As part of its current and growing interest in Latin America, China has directed a series of investments in Mexico across a wide range of industries. The most notable sectors include:

• Telecommunications: Huawei Technologies Co. Ltd. has become a major player in Mexico and China Telecommunications Corp. (China Telecom) participated in the bidding for Mexico's largest telecommunications project, Red Compartida, or “shared network”. Hisense Co. Ltd. has also set foot on Mexico by buying an industrial facility in Tijuana, which represents its biggest production site outside of China and serves as a distribution platform for the U.S. market.
• Banking: The Industrial and Commercial Bank of China Ltd. and Bank of China Ltd. have recently landed in Mexico with the objective of financing and supporting COI projects.
• Automotive: 2016 has seen the introduction of Beijing Automotive Industry Holding Corp. (BAIC) as the first Chinese automobile manufacturer in Mexico. Its entry is linked to the existing presence of diverse Chinese original equipment manufacturers (OEMs) that have taken advantage of Mexico's increasing role as a consolidated automotive market.
• Energy: As a result of the historic energy reform, the governments of Mexico and China have agreed to create public funds to prepare for the arrival of Chinese energy companies. Jinko Solar Holdings Co. Ltd. was recently awarded a $600 million project to build three solar panel plants in Mexico's south and midwest areas.
• Infrastructure: Sinohydro Group Ltd. recently won a competitive tender to build a hydroelectric plant in the southern state of Chiapas. The project is valued at $390 million and will be a crucial electricity provider in the region.

b. Is the government generally supportive of COI? Which government, and regional, bodies are responsible for driving COI in Mexico?

After years of weak economic ties (vis-à-vis Chinese investment in other Latin American emerging economies), the current administration under president Peña Nieto effected a major shift in 2013 so as to attract COI. The initiative was politically supported by the Chinese leaders. However, the wave of COI stalled due to revocation of one of the administration's biggest infrastructure projects, i.e. the construction of a high-speed train between Mexico City and Querétaro, which was initially awarded to China Railway Construction Corp. Ltd. This cancellation delayed Chinese investments into Mexico amid fears of a fragile political environment. However, political and economic drivers of foreign direct investment (FDI) are expected to soon pick up again.

The Foreign Investment Commission, as a branch of the Ministry of Economy, is the authority regulating COI into the country. ProMexico is also a governmental agency that promotes foreign investment and has set up strategic offices in Beijing, Shanghai and Hong Kong.

c. What are some notable Chinese investments or M&A that have recently taken place in Mexico?

Please see Section 1a.

Section 2. Investment vehicles and capital

a. What are the most common legal entities and vehicles used for COI in Mexico? How long do they take to become operational?

The most common corporations used for long-term investments are the limited liability stock corporation ["Sociedad Anónima" or SA] and the limited liability partnership ["Sociedad de Responsabilidad Limitada" or SDRL]. The latter has gained popularity as it serves as a pass-through entity in line with U.S. tax provisions. Joint ventures are also commonly used when a Mexican partner is preferred or needed for a specific business transaction.

Timeframes for an entity to become operational vary depending on the size and complexity of investment, however they tend to be prolonged if Foreign Investment Commission approval is required for restricted sectors.

b. What are the key criteria for establishment and operation of these vehicles that are relevant to COI (e.g. capital requirements, local directors)?

The key criteria for selection of a vehicle usually consists of:

• Capital size requirements
• International tax provisions
• National restricted industry
• Number of employees
• Difficulties of share transfers.

Foreigners (regardless of nationality) in Mexico are permitted to appear as members of the board and to exercise director's authorities. However, local attorneys-in-fact are usually appointed to conduct day-to-day operations.

Section 3. Investment approval

a. Explain the process and timing for foreign investment approval (including any national security review).

In Mexico, most investments are conducted freely and foreign entities are granted equal rights as domestic companies. However, and in accordance with the Foreign Investment Law, some economic sectors are reserved for state authorities or limit foreign participation to a certain amount (i.e. conditioned investments), usually in the form of a percentage limit to the shareholding of a Mexican entity.

The authority in charge of approving conditioned investments is the Foreign Investment Commission, which has a 30-day period to resolve the investment options. Investors aiming to participate in such sectors are required to present in Spanish a writ containing:

• Details of the investment project
• General information of the investor
• Last annual report and activities report
• Incorporation charter
• Financial statements.

b. Briefly explain the investment restrictions for any specially regulated/restricted sectors (e.g. natural resources, financial services, telecom and infrastructure), including whether the government is entitled to any special rights (e.g. golden shares) in those sectors.

Sectors with certain investment restrictions (with varying limits and specifics) are:

• Oil and gas
• Electricity
• Domestic cargo and passenger motor carriers
• Domestic aviation carriers
• Broadcasters
• Explosives
• Development banks
• Ports operation.

In some of these sectors the Foreign Investment Law requires the Mexican operational entity to include within its by-laws a foreigner exclusion clause, i.e. an agreement between shareholders that expressly excludes any type of foreign participation, whether direct or indirect.

c. Which authority oversees competition clearance, when is notification mandatory, and what is the merger control process (including whether pre- or post-closing)?

The authority in charge competition clearance is the Mexican Competition Commission (COFECE). Notification is mandatory when the intended transaction surpasses certain monetary thresholds (approximately $80 million, though deals are analyzed on a case-by-case basis) and if it has an impact on Mexican market competition. Parties are not authorized to close before obtaining clearance from the Commission (pre-closing).

d. Are there any unique processes that could potentially block a foreign investment (e.g. consent from labor unions)?

No, Mexico has been a friendly jurisdiction in terms of receiving and treating foreign investors as part of its economic liberalization process initiated in the late 1980s.

e. Are there approval requirements when a foreign investor increases or exits its investments?

No, approval is not required in free sectors. With respect to conditioned investments, the Foreign Investment Commission is allowed to maintain close surveillance of any increases or exits that the investor may undertake.

Section 4: Tax and grants

a. Are there tax structures and/or favorable intermediary tax jurisdictions that are particularly useful for FDI into Mexico?

Mexico has signed treaties to avoid double taxation with more than 50 countries that contributes to protecting foreign investors. One of the most favorable and broadly used tax treaties to conduct inbound investments in Mexico is the one signed with the Netherlands, due to benefits including no withholding tax on dividend distributions from Mexico (rather than applying the 10% withholding tax set in the Income Tax Law), if certain conditions are satisfied, as well as a reduced 10% tax rate for capital gains derived on the disposal of shares in a Mexican entity, rather than the general 35% tax rate on the gain (or 25% on the gross). Benefits such as these, along with a robust bilateral investment treaty, make the Netherlands especially attractive to conduct investments into Mexico.

b. What are the applicable rates of corporate tax and withholding tax on dividends?

The current corporate income tax is 30% (resident individuals are subject to a progressive tariff up to 35%) and there is an additional 10% withholding tax for dividend distributions made by Mexican entities to foreign shareholders (unless a tax treaty benefit applies to the relevant jurisdiction of the shareholder's residence).

Dividend distributions among Mexican entities are not subject to the 10% withholding tax (this applies to distributions to individuals not entities). Foreign residents deriving income from a Mexican source (e.g. royalties, interest, capital gains, fees and salaries) are subject to income tax through withholding made by the individual making the payments. Different rates are applied depending on the type of income, but they usually range from 4.9% to 40%. Treaty benefits can reduce or even eliminate these withholdings provided that formal requirements are dully fulfilled (e.g. evidence tax residency).

c. Does the government have any FDI tax incentive schemes in place?

The Maquila program (IMMEX), which is an export promotion program authorized by the Secretariat of Economy, allows Mexican companies, including foreign companies' subsidiaries, to temporarily import raw materials, parts, components, containers and packaging as well as machinery and equipment to be used in the production of exported goods, with the benefit of duty deferral.

Benefits applicable to the IMMEX program include:

• Duty deferral of import duties and, in some cases, exemption from duties on import of raw materials.
• VAT exemption in temporary import until December 31, 2014, and an option to obtain a VAT credit if the company is granted a VAT certification by the tax authorities.
• Reduced processing fee.
• Avoiding payment of taxes in domestic purchases (when materials are incorporated in exported goods).
• Possibility to create virtual pedimentos (import/export declarations) between companies under the IMMEX program.
• Possibility to consolidated import declarations.
• Sales between IMMEX companies are subject to 0% VAT (under specific conditions).
• A foreign resident's acquisition of raw materials from local suppliers are subject to 0% VAT (under specific conditions).
• Not constituting permanent resident establishment if all production income is from exports.The IMMEX program has several modalities:
• Industrial: Applicable to an industrial process used to manufacture goods for export.
• Services: Applies to services rendered abroad or in association with exported goods.
• Holding company: The manufacturing operations of a certified holding company and one or more subsidiaries are included in the same program.
• Shelter program: One or several foreign companies provide technology and productive materials without directly operating under the IMMEX Program.
• Third part (outsourcing): A certified company without the facilities to perform productive process conducting manufacturing operations through third parties entered in the IMMEX Program.

d. Other than through taxes, does the government provide any other financial support to investors? If so, please provide an overview.

No.

e. Are there any reciprocal tax arrangements between Mexico and China? If so, how can they aid investors?

Yes. A tax treaty to prevent double taxation has been in force since 2007. The treaty grants reduced tax rates to Chinese residents on different items of income sourced in Mexico, such as a reduced 5% withholding tax on dividends paid by Mexican entities to Chinese shareholders (rather than the statutory 10%), a 10% withholding tax on interest paid by Mexican residents (rather than the statutory tax rate up to 35% in certain cases), and 10% withholding tax for royalty payments to a Chinese resident (rather than rates up to 35%). Finally, pursuant to the treaty, business profits are only taxed in the country of residence of the recipient, rather than in the sourced country (i.e. Mexico).

Section 5: FX controls and local operations

a. What foreign currency or exchange restrictions should investors be aware of?

No foreign currency or exchange restrictions are present in Mexico.

b. Are there any legal restrictions on bringing in foreign workers? How difficult is it to secure expatriate visas for shareholder representatives, senior managers and workers in practice?

Compliance with Mexican immigration requirements is the starting point for all foreign nationals or companies hiring foreign personnel in Mexico, as they establish that it is not possible for a foreign national to engage in any kind of activity in Mexico without a visa, immigration form or endorsement from immigration authorities.

According to Mexico's General Law on Population (Immigration Law), a foreign national can enter Mexico temporarily to perform a gainful or non-gainful activity, as long as the entry is legal and falls under one of the following general conditions:

• The foreign national plans to live in Mexico during his stay, with resources brought from abroad.
• His purpose is to analyze investment alternatives.
• He performs scientific, artistic, technical, advisory or sports activities, including human rights observation and election processes.
• He occupies confidential employee positions (shareholders, managers, directors and, generally speaking, any high-level position within the company).
• He attends board of directors meetings and assemblies.
• Any other legal activity.

Foreign nationals may enter Mexico either temporarily to conduct business or to live and work, provided they have the appropriate visa and/or immigration form authorizing the activities that they will carry out while in the country. It is also important to bear in mind the substantial discretion that Mexican immigration authorities have in applying immigration law and regulations, and the information below should be viewed with this limitation in mind.

In 2012, an executive order issuing the new Immigration Law and its regulations was published in the Federal Official Gazette.

According to these major reforms as well as Mexican immigration policy, foreign nationalities are classified into three groups: unrestricted, regulated and restricted. Different rules apply to each category.

Registration certificate

Mexican companies hiring foreign personnel must be registered with the Ministry of Interior and National Immigration Institute, by means of an official ruling known as the “Employer's Registration,” which serves to attest the incorporation and legal capacity of the sponsoring company.

Points and quota system

Immigration proceedings will be subject to a points and quota system, established within the Immigration Law and its regulations:

Quotas: List of occupations, geographical regions, immigration status (authorized activities) and/or the combination thereof. The immigration authorities will verify whether the “threshold” of a particular occupation within an immigration status has been reached.

Points: Based on educational level, job experience, proposed investment amounts, Spanish language fluency, Mexican cultural knowledge, international awards and others.

The regulations do not specify the type of categories, the points' allocation system or minimum score necessary to obtain permanent residence, though they provide that the points are revised every three years.

The points and quota systems are not yet specifically defined and are to be published in the Federal Official Gazette.

Section 6: Dispute resolution

a. Does Mexico have a bilateral investment protection treaty with China or other locations commonly used for investing into the country?

Mexico has not signed a bilateral investment treaty with China.

b. How efficient are local courts' enforcement and dispute resolution proceedings, and are there any procedural features foreign investors must be aware of?

The Mexican judiciary has been subject to a number of reforms in recent years, including a major overhaul in its federal criminal courts. The tendency is to conduct a transition from written and formal proceedings into oral advocacy and simplified processes. Despite well-oriented reforms, proceedings in local courts tend to be lengthy and sometimes subject to certain difficulties.

c. Do local courts respect foreign judgments and are international arbitration awards enforceable?

Under Mexican law, parties to a dispute (regardless of nationality) are subject to the same rights and fair treatment in the course of judicial proceedings, including enforcement of any judgments.

As for arbitral awards, Mexico has an advanced legal framework considering that it signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (New York Convention) in 1971 and adopted the UNCITRAL Model Law on International Commercial Arbitration as its arbitration law in 1993 (with minor modifications).

d. Are local judgments and arbitration awards from Mexico generally enforceable in other jurisdictions?

Yes, Mexican judgments and arbitral awards are generally enforceable abroad, however, this depends on the treatment they are provided in the jurisdiction.

Author biographies

Ricardo Lan

Ricardo Lan obtained his law degree with honors at Universidad Iberoamaericana (1989) and his L.L.M. from Tulane University, where he received a scholarship award. Ricardo also passed the Louisiana State Bar Examination in 1996 and is therefore authorized to practice in Louisiana, USA. Ricardo is an of counsel in the Corporate and Transportation Practice groups at Basham's Mexico City office.

He has provided advice for more than 25 years to domestic and international companies, many highly regarded in the aviation, bus, cargo and telecomm industries, on corporate, financial and regulatory matters. Ricardo has also acted as the leading attorney for consortiums participating in key transportation infrastructure projects in Mexico and also advised major corporations in Mexico on complex entry and sensitive regulatory issues.

Ricardo has lectured in numerous forums in Mexico, the U.S. and Europe on Mexican corporate and transportation laws. He has been listed as a leading attorney in Latin America by Chambers & Partners. He has also held leading positions in organizations such as the Bomchil Group, chaired committees at the Mexican National Association of Corporate Attorneys (ANADE) and currently serves as a board member of First Law International based in Brussels.

Topaqui Diaz

Topaqui Díaz is a senior associate within the International Trade and Customs Practice and part of Basham's China Group in Mexico City. Her practice focuses on Customs and Foreign Trade Law, with experience on consulting and litigation, analysis of free trade agreements and anti-dumping investigations. Topaqui's main clients are in the automotive, telecom, mining, food and beverage industries. She holds a master's degree from Southeast University in Nanjing, China (SEU) and is a fluent English and conversational Mandarin speaker. She is a member of the Mexican Bar Association, International Chamber of Commerce and Inter-Pacific Bar Association.

Arturo Oropeza

Arturo Oropeza is an associate within the Corporate Practice and part of Basham's China Group in Mexico City. His practice focuses on mergers & acquisitions and antitrust, with particular emphasis on the transportation and telecom industries. He has experience acting as counsel in international commercial arbitration proceedings. A Mandarin studies graduate from Beijing Language and Culture University (BLCU), Arturo has also worked at the Sino-Mexican Chamber of Commerce in Shanghai.

墨西哥

Ricardo Lan、Topaqui Diaz 和 Arturo Oropeza

Basham, Ringe y Correa

第一节︰中国境外投资