4. Industrial Policies
Land grants or discounts, tax deductions, and technology, innovation, and workforce development funding are commonly used incentives. Additional federal foreign trade incentives include: (1) IMMEX: a promotion which allows manufacturing sector companies to temporarily import inputs without paying general import tax and value added tax; (2) Import tax rebates on goods incorporated into products destined for export; and (3) Sectoral promotion programs allowing for preferential ad-valorem tariffs on imports of selected inputs. Industries typically receiving sectoral promotion benefits are footwear, mining, chemicals, steel, textiles, apparel, and electronics.
Foreign Trade Zones/Free Ports/Trade Facilitation
The new administration launched a two-year program in January 2019 that established a border economic zone (BEZ) in 43 municipalities in six northern border states within 15.5 miles from the U.S. border. The BEZ program entails: 1) a fiscal stimulus decree reducing the Value Added Tax (VAT) from 16 percent to 8 percent and the Income Tax (ISR) from 30 percent to 20 percent, 2) a minimum wage increase to MXN 176.72 (USD 8.75) per day, and 3) the gradual harmonization of gasoline, diesel, natural gas, and electricity rates with neighboring U.S. states. The purpose of the BEZ program is to boost investment, promote productivity, and create more jobs in the region. Interested businesses or individuals must apply to the government’s “Beneficiary Registry” by March 31 demonstrating income from border business activities comprise at least 90 percent of total income. The company headquarters or branch must be located in the border region for at least 18 months prior to the application. Sectors excluded from the preferential ISR rate include financial institutions, the agricultural sector, and export manufacturing companies (maquilas).
Separately, the administration announced plans to review and possibly end the Special Economic Zones (SEZs) program throughout the country.
Performance and Data Localization Requirements
Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals. Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category. Mexico does not follow a “forced localization” policy—foreign investors are not required by law to use domestic content in goods or technology. However, investors intending to produce goods in Mexico for export to the United States should take note of the rules of origin prescriptions contained within NAFTA if they wish to benefit from NAFTA treatment.
Mexico does not have any policy of forced localization for data storage, nor must foreign information technology (IT) providers turn over source code or provide backdoors into hardware or software. Within the constraints of the Federal Law on the Protection of Personal Data, Mexico does not impede companies from freely transmitting customer or other business-related data outside the country.
6. Financial Sector
Capital Markets and Portfolio Investment
The Mexican government is generally open to foreign portfolio investments, and foreign investors trade actively in various public and private asset classes. Foreign entities may freely invest in federal government securities. The Foreign Investment Law establishes foreign investors may hold 100 percent of the capital stock of any Mexican corporation or partnership, except in those few areas expressly subject to limitations under that law. Foreign investors may also purchase non-voting shares through mutual funds, trusts, offshore funds, and American Depositary Receipts. They also have the right to buy directly limited or nonvoting shares as well as free subscription shares, or “B” shares, which carry voting rights. Foreigners may purchase an interest in “A” shares, which are normally reserved for Mexican citizens, through a neutral fund operated by one of Mexico’s six development banks. Finally, Mexico offers federal, state, and local governments bonds that are rated by international credit rating agencies. The market for these securities has expanded rapidly in past years and foreign investors hold a significant stake of total federal issuances. However, foreigners are limited in their ability to purchase sub-sovereign state and municipal debt. Liquidity across asset classes is relatively deep.
Mexico established a fiscally transparent trust structure known as a FICAP in 2006 to allow venture and private equity funds to incorporate locally. The Securities Market Law (Ley de Mercado de Valores) established the creation of three special investment vehicles which can provide more corporate and economic rights to shareholders than a normal corporation. These categories are: (1) Investment Promotion Corporation (Sociedad Anonima de Promotora de Inversion or SAPI); (2) Stock Exchange Investment Promotion Corporation (Sociedad Anonima Promotora de Inversion Bursatil or SAPIB); and (3) Stock Exchange Corporation (Sociedad Anonima Bursatil or SAB). Mexico also has a growing real estate investment trust market, locally referred to as Fideicomisos de Infraestructura y Bienes Raíces (FIBRAS) as well as FIBRAS-E, which allow for investment in non-real estate investment projects. FIBRAS are regulated under Articles 187 and 188 of Mexican Federal Income Tax Law.
Money and Banking System
Financial sector reforms signed into law in 2014 have improved regulation and supervision of financial intermediaries and have fostered greater competition between financial services providers. While access to financial services – particularly personal credit for formal sector workers – has expanded in the past four years, bank and credit penetration in Mexico remains low compared to OECD and emerging market peers. Coupled with sound macroeconomic fundamentals, reforms have created a positive environment for the financial sector and capital markets. According to the National Banking Commission (CNBV), the banking system remains healthy and well capitalized. Non-performing loans have fallen sixty percent since 2001 and now account for 2.1 percent of all loans.
Mexico’s banking sector is heavily concentrated and majority foreign-owned: the seven largest banks control 85 percent of system assets and foreign-owned institutions control 70 percent of total assets. Under NAFTA’s national treatment guarantee, U.S. securities firms and investment funds, acting through local subsidiaries, have the right to engage in the full range of activities permitted in Mexico.
Banco de Mexico (Banxico), Mexico’s central bank, maintains independence in operations and management by constitutional mandate. Its main function is to provide domestic currency to the Mexican economy and to safeguard the Mexican Peso’s purchasing power by gearing monetary policy toward meeting a 3 percent inflation target over the medium term.
Mexico’s Financial Technology (FinTech) law came into effect in March 2018, creating a broad rubric for the development and regulation of innovative financial technologies. Although investors await important secondary regulations that will fully define the rules of the game for FinTech firms, the law covers both cryptocurrencies and a regulatory “sandbox” for start-ups to test the viability of products, placing Mexico among the FinTech policy vanguard.
Foreign Exchange and Remittances
The Government of Mexico maintains a free-floating exchange rate.
Mexico maintains open conversion and transfer policies. In general, capital and investment transactions, remittance of profits, dividends, royalties, technical service fees, and travel expenses are handled at market-determined exchange rates. Mexican Peso (MXN)/USD exchange is available on same day, 24- and 48-hour settlement bases. In order to prevent money-laundering transactions, Mexico imposes limits on USD cash deposits. Border- and tourist-area businesses may deposit more than USD 14,000 per month subject to reporting rules and providing justification for their need to conduct USD cash transactions. Individuals are subject to a USD 4,000 per month USD cash deposit limit. In 2016, Banxico launched a central clearing house to allow for USD clearing services wholly within Mexico, which should improve clearing services significantly for domestic companies with USD income.
There have been no recent changes in Mexico’s remittance policies. Mexico continues to maintain open conversion and transfer policies.
Sovereign Wealth Funds
The Mexican Petroleum Fund for Stability and Development (FMP) was created as part of 2013 budgetary reforms. Housed in Banxico, the fund distributes oil revenues to the national budget and a long-term savings account. The FMP incorporates the Santiago Principles for transparency, placing it among the most transparent Sovereign Wealth Funds in the world. Both Banxico and Mexico’s Supreme Federal Auditor regularly audit the fund. Mexico is also a member of the International Working Group of Sovereign Wealth Funds. The Fund is expected to receive MXN 520.6 billion (approximately USD 26 billion) in income in 2019. The FMP is required to publish quarterly and annual reports, which can be found at .
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Table 3: Sources and Destination of FDI
The data included in the IMF’s Coordinated Direct Investment Survey is consistent with Mexican government data.
|Direct Investment from/in Counterpart Economy Data, 2017|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$490,574||100%||Total Outward||$172,919||100%|
|United States||$215,899||44%||United States||$73,199||42%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
The data included in the IMF’s Coordinated Portfolio Investment Survey (CPIS) is consistent with Mexican government data.
|Portfolio Investment Assets, June 2018|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$62,148||100%||All Countries||$39,738||100%||All Countries||$22,410||100%|
|United States||$28,487||45.8%||Not specified||$21,340||54%||United States||$17,441||78%|
|Not specified||$24,204||39%||United States||$11,046||28%||Not specified||$2,864||13%|