New Criteria for the Establishment of Foreign Entities in Mexico

August 1, 2012
New Criteria for the Establishment of Foreign Entities in Mexico

On August 8, 2012, the Department of the Economy (SE) published the “General Resolution establishing thecriteria for the application of Article 17 of the Foreign Investment Law with respect to the establishment offoreign entities in Mexico.” In accordance with Article 17 of the Foreign Investment Law, foreign entitiesseeking to establish agencies or subsidiaries to regularly carry out business activities in Mexico must obtainauthorization from the SE, including those foreign entities that intend to establish representative offices withoutincome in Mexico. Additionally, such foreign entities should register with the Public Registry of Commerce inorder to legally transact business in Mexico. By means of such resolution, the SE, through the National ForeignInvestment Commission, has eliminated the need to obtain the authorization referred to above, in the spirit ofregulatory simplification and to promote investment in Mexico, and has replaced it with the requirement topresent a prior written statement in which the applicant states under oath: (i) that the formation documents are notcontrary to public policy and that the activities are legally permitted for foreign entities in Mexico; (ii) that theentity has been duly formed in accordance with the laws of the country of origin; (iii) that the entity will establishan agency or subsidiary, as the case may be, providing its domicile; and (iv) that the entity will have arepresentative domiciled in Mexico, authorizing such individual to formally respond for any obligations of theforeign entity in the event of a representative office without income. Furthermore, the new criteria stipulates that,for purposes of registration with the Public Registry of Commerce, if the entity will regularly carry out businessactivities, filing the written statement with an acknowledgment of receipt will suffice. The General Resolutionbecame effective the day after its publication, meaning August 9, 2012, and such ends the previous lengthyprocess required in order to establish branches of foreign entities doing business in Mexico, the same whichincluded preparing an application, issuance of an approval, designation of a domicile and representative, notice ofregistration, opening or commencement of operations, all pursuant to the obligations listed in the approval itself.It is important to note the importance of carefully evaluating the different options available for establishing andcommencing operations in Mexico, along with the risks and benefits that each provides.

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