29, the Commission can impose only $20,184,671,346.26 in May 2020). those conditions or requirements that do not distort international trade. The Commission has 45 In March 2020, the Ministry of Economy amended business days from the FDI approval submission the General Resolution Establishing The Criterion date to respond to the request. If the Commission For The Application Of Article 17 Of The Foreign fails to respond within the noted period, the FDI Investment Law Relating To The Establishment request is deemed approved as submitted. Of Foreign Moral Persons In Mexico, to eliminate the need for foreign legal entities organized in Under the FIL, all foreign investments, the World Trade Organization member nations whether subject to prior approval or not, to obtain an authorization from the Ministry of must be registered with the Registry within 40 Economy prior to creating a commercial presence business days from the date of the respective in the country, so long as their incorporation and incorporation, branch registration, acquisition formation documents are not contrary to public or execution of the relevant trust agreement. order. Upon such registration, the Ministry of Economy will issue a registration certificate, which must The process to obtain FDI approval is listed be renewed annually. Foreign investors that do in the FIL and in its regulations. The “Manual not register their investment with the Registry are of Procedures to Invest in Mexico” published by subject to administrative fines. the Directorate of International Affairs and Public | 16 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 4. INVESTMENT PROTECTION Protection Against Expropriation valid as public interest reasons for expropriation are listed in Box 1, below. Indemnification is required Expropriation is regulated by the Mexican to be paid in Mexican currency and at fair market Federal Constitution and the Expropriation Law price. The Mexican government can expropriate (Ley de Expropiación). The FIL does not contain any assets under Mexican law. any express protections for foreign investors against expropriation. The Constitution stipulates that Further, foreign investors from certain “private property shall not be expropriated except countries enjoy protection against (direct and/ for reasons of public use and subject to payment or indirect) expropriation under international of indemnity.” The Expropriation Law (Ley de investment treaties. A number of these agreements Expropiación) applies to both domestic and foreign include investor rights against direct and indirect investors and outlines the criteria for evaluating a expropriation, requiring that for an expropriation lawful expropriation. The causes that are deemed to be lawful, it must be for a public purpose, Box 1. Public Interest Criteria for Expropriation under Mexico’s Expropriation Law n The establishment, exploitation or conservation of a public service; n The opening, expansion or alignment of streets, the construction of roads, bridges, roads and tunnels to facilitate urban and suburban transit; n The beautification, expansion and rehabilitation of the towns and ports, the construction of hospitals, schools, parks, gardens, sports or landing fields, office buildings for the Federal Government and of any work destined to provide services of collective benefit; n The construction of public infrastructure works and the provision of public services, which require real estate and its improvements, derived from concession, contract or any act legally concluded in terms of the applicable legal provisions; n The conservation of places of panoramic beauty, of antiquities and objects of art, of archaeological or historical buildings and monuments, and the things that are considered as remarkable characteristics of [Mexican] national culture; n The satisfaction of collective needs in case of war or internal disorders; the supply of cities or centers of population, food or other consumer goods necessary, and the procedures used to combat or prevent the spread of epidemics, epizootics, fires, plagues, floods or other public calamities; n The means used for national defense or for the maintenance of public peace; n The defense, conservation, development or use of susceptible natural elements of exploitation; n The equitable distribution of monopolized or monopolized wealth with the exclusive advantage of a or several people and to the detriment of the community in general, or of a particular class; n The creation, promotion or conservation of a company for the benefit of the community; n The necessary measures to avoid the destruction of the natural elements and the damages that the property may suffer to the detriment of the community; n The creation or improvement of population centers and their own sources of life. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 17 following due process, non-discriminatory and for If the commercial bank (to ensure compliance the payment to be adequate, effective, and prompt with Credit Institutions Law) considers, pursuant compensation (see Section 2 — International Legal to the criteria established in the Rules, that any Framework). given operation is unusual, the bank may suspend the operation until the Ministry gives its clearance Restrictions on Inflow and Outflow or the customer gives due reasoning for such a of Funds movement or transfer. There are no specific limitations on foreign Dispute Settlement investors in terms of inflow and outflow of funds (net of applicable taxes and subject to Foreign investors have access to a broad range of other standard compliances). As such, a foreign dispute settlement mechanisms. Any individual or investor may freely transfer inward and outward entity may use any of the mechanisms provided under their capital contributions, profits, capital gains, Articles 14, 16 and 17 of the Federal Constitution, intracompany loans, income from asset disposal, including any of form of trial, arbitration or intellectual property rights (IPR) royalties, lawfully mediation (or any other alternate dispute resolution obtained compensation or indemnity, income mechanisms), which are regulated by the specific from liquidation and other similar proceeds in the procedural laws, either federal or local. Likewise, Mexican peso or a foreign currency. any foreign citizen or entity could also apply any applicable international treaty in connection with There are no exchange control restrictions dispute resolution mechanisms. (the Mexican peso is freely convertible), but the central bank, Banco de Mexico, can suspend a Due process must be followed by the transfer in the event of an “unusual transaction”. Mexican authorities, pursuant to the Federal Pursuant to the General Rules of Article 115 of the Constitution’s Articles 14 and 16. A foreign Credit Institutions Law, commercial banks have the investor is entitled to appeal or seek an administrative obligation of reporting unusual operations made revision with the federal administrative courts in by their customers to the Ministry of Treasury and the event of an administrative conflict. Public Finance. Under the Rules, the commercial bank and the Ministry may consider an operation unusual if it does not match the activities previously made by such customer. To evaluate the transaction, the following information is considered: n Origin or destination of resources; n Amount; n Frequency; n Type; or n Nature. | 18 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 5. INVESTMENT INCENTIVES Mexico’s investment incentives regime applies each year. Similarly, the Ministry of Economy equally to both domestic and foreign investors. has different decrees regulating certification on No special tax or financial incentives or concessions quality standards based on the Official Mexican are granted to foreign investors only. Standards (NOMs) and Mexican Voluntary Standards (NMXs) and grants incentives based Investments in certain sectors and industries on them; such as manufacturing, mining, film and theatre projects, agriculture, livestock, fishing and n Value added tax (VAT) exemption and/or timber are eligible for special tax incentives. remission: The Ministry of Treasury publishes Mexican Income Tax Law sets forth the federal tax the allowed exemptions, application of 0% VAT incentives that taxpayers may use pursuant to their rate, or remissions on the VAT through the Value main economic activities. No nontax incentives Added Tax Law and the Tax Administrative are granted at the federal level. Most regional Guidelines published each year; incentives have been gradually repealed. State and local governments may grant certain incentives n Customs duty exemption and/or remission: within their jurisdictions, specifically for land Exceptions to custom duties are included in acquisition or payroll tax for foreign investment the General Import and Export Taxes Law (Ley projects, which can be discretionary in nature. de los Impuestos Generales de Importación y Exportación) and the Customs Law (Ley FDI may be eligible for the following types of Aduanera). Additionally, Mexico has subscribed federal tax incentives depending on the nature to trade and investment agreements with over and scope of the investments: 50 countries, in many cases there are specific exceptions contained in such agreements. n Full or partial reduction in corporate income tax (that is Tax holiday or lower tax rate): All The incentives are generally linked to defined allowed deductions for income tax are provided policy objectives published each year through for in the Tax Administrative Guidelines the Miscellaneous Fiscal Rules. These Rules are published each year by the Ministry of Treasury part of the annually published Income Law (Ley de and Public Finance (Secretaria de Hacienda y Ingresos) and contain the Ministry of Treasury’s Credito Publico) (Ministry of Treasury) and in policies and objectives for collections and tax law the Income Tax Law (Ley del Impuesto Sobre la implementation for each fiscal year, with its models Renta). A reduction is allowed on the tax basis, and projections for collections. In addition, the but not on the rate. Likewise, administrative Ministry of Treasury annually publishes specific decrees include programs like IMMEX (export economic criteria, including economic forecasts services) contained in the “Decree for the for the said year, and how these forecasts affect the Promotion of the Manufacturing, Maquiladora growth and expenditure of the federal government and Exporting Services Industry”; (Criterios Generales de Política Económica para la Iniciativa de Ley de Ingresos y el Proyecto n Performance based incentives (for example, de Presupuesto de Egresos de la Federación allowances and accelerated depreciations): Correspondientes Al Ejercicio Fiscal 2022). The Ministry of Treasury issues the rules for accelerated depreciations and industry- There is no publicly accessible centralized focused incentives based on policy objectives government source or portal that lists all tax and through the Federal Revenue Law and the Tax financial incentives offered to foreign investors. Administrative Guidelines the Ministry publishes However, certain tax incentives and stimuli are 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 19 posted on the Tax Administration Service (Servicio Federal Tax Code and Income and Value Added de Administración Tributaria) website. The Tax laws. The Fiscal Tax Code and the annually portal is updated periodically with modifications published Miscellaneous Fiscal Rules (Resolución to such incentives and is maintained by the Tax Miscelánea Fiscal) contain the rules to obtain Administration Service of the Ministry of Treasury. tax incentives for different industries and sectors. Further, state and municipal governments also have Eligibility Criteria and Approval Process specific rules to grant tax incentives. Incentives do not automatically apply to investments. They are The tax incentives offered at the federal level generally contingent upon the satisfaction of the are based on objective eligibility criteria set relevant eligibility criteria set out in the applicable forth in the specific sector regulation and in the laws and subject to an approval process. 6. INVESTMENT LINKAGES For the purposes of this section, research was and/or investors both within Mexico or around focused on availability of incentive schemes the globe (ComerciaMX); and provide access to increase local sourcing, technology transfer to imported inputs under preferential tariffs for and measures to improve information exchange the production of good in specific industries. between foreign investors and domestic Bancomext offers credit to local suppliers of global suppliers. The Ministry of Economy (Secretaría value chains of relevance for Mexico through its de Economía) and Bancomext (Mexico’s export- PyMEX program (Credits up to 30 MXP million), import development bank) have put in place a set which provides revolving and long-term credits of schemes aiming at supporting firms that want to for firms in the automotive-auto parts (PyMEX start participating or strengthen their participation in automotive) and electric-electronic (PyMEX GVCs. The Ministry of Economy’s programs seek electric-electronics) sectors; and through its to support the incursion of MSMEs in global value strategic sectors credit program (Credits for 3 USD chains through strengthening women’s managerial/ million and above): airspace, mining-metallurgy entrepreneurial skills (She Trades); bring together and telecom. Mexican firms with potential customers, suppliers | 20 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 7. OUTWARD FOREIGN DIRECT INVESTMENT For this section, research was focused on whether regulations that specifically regulate outward there are any legal instruments specifically foreign direct investment (OFDI). The Mexican covering outward investment and if there are, legal system does not include any limitation on whether they impose any restrictions on outward OFDI by state-owned or private sector companies. investment. Mexico does not have any laws or 8. RESPONSIBLE INVESTMENT For this section, research was focused on whether Paris Accord and includes them in domestic law. there are any measures within the country’s Similarly, the General Health Law (Ley General investment legislation that are specifically de la Salud) along with the Federal Constitution targeted to ensure responsible investment. There provides a general right for health protection that are responsible investment measures in other laws must be provided by the government. Moreover, and regulations of the country, but Mexico’s foreign the Ministry of Economy through the commercial investment law and policy do not include an explicit normativity office constantly publishes the Official reference. In cases where projects are submitted for Mexican Standards, which are technical rules for consideration to the National Foreign Investment the production of goods and provision of services Committee does the law explicitly prescribes in Mexico. The Ministry of Economy drafts these compliance with environmental provisions as one standards and incorporates them into the Mexican of the evaluation criteria. Examples of measures legal system based on international and national in the broader regulatory framework include standards. These laws and regulations apply to For example, the General Climate Change Law all domestic and foreign invested companies in (Ley General de Cambio Climatico) enacted Mexico, meaning there are no measures specific to in 2012 outlines the objectives included in the foreign investment. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 21 9. CITY SPECIFIC REVIEW—MEXICO CITY Mexico City is the capital of Mexico and the Ciudad de México, FONDESO). These incentives seat of the federal government. On January 29, have ranged from reduction on local taxes (that 2016, it ceased to be the Federal District and is is, payroll, real estate acquisition taxes) and local now officially known as Ciudad de México, an contributions (that is, registration with the public autonomous entity within Mexico with its own registry of property). The city’s government directs congress and a new constitution that came into incentives to industrial and maquila producers; effect on September 17, 2018. While federal laws nevertheless, there have also been specific sector- currently govern Mexico City, legislative changes focused incentives for companies who initiate their are anticipated given Mexico City’s new political operations in high technology sectors, for example status. reductions of 55% for payroll tax, 30% for land ownership tax and 80% for real estate acquisition Mexico City’s local government has established tax. Currently, different programs are in place, additional incentives in order to attract which include direct transfers to companies in investment (both domestic and foreign) into the different sectors through micro credits or financing city. The office in charge of handling such incentives for entrepreneurs. These are directed to sectors that is the Economic Development Ministry (Secretaría the government considers strategic or vulnerable, de Desarrollo Económico, SEDECO), that has for instance cultural companies, women who are established the Trust for the Social Development starting a business, or small businesses. of the City (Fondo para el Desarrollo Social de la | 22 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 10. FDI IN THE DIGITAL ECONOMY This section examines Mexico’s legal and data privacy, data localization, intermediary regulatory framework impacting investment in liability, content access, and e-commerce. digital activities and infrastructure. The first sub- section assesses FDI-specific restrictions that apply FDI-Specific Restrictions to 19 different digital economic sectors or activities (see Table 4). The following sub-sections review Mexico’s extant FDI laws permit foreign direct a number of legal and regulatory dimensions that investment in the key digital economy areas may affect both foreign and domestic investments identified in the Table below. in the digital economy: intellectual property rights, Table 4. FDI Equity Restrictions in Mexico’s Digital Economy Sectors Digital Activity/Sector FDI Equity Restrictions, if any; “100%” Means No Caps or Equity Restrictions 3D Printing 100% AI and Machine Learning 100% Big Data & Analytics 100% Blockchain 100% Cryptocurrency 100% Drones 100% E-Commerce 100% Fintech 100% Gig Worker Platforms 100% Healthtech 100% Insurtech (insurance intermediaries) 100% IoT Devices 100% Logisticstech 100% Robotics 100% Cloud Computing Infrastructure (e.g. Datacenters) 100% Telecommunications Services 100%, Up to 49% in radio broadcasting Telecom Equipment to Enable Digital Infrastructure and 100% Digital Connectivity Traveltech 100% Source: Analysis by Kilpatrick Townsend and Stockton based on country’s laws and regulations. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 23 Other than equity ceilings for broadcasting, Recent Policies in Digital Economy Mexico has no specific restrictions to FDI in the Sectors digital economy. There is no separate screening process for digital FDI. Nor are there any minimum Mexico’s recent measures focusing on digital investment requirements or other discriminatory economy sectors include the following: restrictions or quotas or local sourcing requirements n On June 28, 2021, the Mexican Federal specifically for digital FDI. Rather, the rules Institute of Telecommunications (Instituto applicable to FDI in the traditional sectors described Federal de Telecomunicaciones) (IFT) in the sections above equally apply to digital FDI in approved the guidelines applicable to Mexico. In determining whether to grant approval concessionaires and authorized parties for digital FDI, the Commission is empowered to for data traffic management and network reject a foreign investment proposal for reasons of administration to provide Internet access national security. No specific restrictions are placed services. These Guidelines implement the “Net on the appointment of expatriates on the board of Neutrality” regulations in the Federal Law of directors or key managerial positions other than the Telecommunications and Broadcasting (Ley horizontal requirement that all companies in Mexico Federal de Telecomunicaciones y Radiodifusión) must employ at least 90% Mexican workers, and based on the principles of unrestricted choice, local employers are required to select Mexicans non-discrimination, privacy, transparency and over non-Mexicans for positions and promotions information, traffic management, quality and when they are similarly qualified. infrastructure’s sustainable development. On February 8, 2021, a draft bill seeking to n Mexico has been particularly active in reform the Federal Telecommunications and regulating financial technology (Fintech). On Broadcasting Act to regulate account suspension March 6, 2018, the Mexican Congress approved by social media platforms was published by and published modifications to Mexican laws Mexico’s Senate majority leader for public on financial operations and credit institutions, comment. The proposed law, if passed, would together with the new Law to Regulate Financial require that social media companies request Technology Institutions (Ley para Regular las authorization from the telecom regulator to Instituciones de Tecnología Financiera) (Fintech continue to operate and grant the regulator oversight Law). This Fintech Law contains the rules for over policies on users suspended or banned from Fintech companies having operations in Mexico social media services, and it would open the social and introduces a legal framework for financial media companies to fines of up to $4.4 million for technology institutions and concepts such as violating users’ right to free speech on social media. virtual assets/cryptocurrencies, crowdfunding The proposed law would apply only to platforms platforms, electronic payments and regulatory that have over one million users in Mexico; and sandbox. Following the enactment of the Fintech would allow anyone whose account is blocked or Law, on September 10, 2018, the Bank of canceled to appeal the decision. The appeals would Mexico and the National Banking and Securities go first to the company’s own internal committees, Commission (Comisión Nacional Bancaria y which would have 24 hours to affirm or revoke de Valores) published subordinate regulations the suspension. Users could appeal to the telecom and administrative rules (for example, General regulator and further appeal cancellations through Provisions applicable to Fintech Institutions, the Mexican courts. So far, the proposal has not Mexican Central Bank Circular 12/2018 and been discussed yet by the plenary of the Congress. General Provisions pursuant to Article 58 (Anti-Money Laundering) of the Fintech Law) to give effect to the new Fintech Law. | 24 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO Intellectual Property Rights other interim and final measures are foreseen by the law if an infringement of a trade secret is declared, Digital products and works of authorship are such as temporary or permanent closure of business, afforded certain protections under the Federal destruction of merchandise and seizure of product Law for Protection of Industrial Property circulation in borders. 2020 (Ley Federal de Protección a la Propiedad Industrial, 2020) as well as under the Federal Both administrative and judicial remedies Copyright Law (Ley Federal de Derechos de are available to IP holders to protect against Autor- LFDA, 2020). In July 2020, Mexico infringement, for which remedies include an undertook these recent reforms to its IP laws to injunction and, at the option of the plaintiff, implement its commitments under the United either damages or an account of profits. The States-Mexico-Canada Agreement (USMCA) and IMPI or the National Copyright Institute (Instituto to boost investor confidence. Notably, the new Nacional del Derecho de Autor, an independent Federal Law for Protection of Industrial Property agency of the Ministry of Culture), as the case may bolsters IP protection in a number of areas, including be, or a court may also order the infringing goods by introducing the concepts of misappropriation to be seized, forfeited or destroyed, as necessary and responsibility over confidential information, under the circumstances without payment of any imposing greater punishment for trade secret compensation to the infringer. misappropriation, expanding design protection, and strengthening the enforcing agency’s (the Mexican If a copyright infringement contravenes any Institute for Intellectual Property (Instituto provision of the Federal Copyright Law and Mexicano de la Propiedad Industrial (IMPI)) the violation is of administrative nature, the power and authority in determining compensatory National Copyright Institute is empowered damages. Similarly, recent amendments to the to attend to such actions. On the other hand, Federal Copyright Law seek to provide better trade-related infringements on a commercial scale protection to copyright holders in the digital involving economic copyright issues are attended environment by regulating technological protection to by the IMPI. Statutory fines (pre-established measures, rights management information, the damages) and criminal penalties may be imposed liability of online intermediaries and a notice and in certain cases of copyright infringement. The take down process relating to infringing digital IMPI’s decisions may be appealed either by filing content uploaded by third parties (see further an administrative reconsideration before the IMPI, below). or a nullity petition before the Specialized Chamber on Intellectual Property Matters of the Federal The Federal Copyright Law provides for limited Court of Administrative Affairs (SEPI-TFJA), “fair use” exceptions to the exclusive rights which may further be appealed before the federal consistent with the ‘three-step test’ of the Berne circuit courts. Upon an administration or judicial Convention for the Protection of Artistic and order, the Mexican custom authorities can seize Literary Works. This is in order to minimize illegitimate works at the border to prevent them unreasonable prejudice to legitimate interests from entering Mexican territory. of authors. Although Mexico’s IP laws are generally at Trade secrets are protected under the Federal par with international standards, piracy and Law for Protection of Industrial Property. counterfeiting are prevalent and IP enforcement Misappropriation or improper appropriation of mechanisms remain weak due to historically low trade secrets constitutes infringement under the statutory fines and limited official enforcement statute, triggering administrative fines and other resources. However, recent amendments to penalties on infringing parties. Due to the recent Mexico’s IP laws attempt to further bolster the amendments the fines for infringing a trade secret scope of IP protections and increase the statutory in terms of the Federal Law of Protection of fines to deter infringing behavior. Intellectual Property increased considerably. Also, 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 25 Data Privacy data subject and how such information is to be treated. It distinguishes between the concept Mexico’s main law regulating personal data is of data controller (i.e., the subject or legal entity the Federal Law for the Protection of Personal that decides on the processing of personal data) Information Possessed by Private Parties (Ley and data processor (i.e., the subject or legal entity Federal de Protección de Datos Personales en that processes personal data on behalf of the data Posesión de los Particulares) effective as of July controller). 6, 2010, supplemented with its subordinate regulations (“data privacy law”). It governs A data controller must obtain the consent of the the collection and processing of personal data by data subject for the collection, use and transfer private parties, is inspired by the GDPR principles of personal data, except in the following cases: and recognizes that standards for implementing data protection may vary depending on the industry n When exempted under law or sector. n Data is obtained from public sources The data privacy law applies to private parties n Data is previously submitted to a “disassociation” only, both individuals and legal entities, but not process (the procedure through which personal to credit information companies and individuals data cannot be associated with the data subject who collect and store information for personal nor allow, by way of its structure, content or use for a non-commercial purpose, or to the degree of disaggregation, identification thereof) government. Other relevant legislation impacting data protection in the country includes the Mexican n To accomplish obligations related to a legal Constitution, the General Law for the Protection relationship between the parties of Personal Data Held by Government Entities (2017), the Privacy Notice Guidelines, and the Self- n To address an emergency to personal injury or Regulation Parameters on Data Protection, which property damage are applicable to the private sector. The Federal n For necessary healthcare issues Consumer Protection Law that became effective in December 2019 also contains stipulations n Upon order of court or competent authority protecting consumers from any processing of their personal information for marketing purposes. A data subject’s consent may generally be express or implied, expect that when processing sensitive The Mexican data protection authority personal data, a data controller must obtain express responsible for overseeing the enforcement of written consent from the data subject for processing, the law is the National Institute of Transparency, through signature, electronic signature, or any Access to Information and Personal Data authentication mechanism established for such a Protection (Instituto Nacional de Transparencia, purpose. Express consent is also required for the Acceso a la Información y Protección de Datos processing of financial information. In such cases, Personales or “INAI”). It has the powers to, among the data controller is responsible for producing other things, interpret the law, issue opinions and evidence showing that the required consent was recommendations, conduct investigation to ensure obtained. compliance, hear complaints, issue decisions, impose administrative fines on violating parties, and The data privacy law provides a data subject coordinate with other federal, state, and municipal the right to be forgotten. It entitles the individual authorities and international bodies to promote data to request the protection of his/her data, the right protection. to rectify his/her personal information, the right to have his/her personal information deleted, and The data privacy law regulates how companies the right to oppose the use of his/her personal must collect, store, use, transfer and handle information. A data subject also has the right to personal information of data subjects, including access information and the right to data portability. privacy notices that should be given to the | 26 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO There are no minimum or maximum periods 3-5 years imprisonment may be imposed in certain for data retention. The data privacy law and its circumstances, such as when someone authorized to regulation establish different principles governing process any personal data causes a security breach the processing of personal data, including the in relation to the data under their control with the principles of purpose and quality, according to purpose of obtaining an economic gain. which personal data may be processed only for the informed purposes for which they were collected and Data Localization once these purposes have been fulfilled they must be “blocked” for the sole purpose of determining There is no express data localization requirement possible liabilities in relation to their processing or under Mexican law, except that national security complying with legal obligations, until the legal or provisions state that information processed contractual limitation period of these, after which by governmental entities classified as national the data must be irreversibly deleted. In order to security and public information shall be stored determine the retention or “blocking” periods for within the facilities of the relevant public entities. personal data or other information, it is necessary to The data privacy law permits cross-border take into account different sectorial laws that relate transfers of personal information, provided to the activities of companies and the processing the data subject gives informed, prior consent, of personal data, e.g., tax, labor, civil, financial and except in limited circumstances where consent other laws. is not required. These circumstances are (i) the There are no mandatory requirements to exemptions noted above, (ii) if the transfer is made perform data privacy impact assessments. within the same group of companies operating However, a data controller must adopt and under the same internal processes and policies, maintain physical, technical, and administrative (iii) if a transfer is required or exempted from security measures which have been designed consent under Mexican law or an international to protect personal data from damage, loss, treaty, or (iv) if legally required to safeguard public alteration, destruction or unauthorized use, access interest or for law enforcement purposes. or processing. The data controller must also adopt In addition, two conditions need to be fulfilled to security measures that are at least equivalent to transfer data to any third-party controller, whether those adopted in the management of their own in Mexico or abroad: (i) Data subjects must be information. In adopting such security measures, informed of the data transfer and their specific the data controller must consider the risks involved, purpose through a privacy notice, and they must any potential consequences to the data subjects if approve it. (ii) The data transfer must be consistent there is a security breach, the nature of the data and with the privacy note. In addition, for international technological development. A data controller must transfers, the transferring data controller must also ensure that there is a written contract (or similar enter into a data processing agreement to establish instrument) with a data processor that obligates the specific obligations for the data transfer to such party to process personal data only under the ensure that the use of the personal data continues to controller’s instructions and implement appropriate be subject to the same level of protection available security measures to safeguard personal data. provided for in Mexico. There are no requirements for data controllers to notify the INAI in the event of a data breach. Intermediary Liability However, data controllers must notify data subjects if their personal data is subject to a Effective on July 1, 2020, the Federal Copyright breach. Violations are punishable by monetary Law was amended to provide for “safe harbor” fines ranging from approximately US $450 to US protection to intermediaries. The law was $1.5 million for repeated violations, with doubling passed as part of Mexico’s efforts to implement of penalties if sensitive personal data is involved. its commitments under the United States-Mexico- In addition, criminal penalties ranging from Canada Agreement (USMCA) to update the country’s legal framework of IP laws in the digital 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 27 environment. Prior to July 2020, there was no E-Commerce specific law addressing intermediary liability but the general position under the Federal Copyright There is no specific legislation in Mexico that Law was that intermediaries were not vicariously governs online sales and transactions. Instead, liable for the acts of users or other third parties these are regulated in accordance with the general on their platforms (i.e., no secondary liability for provisions of the Civil Code, the Code of Commerce indirect copyright infringement). (Código de Comercio), and the Federal Consumer Protection Law (Ley Federal de Protección al The amendment establishes a “safe harbor” Consumidor). The online providers of goods and immunity for online service providers (including services are obligated to comply with certain websites, platforms, internet search engines requirements under the consumer protection law to and other similar intermediaries), shielding safeguard consumers’ personal data and not engage them from liability in respect of data, information, in deceptive commercial practices or misleading materials or content that is communicated or stored advertising. These requirements include amongst on their systems subject to the following conditions: others the provider’s obligation to use the consumer (i) intermediaries must implement policies information in a confidential manner, to provide and measures regarding copyrighted material; information to consumers for filing refunds and (ii) intermediaries must not control, initiate or direct claims, to avoid misleading commercial practices, the infringing activities; and (iii) intermediaries and to provide consumers with the terms of sale. must not interfere with technological measures that protect the content. The intermediaries are not Mexico has implemented the UNCITRAL model obligated to proactively supervise or monitor their laws on Electronic Commerce and on Electronic networks for illegal use of copyrighted materials or Signatures. Electronic signatures are accorded posting of illegal content or to give a warning to legal validity in contracts between private parties. infringing users. The Mexican Consumer Protection Agency The amendment also provides for a “notice and (PROFECO), which enforces the Federal takedown” system that requires intermediaries Consumer Protection Law, operates an online to remove and deny access to any infringing dispute resolution platform “Concilianet” that content on their respective platforms upon provides consumers who have purchased goods receipt of a notice from the relevant copyright or services, electronically or by traditional means, owner or a resolution issued by a competent with a cost-effective way to initiate and resolve authority. Thus, it provides for both a private complaints or claims against participating suppliers notice and take down. The procedure also calls for via the virtual platform. restoring the removed content upon counter-notice Effective as of May 1, 2019, the Ministry of from the posting party, subject to certain conditions. Economy published the voluntary Mexican Electronic Commerce Standard NMX-COE- Content Access 001-SCFI-2018 (NMX). The NMX standard establishes best practices for intermediary providers There are no current specific measures or of goods and services, including e-commerce executive orders to ban or otherwise block retailers, in order to guarantee consumers’ rights and commercial online content. There are also no grant legal certainty to such transactions. Among regulations or governmental measures in place other requirements, the intermediary providers permitting the filtering of political, religious or any must implement technical security mechanisms other web content by a government or its operators. regarding the acceptance of the offer, transactions and customers’ identity that ensures the protection of their personal data and carry a fraud prevention system that allows them to filter transactions according to their level of risk. | 28 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO On February 26, 2021, the PROFECO published PROFECO will publish and maintain a register in the Official Gazette of the Federation the of providers to whom the seal is granted and will Code of Ethics in Electronic Commerce (“Code have the power to cancel a provider’s seal for non- of Ethics”) and the Guidelines on the launch of compliance or improper use of the seal. the so-called “Distintivo Digital PROFECO.” The Code of Ethics establishes minimum standards Online sales of certain regulated products, such and principles for online service providers to as tobacco and pharmaceuticals (excluding over protect rights of consumers, promote a culture the counter medicines) is prohibited. of responsible consumption, and protect human Effective on June 1, 2020, Mexico imposed a rights and vulnerable populations. If adopted by 16% VAT on digital services supplied by foreign a provider, its compliance will be mandatory. The businesses to customers based in Mexico, PROFECO will carry out quarterly monitoring applying to both business-to-business and of the adhered providers in order to review their business-to-consumer transactions. Providers of compliance. The Distintivo Digital PROFECO financial services, payment services, data storage, will serve as an official recognition or a seal of and the use or sale of software would not be subject confidence. The PROFECO will grant the seal to to the new requirements. This tax reform requires online providers that apply for it, provided they foreign digital service providers to register with the fully comply with consumer protection rules and Mexican tax authorities for VAT purposes. They the Code of Ethics, including supporting security, also would have to: (i) appoint a tax representative transparency, confidentiality, due information, and in Mexico; (ii) provide a Mexican tax address; providing greater reliability and legal certainty and (iii) collect the VAT on the price of the digital to consumers in e-commerce transactions. The service and remit tax to the Mexican tax authorities. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 29 ENDNOTES 1 The WTO services sectoral classification list Services are categorized into 12 sectors: (W/120) is a comprehensive list of services sectors and sub-sectors covered under the GATS. 1. Business services It was compiled by the WTO in July 1991 and 2. Communication services its purpose was to facilitate the Uruguay Round negotiations, ensuring cross-country comparability 3. Construction and related engineering services and consistency of the commitments undertaken. The 160 sub-sectors are defined as aggregate of the 4. Distribution services more detailed categories contained in the United 5. Educational services Nations provisional Central Product Classification (CPC). The list can be accessed under the following 6. Environmental services link: http://www.wto.org/english/tratop_e/serv_e/ mtn_gns_w_120_e.doc. 7. Financial services 8. Health related and social services 9. Tourism and travel related services 10. Recreational, cultural and sporting services 11. Transport services 12. Other services not included elsewhere | 30 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 2 For the purposes of this research, the following 32 sectors have been identified. This is not an exhaustive list of all sectors of the economy. Primary: Services: 1. Agriculture, Hunting, Forestry, and Fishing 18. Electricity, Gas, and Water 2. Mining, Quarrying, and Petroleum 19. Alternative Energy 20. Construction Manufacturing: 21. Wholesale and Retail Trade 3. Agroprocessing, Food Products, and Beverages 22. Hotels and Restaurants 4. Textiles, Apparel, and Leather 23. Other Travel and Tourism-related Services 5. Chemicals and Chemical Products 24. Logistics, Transport, and Storage 6. Rubber 25. Telecommunications 7. Plastic Products 26. Computer and Software Services 8. Pharmaceuticals, Biotechnology, and Medical Devices 27. Financial Services including Insurance 9. Metals and metal products 28. Real Estate 10. Non-metal mineral products 29. Business Services 11. Wood and wood products (other than Furniture) 30. Professional, Scientific and Technical Services (Engineering, Architecture, and 12. Furniture so forth) 13. Paper and paper products 31. Health Services 14. Printing and publishing 32. Media and Entertainment 15. Automobiles, Other Motor Vehicles, and Transport Equipment 16. Information Technology and Telecommunications Equipment 17. Machinery and Electrical and Electronic Equipment and Components 3 This review only provides updated information as on December 31, 2021. While changes made during 2022 are not systematically included, it is important to note that in April 2022 Congress rejected the proposed reform bill for the electricity sector. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 31 LIST OF REFERENCE MATERIALS Primary Sources 15. Ley Federal del Trabajo, including its latest reform, dated May 1, 2018. 1. Foreign Investment Law published on December 27, 1993, as amended. 16. Ley de Expropiación, including its latest reform, dated January 27, 2012. 2. Regulation of the Foreign Investment and the Foreign Investment National Registry published 17. Ley de Hidrocarburos, including its latest on September 8, 1998 as amended reform, dated November 15, 2016. 3. Manual of Procedures to Invest in Mexico, 18. Ley para Regular las Instituciones de Tecnología Directorate of International Affairs and Public Financiera, as amended dated March 9, 2018. Policy dated 30 August, 2016 19. Ley Federal de Protección de Datos Personales 4. Ley de Inversión Extranjera, as amended dated en Posesión de los Particulares, as amended June 15, 2018. dated July 5, 2010. 5. Reglamento de la Ley de Inversión Extranjera 20. Ley Minera, including its latest reform, dated y del Registro Nacional de Inversiones August 11, 2014. Extranjeras, as amended October 31, 2014. 21. Ley General para el Control del Tabaco, 6. Constitución Politica de los Estados Unidos including its last reform, dated May 20, 2021. Mexicanos, as amended dated January 27, 2016. 22. Ley General de Salud, including its last reform, 7. Ley del Impuesto al Valor Agregado, including dated November 11, 2021. its latest reform dated November 30, 2016. 23. Ley Federal de Protección al Consumidor, 8. Ley del Impuesto sobre la Renta, including its including its last reform, dated April 12, 2019. latest reform dated November 30, 2016. 24. Resolución Miscelánea Fiscal para 2019, dated 9. Ley General de Sociedades Mercantiles, April 29, 2019 including its latest reform dated June 14, 2018. 25. Ley Orgánica del Poder Ejecutivo para el 10. Ley General de Títulos y Operaciones de Estado de Guanajuato, as amended dated Crédito, as amended dated June 22, 2018. March 12, 2019. 11. Código Fiscal de la Federación, including its 26. Decreto para el Fomento de la Industria latest reform, dated June 25, 2018. Manufacturera, Maquiladora y de Servicios de Exportación, as amended January 6, 2016. 12. United States Mexico Canada Agreement 2018. 27. Ley de Impuestos Generales de Importación y 13. North America Free Trade Agreement 1994. Exportación, as amended on June 18, 2007. 14. Ley General de Mejora Regulatoria, including 28 Ley Aduanera, including its latest reform dated its latest reform, dated May 18, 2018. December 24, 2018. | 32 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO 29. Ley de Ingresos de la Federación para el Secondary Sources Ejercicio Fiscal 2019, published on December 28, 2018. 34. “Mexico, Strategic Destination for Productive Investment”, Promexico, 2016 30. Criterios Generales de Política Económica para la Iniciativa de Ley de Ingresos y el Proyecto 35. “Doing Business in Mexico 2018”, Baker de Presupuesto de Egresos de la Federación Mckenzie Abogados, S.C., 2018. Correspondientes Al Ejercicio Fiscal 2019. 36. UNCTAD Investment Policy Hub (https:// 31. Plan Nacional de Desarrollo 2019-2024. investmentpolicy.unctad.org/international- investment-agreements) 32. Ley Federal sobre Metrología y Normalización, as amended dated June 15, 2018. 37. I-TIP Services database (https://www.wto.org/ english/res_e/statis_e/itip_e.htm) 33. Reglamento de las Actividades a que se Refiere el Título Tercero de la Ley de Hidrocarburos, 38. Double Taxation Avoidance Agreements published on October 31, 2014. (https://taxsummaries.pwc.com/mexico/ individual/foreign-tax-relief-and-tax-treaties) 2022 INVESTMENT POLICY AND REGULATORY REVIEW – MEXICO | 33 This Investment Policy and Regulatory Review presents information on the legal and regulatory frameworks governing foreign direct investment. Since legal and regulatory frameworks are constantly evolving, a cut-off date was set for the research. This country review therefore covers information available as of December 31, 2021, unless otherwise indicated in the review. IPRRs are available for the following middle-income countries: Brazil, China, India, Indonesia, Malaysia, Mexico, Nigeria, Thailand, Turkey, and Vietnam.