Carlos Méndez, Territory Senior Partner, PwC México: Interview

Interview: Carlos Méndez

How high are the barriers for foreign companies to break into the Mexican market?

CARLOS MÉNDEZ:The Mexican government has adopted a policy of progressively reducing trade barriers to imports. Prior import licences from the Ministry of Economy are required for fewer than 1% of all the items included in the Customs tariff classifications. Naturally, however, special requirements apply with regards to health, ecology, and quality and consumer protection issues when importing products into Mexico. The Ministry of Economy requires all importers to re-label products so as to include, in Spanish, all relevant information about their contents, and the name and country of origin of the producer, as well as information about the importer and port of entry. All imported merchandise should also meet minimum sanitary and safety standards.

Some states’ economies are very well developed. Are there state-specific investment incentives?

MÉNDEZ:While state governments may be authorised to grant certain incentives or benefits within their jurisdiction, regional tax incentives remain limited to reduced real estate or payroll taxes today. Similarly, certain states may donate land for factories or sell industrial sites at reduced prices, as well as guarantee the availability of public services, such as electricity, water and transportation. Moreover, there are no state or local income taxes on corporate profits.

What restrictions are there on foreign investors taking a majority share in Mexican companies?

MÉNDEZ:Several categories require special permission before allowing more than 49% foreign participation. Many of these are related to transport and – before the structural reforms of 2014 – there were also severe restrictions on investments in the hydrocarbons industry. Transport areas where applications for a majority share are considered very carefully include port services allowing ships to conduct inland navigation operations; shipping companies operating on the high seas, air field operators and railways. Non-transport areas where majority foreign ownership needs special permission include private education services at any level from pre-school to college and the provision of legal services. Furthermore, government reforms to liberalise the energy sector have opened up new opportunities for foreign companies in oil and gas well drilling, as well as the construction of pipelines.

How advanced is Mexico’s legal system with regards to the usage of electronic contracts?

MÉNDEZ: In general, electronic contracts and web contracts are valid in Mexico under the Commercial Code and the Federal Civil Code. Legislation on advanced electronic signatures for commercial transactions has been in place since 2003. Civil and commercial courts are obliged to acknowledge the validity of electronic evidence, although certain courts – such as labour courts – are not under the same obligation.

Although certain documents such as promissory notes must be presented in hard copy and with handwritten signatures to be valid in court, electronic signatures are increasingly used at the government level, as well as in government-citizen communications, including public bids, foreign investment reporting obligations and tax reporting obligations.

To what extent do the requirements of labour law interfere with the way businesses are run?

MÉNDEZ:Since 1963 almost all businesses with employees have been required to distribute a portion of annual profits among their employees, except the principal director. Employees are entitled to receive an amount equal to 10% of adjusted taxable income. Certain businesses remain exempt from this requirement, including newly established concerns that manufacture a new product during their first two years, and mining concerns during exploration. The right to share in the profits does not, however, give workers the right to intervene in the functioning of the administration.