SECTION 1: Market outlook
1.1 How would you summarise your jurisdiction's attitude
towards the influence of Japanese corporate culture in its
Mexico has great respect and admiration for Japanese
corporate culture, given its structure and hardworking
The foregoing has resulted in more investment each year from
Japanese companies in our country, especially in the automobile
and manufacturing industries.
1.2 What is the outlook for Japanese investment into your
jurisdiction over the next 12 months?
Although there is no official investment forecast, the
Mexican government expects that total annual Japanese direct
investment in the country will remain within the same range as
that of the previous five years ($1.2 billion to $2
SECTION 2: Approving foreign investments
2.1 Explain the foreign investment approval process and
In principle, foreign investment does not require any
approval to establish in Mexico. However, there are certain
activities that are restricted under the law to be performed
exclusively by governmental entities, private Mexican entities
and private entities with limited foreign investment.
In certain cases where foreign investment is limited to
determined percentage participation, investors may request a
special authorisation from the National Commission for Foreign
Investments (Comisión Nacional de Inversiones
Extranjeras) to exceed such limits.
Such request must be done filing a written questionnaire to
the Commission, which must confirm or deny such petition in a
period no longer than 45 business days.
2.2 Are there any investment restrictions in specially
regulated sectors and is the government entitled to any special
rights in these sectors?
In general, there are few restrictions to establish foreign
investment in Mexico. The Foreign Investment Law (Ley de
Inversión Extranjera) provides certain limits for
foreign direct investment in specific industries, such as
aviation, shipping, port services, cabotage, financial
services, power transmission and distribution, nuclear power
generation and radio broadcasting, among others.
The participation of governmental entities is restricted to
a small amount of activities, and is usually linked to those
activities considered by the Mexican Constitution as strategic
for the Mexican State.
2.3 Which authority oversees competition clearance? Please
give a brief overview of the merger clearance process.
The Mexican authorities that oversee competition clearance
are the Federal Antitrust Commission (Comisión
Federal de Competencia Económica) and the Federal
Telecommunications Institute (Instituto Federal de
The Federal Antitrust Law (Ley Federal de Competencia
Económica) establishes that when transactions, such
as acquisition of assets and/or shares, mergers, among others
(also known as concentrations), reach any monetary threshold
provided by law, they must be subject to prior approval from
the competent commission/institute.
According to the applicable law, all transactions must be
notified to the antitrust authorities before they take place;
parties must refrain from closing any transaction prior to
obtaining such approval.
After filing a concentration notification, governmental
agencies must evaluate whether the requirements under the law
were met, and, if necessary, they may request additional
information related to the transaction.
The aforementioned procedure may be subject to several
extensions for justified causes. A transaction that does not
raise serious competitions concerns should have a resolution
from authorities within the three months following the
concentration notification filing. The period to obtain a final
resolution may increase up to eight months as of the
corresponding filing for transactions that are considered more
complex or those that raise several concerns for competition in
2.4 Are there further approval requirements that foreign
investors should be aware of?
Other than the aforementioned approvals and restrictions to
foreign investment, there are no other requirements that
Japanese investors should be aware of.
SECTION 3: Investment techniques
3.1 What are the most common legal entities used for
Japanese investment in your jurisdiction?
The two most common legal entities used for Japanese
investment in Mexico are: the variable capital limited
liability company (sociedad de responsabilidad limitada de
capital variable or S de RL de CV); and the
variable capital stock corporation (sociedad anónima
de capital variable or SA de CV). Please be
advised that both entities are regulated under the General Law
of Commercial Companies (Ley General de Sociedades
According to the applicable law, the limited liability
company shall exist under a commercial name or a firm name. It
is formed by partners, who are only obligated to the payment of
their contributions. The equity participation representing the
corporate capital cannot be represented by negotiable
instruments, and such may only be assigned or transferred if
approved by the partners pursuant to the terms and conditions
established in the law and the by-laws of the company.
On the other hand, the capital stock corporations operate
under a corporate name and its shareholders are liable only for
up to the amount of their contributions. Furthermore, their
corporate capital is represented by stock certificates, which
are, in principle, freely negotiable and transferable.
It is important to note that although both entities are
substantially similar, a considerable amount of foreign
investors prefer using limited liability companies as vehicles
for their investments, as they are considered by many
jurisdictions as check-the-box or flow-through companies for
3.2 What are the key requirements for establishment and
operation of these legal entities?
The establishment and operation of the aforementioned legal
entities require obtaining several permits, filing for
registration before several governmental authorities, and the
drafting and formalisation of certain documents before a notary
public in Mexico.
The general requirements for incorporating such companies
- Powers of attorney granted
abroad. Each of the shareholders must grant a
special power of attorney so that they can be represented
before a Mexican notary public at the moment of establishing
the new company.
- Corporate Name Authorisation. An
authorised representative of the shareholders must file and
obtain an authorisation from the Mexican Ministry of Economy
(Secretaría de Economía) to
incorporate the new company under the desired corporate
- By-laws. The shareholders
must draft the by-laws of the new company, which should
determine the terms and conditions for its operation. These
by-laws must be formalised in form of a public deed before a
notary public in Mexico (the Articles of Incorporation).
- Registration with the Public
Registry. Once the notary public in Mexico has
issued a deed containing the company's Articles of
Incorporation, the first original counterpart of such deed
must be registered before the Public Registry of Commerce
(Registro Público de Comercio) of the
company's corporate domicile.
- Tax ID. For tax purposes,
once the company is duly incorporated, it must be registered
before the Mexican Taxpayers' Registry (Registro Federal
de Contribuyentes) of the Ministry of Finance and Public
Credit (Secretaría de Hacienda y Crédito
Público). In order to obtain such registration,
the company must have an address for tax purposes in
- National Registry of Foreign
Investments. Furthermore, the company must be
registered before the National Registry of Foreign
Investments (Registro Nacional de Inversiones
SECTION 4: Dispute resolution
4.1 How effective are local courts' enforcement and dispute
resolution proceedings, and what should Japanese investors be
particularly aware of?
Although local courts' resolutions are enforceable, Japanese
investors should be aware that legal proceedings resolved by
courts in our jurisdiction are typically lengthy and time
In consequence, many parties involved in transactions agree
on more dynamic dispute resolution proceedings, such as
arbitration, to avoid solving disputes through local
4.2 Does your jurisdiction have a bilateral investment
protection treaty with Japan and is that commonly used by
Yes. Mexico and Japan have both signed a bilateral Agreement
for Strengthening Economic Partnership (Acuerdo para el
Fortalecimiento de la Asociación Económica entre
los Estados Unidos Mexicanos y el Japón). This
Agreement entered into force in 2004.
4.3 Do local courts respect foreign judgments and are
international arbitration awards enforceable?
Although foreign judgements may be subject to revision by
local courts, international arbitration awards are enforceable
under Mexican law and respected by local courts.
SECTION 5: Forex controls and local operations
5.1 What foreign currency or exchange restrictions should
foreign investors be aware of?
There are no legal restrictions to foreign currency exchange
in Mexico. However, large foreign exchange transactions are
monitored by the Bank of Mexico (Banco de
SECTION 6: Tax implications
6.1 Are there tax structures and/or favourable intermediary
tax jurisdictions that are particularly useful for Japanese
investors into the country?
Any tax strategy that involves the flow of financial
resources between one or more jurisdictions should be analysed
individually and carefully, to determine the benefits and risks
it entails, and all the relevant variables and circumstances.
Notwithstanding the above, it is worth noting that Mexico is
the country that has entered into the largest number of Double
Taxation Treaties in Latin America, and as such, it may provide
with an interesting number of options for a tax strategy over
6.2 What are the applicable rates of corporate tax and
withholding tax on dividends?
A 30% corporate income tax applies to legal entities that
have tax residency in Mexico. In this regard, Mexican Tax Law
contemplates a special Net Tax Profit Account (Cuenta de
Utilidad Fiscal Neta – CUFIN), that holds the
profits that have already paid the corresponding income tax at
a corporate level. When making dividend distributions, if the
distributed amounts are less than or equal to the amount of the
CUFIN, no additional taxes must be paid by the entity for such
Additionally, when paying dividends to an investor that does
not have tax residency in Mexico, a withholding rate applies.
Generally a ten percent withholding rate applies, but it may
vary if Mexico has executed a Double Taxation Treaty with the
country where the beneficiary of those dividends has its tax
Specifically in the case of Japan, Mexico has a Double
Taxation Treaty pursuant to which a five percent withholding
tax may apply if certain conditions are met.
6.3 Does the government have any tax incentive schemes in
The Mexican government has a wide range of tax incentives,
which are constantly adjusted and modified to foment the
development of certain activities in Mexico. These incentives
include accelerated depreciation of assets for tax purposes,
certain subsidies, and taxation schemes that allow tax
transparency of investment vehicles to make the corresponding
income tax calculation and payment at a beneficiary level,
among others. However, the identification of the specific
benefits that apply to certain investments or activities would
have to be done on a case-by-case basis.
6.4 Are there any reciprocal tax arrangements between your
jurisdiction and Japan? If so, how can they aid investors?
As stated in Question 6.2, Mexico and Japan have entered
into an Agreement to Avoid Double Taxation and Prevent Income
Tax Evasion (Convenio entre los Estados Unidos Mexicanos y
el Japón para evitar la doble imposición e
impedir la evasión fiscal en materia de Impuesto Sobre
la Renta). Pursuant to the terms of such treaty, a
preferential five percent withholding rate in Mexico may apply
if: the receiver of the dividend is the effective beneficiary
of such distribution; and the receiver of the dividend holds at
least 25% of the voting shares of the distributing entity,
during the six months prior to end of the tax year where the
dividend is distributed.
Thus, Japanese investors may benefit from the preferential
tax-withholding rate in Mexico when they hold significant
participation in Mexican entities, and may even be eligible to
tax exemption in Japan for the dividends distributed by Mexican
companies, if certain conditions are met. These potential
benefits should be taken into account when deciding the type of
investment they want to make in Mexico.
Founding partner, Rodríguez
Mexico City, Mexico
T: 521(55) 5202 0405
Rodríguez Dávalos is the founding
partner of the law and consulting firm Rodríguez
Dávalos Abogados (RDA), a law firm specialised
in Mexico's energy sector. For over 20 years, RDA has
led numerous projects considered first-of-a-kind in
Mexico, such as the first SWAP operation of natural
gas; the first private transmission pipeline for LPG;
the development of the legal and financial strategy for
the first private pipeline in Mexico for the
transmission of petrochemicals; the first cross-border
wet gas export pipeline to the USA; the development of
the legal, contractual and regulatory strategy of the
Los Ramones natural gas pipeline; and the first naphtha
private processing plant, among others.
Rodríguez is chairman of the Mexican Rights
of Way Association (ADDV); board member and secretary
of the Mexican Natural Gas Association (AMGN); legal
advisor to the World Energy Council, Mexico Chapter;
and founding member of the Mexican Energy Law
José Eduardo Pumarejo
Associate, Rodríguez Dávalos
Mexico City, Mexico
T: 52 (55) 5202 0405
José Pumarejo is an associate at Rodriguez
Dávalos Abogados. His practice focuses in
corporate consulting and M&A transactions, as well
as energy and infrastructure projects.
During his professional experience, Pumarejo has
represented both domestic and foreign clients in
numerous transactions and public tenders. He
participated in the so-called Round One public tender
process and worked on setting up AT&T's subsidiary
in Mexico, including the processes for its acquisition
of the Mexican mobile telephone companies Nextel Mexico
and Iusacell. He contributed in Komatsu's acquisition
of several distributors and the restructuring of its
construction and mining equipment distribution
business, and worked on the sale of Sanyo Corporation's
television manufacturing division in Mexico.
Pumarejo received his law degree from the
Instituto Tecnológico Autónomo de
México (ITAM), graduating with honours. He
was recipient of the XXI ITAM Alumni Investigation
Award in the law category for his thesis entitled
Orphan Drugs: alternative regulation for efficient
and effective delivery. He is currently actively
engaged in several pro bono endeavours focused on
animal protection and environmental conservation, and
is also a member of the International Bar Association
(IBA), among other associations.
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