Use of Neutral Investment by Foreign Investors in Mexico.

September 26, 2006
Use of Neutral Investment by Foreign Investors in Mexico.

Mexico’s current Foreign Investment Law (FIL) establishes, as a general rule, that except in the case of activities exclusively reserved to the Mexican Nation, foreign private capital may participate at a one hundred percent (100%) level in the capital of Mexican entities. Notwithstanding such, there are stillvarious activities for which the direct participation of foreign capital is either prohibited or restricted to a pre-determined limit.In some of these cases, however, the FIL allows for exceptions via the authorized use of neutral investment. Neutral investmentgrants limited or no corporate rights to the owners of such shares and is not computed, for legal purposes, as foreign investmentin the capital of a Mexican entity. Neutral investment can be used with respect to (i) activities that are reserved to Mexicanindividuals or Mexican entities that do not admit foreign owners, such as certain transportation services, retail sale of gasolineand distribution of liquefied petroleum gas, radio broadcasting and television services, credit unions, development banks andcertain professional and technical services; and (ii) regulated activities that admit a limited percentage of foreign investment,such as domestic air transportation services, insurance and bonding institutions, currency exchange, bonded warehouses,ownership of Series “T” shares representing agricultural, cattle, or forest land contributed to a Mexican company, cable andtelephone services, fisheries and port administration.

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