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As a general rule, there are no legal restrictions on foreign individuals and entities engaging in economic activities in Mexico, either directly or as partners or shareholders in Mexican companies.
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However, the LIE (Ley de Inversión Extranjera or Foreign Investment Law) specifies certain activities in which foreign investment is not allowed and others in which it is limited.
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Here we will discuss the activities that are reserved or subject to a specific regulation. We will also refer to the concept, regulation, and scope of neutral investment, a mechanism through which foreign investment can participate in certain reserved or specially regulated activities.
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Reserved activities
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Foreign individuals and entities and Mexican companies having foreign investment cannot participate in activities related to the strategic areas that by law are reserved to the Mexican State, or in activities that are reserved exclusively for Mexicans and Mexican companies with a clause in their bylaws excluding foreigners.
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a) Activities reserved to the Mexican State. The activities set forth in the laws governing the following strategic areas are reserved exclusively to the State:
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- Petroleum and other hydrocarbons. Activities relative to transportation, storage, and distribution of gas other than liquid petroleum;
- Basic petrochemicals. The following are considered basic petrochemicals: ethanol, propane, butane, pentane, hexane, heptane, raw material for lampblack, gasoline, and methane, when the latter comes from hydrogen carbides obtained from deposits located in national territory and is used as raw material in petrochemical industrial processes;
-Electricity. This does not include the generation of electricity for self-supply, cogeneration, or small production; generation by independent producers for sale to the Federal Electricity Commission (Comisión Federal de Electricidad, CFE); generation of electricity for export, derived from co-generation, independent production, or small production; nor energy for use in emergencies resulting from interruptions in the public power grid service. Also not included is the import of power by individuals or entities exclusively for self-supply;
- Generation of nuclear power;
- Radioactive minerals;
- Telegraphs and radiotelegraphy;
- Mail service;
- Issuance of banknotes and minting;
- Control, supervision, and oversight of ports, airports, and heliports;
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b) Activities reserved for Mexicans. The economic activities and companies mentioned below are reserved exclusively for Mexicans or Mexican companies having a clause in their bylaws excluding foreigners:
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- National land transport of passengers, tourists, and cargo, not including messenger and parcel services;
- Retail sale of gasoline and distribution of liquid petroleum gas;
- Provision of radio broadcasting and other radio and television services, other than cable television;
- Credit unions;
- Development bank institutions, in accordance with the applicable law;
- The provision of professional and technical services expressly indicated in the applicable laws.
- Foreign investment is not allowed in the above-mentioned activities and companies, directly or through trusts, agreements, partnership agreements or bylaws, pyramid schemes, or any other mechanism that grants them any control or share.
Notwithstanding the above, there is a mechanism through which foreign investment can participate in certain activities reserved for Mexicans: neutral investment, which is analyzed in Point 1.5 of this chapter.
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Activities and acquisitions subject to a specific regulation
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There are certain economic activities and companies in which foreign investment is not excluded but is limited to a certain proportion, ranging from 10 to 49 percent. There are also certain sectors in which even when the foreign investment is limited to 49 percent, it is possible to surpass such percentage with an authorization of the National Foreign Investment Commission (Comisión Nacional de Inversiones Extranjeras, CNIE). In order to determine the percentage of foreign investment in the economic activities subject to maximum limits of investment, the foreign investment made in such activities indirectly through Mexican companies with a majority of Mexican capital is not counted, provided the latter are not controlled by the foreign investment.
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a) Limited activities. In the economic activities and companies mentioned below, foreign investment is limited to the indicated percentages, which cannot be surpassed under any circumstances, except through the mechanism of neutral investment:
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- Up to 10 percent: producers’ cooperatives;
- Up to 25 percent: National air transport; Air taxi transport; Specialized air transport;
- Up to 49 percent: Insurance companies; Bonding companies; Money exchange firms; Public bonded warehouses; Financial leasing companies; Factoring companies; Special-purpose financial institutions; The companies referred to in Article 12 bis of the Securities Market Law (Ley del Mercado de Valores); Pension fund management companies; Companies manufacturing and selling explosives, firearms, cartridges, munitions, or fireworks, not including the acquisition and utilization of explosives for industrial and extractive activities or the preparation of explosive mixtures for the carrying out of such activities; Printing and publishing of newspapers for circulation exclusively in national territory; Series “T” shares of companies owning agricultural, livestock, and forestry lands (series “T” shares only represent capital contributed in agricultural, livestock, or forestry lands, or capital to be used for the acquisition of such lands); Fishing operations in fresh and coastal waters and in the exclusive economic zone, not including aquaculture; Comprehensive port administration; Port pilotage services to ships for interior navigation operations, according to the applicable law; Shipping companies engaged in the commercial exploitation of ships for interior navigation and cabotage, except for tourist cruise ships and the exploitation of dredgers and naval artefacts for port construction, conservation and operation; Suppliers of fuel and lubricants for ships and aircraft and rail equipment; Concession holding companies pursuant to the terms of Articles 11 and 12 of the Federal Telecommunications Law (Ley Federal de Telecomunicaciones);
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b) Limited activities in which 49 percent can be surpassed with an authorization from the CNIE. Foreign investment can hold a percentage greater than 49 percent in the economic activities and companies mentioned below if they obtain a favorable decisions of the CNIE:
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- Port services for ships carrying out interior navigation operations, such as towing, tying up, and launching;
- Shipping companies engaged in the exploitation of ships exclusively in high traffic;
- Concession or permit holding companies of airfields for service to the public;
- Private services of preschool, elementary, junior high, high school, or college education or combinations thereof;
- Legal services;
- Credit information companies;
- Securities ranking institutions;
- Insurance agents;
- Cellular telephony;
- Construction of pipelines for the transportation of oil and its derivatives (not including construction, operation, and ownership of pipelines, installations, and equipment, regarding the transportation and distribution of natural gas);
- Perforation of oil and gas wells;
- Construction, operation, and exploitation of railways that are a general means of communication and provision of rail transport services to the public.
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It should be emphasized that the favorable decision of the CNIE is only required for foreign investment to be greater than 49 percent in the economic activities and companies listed above when the total value of the assets of the companies involved at the time of submitting the acquisition request surpasses the amount that the Commission determines annually.
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Information provided by Von Wobeser & Sierra, S.C. |
