Doing. Business In Mexico Legal Framework 2017

Transcription

1 Doing Business In Mexico Legal Framework

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3 BUSINESS IN CONTENT INTRODUCTION MOST COMMON TRADING COMPANIES: ESTABLISHMENT MIGRATORY FOREIGN TRADE ADVANTAGES OF INVESTING IN STOCK COMPANY PROMOTING INVESTMENT (SAPI, FOR ITS ACRONYM IN SPANISH) LABOR RELATIONS TAX SYSTEM LEGAL FRAMEWORK TRADING COMPANIES: INVESTMENT VEHICLES FOREIGN INVESTMENT WORKING CONDITIONS CONTACT

4 Doing Business In Mexico Legal Framework We are living in a time of transition, moving towards a new world order of accelerated and turbulent transformation that affects all spheres of our existence. In this context, competitive nations that see the future with greater optimism are those whose economic, political, and social facets are conducive to the development of businesses and, therefore, to the establishment of companies. This is the case of Mexico, a country of great opportunities for direct investment. For entrepreneurs, business people who consider Mexico as an option for growth, ARRANGOIZ & ASOCIADOS Business Counsel has prepared this introductory document on the main legal elements to consider in making decisions related to the Mexican business environment. Our purpose is to contribute decisively in the insertion of our country to the global economy by facilitating the participants all the adaptation and operation processes in this fascinating and challenging task. 3

5 ADVANTAGES OF INVESTING IN Worldwide, Mexico is one of the nations that offers the most advantages to foreign investment. With an internal market of over 120 million people, Mexico is open to investment from other counties, and provides investors with legal security through its laws and courts, and various agreements for the reciprocal promotion and protection of the investments. It is a politically and socially stable democracy, whose production costs are highly competitive, counting with a young, work-oriented, and increasingly qualified workforce. With an unbeatable geographic location, a very attractive exchange rate and total openness to the global economy, Mexico has signed several free trade agreements; not only in the American continent, but also with the European Union, the Middle East, and Asia. It has also concluded agreements to avoid double taxation with several countries. Administrative procedures for the establishment and start-up of new companies are particularly agile and efficient in all the states of the Mexican Republic. Below there is a brief compendium of the fundamental legal aspects for doing business in Mexico. 5

6 These companies, regulated by the General Law of Commercial Companies (hereafter LGSM, for its acronym in Spanish), are those created under a company name, through the agreement of wills of a group of people called partners or shareholders, who join their efforts and capital for the realization of a common economic purpose for profit. The types of trading companies are: COMMERCIAL COMPANIES: Stock Company (S.A.) Limited Liability Company Partnership in Collective Name Simple Limited Partnership Limited Partnership by Shares Cooperative Entity Simplified Stock Company INVESTMENT VEHICLES Creation Commercial companies are incorporated before a Notary, by means of a public deed that contains the bylaws by which the company will be governed, among other agreements. This is after obtaining permission for the use of the company name, issued by the Ministry of Economy. LGSM requires a minimum of two partners or shareholders, individuals or legal entities, national or foreign, to form a company. The exception is simplified joint-stock companies, which may be incorporated by one or more individuals through the Ministry of Economy. 7

7 Variable capital It is a modality that can be adopted by commercial companies at the time of incorporation or at a later date. Increases or decreases in the capital stock of the company are carried out in accordance with the formalities established in the bylaws, complying with the conditions set forth therein for such purpose. In case of no formalities, it should be observed what is established in the LGSM, depending on the type of company in question. Administration of the commercial entity A sole administrator or a board of directors oversee the administration. They are granted a temporary and revocable mandate, and they may or may not be partners or shareholders. The administration may be overseen by a sole administrator or by a board of directors. The administrators will have the responsibilities inherent to their position, resultant from the LGSM and the bylaws. Surveillance of the commercial entity The surveillance of the company is carried out by one or more temporary and revocable examiners, who may or may not be partners or shareholders of the company. Among the powers of these examiners are: to inspect the documentation, operations, records and other supporting evidences of the activities of the company; to annually report to the general partners or shareholders meeting on the veracity, sufficiency, and reasonableness of the information presented by the sole administrator or board of directors; and to convene ordinary and extraordinary shareholders meetings in case of omission by the administrators. Partners or shareholders meetings The partners or shareholders meeting is the supreme body of the company and is responsible for agreeing and ratifying all acts and operations of the company. Its resolutions will be fulfilled by the person designated by the same or, in the absence of a delegate, by the sole administrator or board of directors. There are two types of parters or shareholders meetings: Ordinary meetings Article 180 of the LGSM establishes that ordinary meetings are those convened to deal with any matter other than those listed in Article 182 of the same law, i.e., those matters reserved to the extraordinary shareholder meetings. Article 181 of the LGSM stipulates that ordinary meetings must be held at least once a year within four months of the end of the fiscal year and address, inter alia, the following matters: Debate, approve or modify the annual report of administrators and examiners. If necessary, appoint the sole administrator or board of directors and the examiners, or ratify the existing ones. Determine the emoluments corresponding to the administrators and examiners, when these have not been established in the bylaws. For an ordinary meeting to be legally constituted, at least half of the social capital must be present or represented, and its resolutions shall be valid when approved by the majority of those present or represented, unless otherwise determined in the bylaws, but always respecting the limits established in the LGSM. Extraordinary meetings Those that deal with issues involving amendments to the bylaws, in cases covered by article 182 of the LGSM, such as: extension of the duration of the partnership, early dissolution of the society, increase or reduction of capital, merging with another company, among others. 8 9

8 For this type of shareholders meetings to be held, three-fourths of the capital must be represented; and resolutions will be taken by the vote of the shares that represent half of the capital stock or parthership. Public Registry of Commerce All trading companies must be registered in the Public Registry of Commerce of the place where it has its registered office. Corporate Books Records All companies are required to keep the following corporate records: Register of Minutes of shareholders meeting minutes. Register of partners / shareholders of the company. Register of Changes in Capital. In addition, in practice it is customary to carry a fourth Register of the Board of Directors meetings, but it is not mandatory. In Mexico, due to legal and fiscal effects, all fiscal years end on December 31st. Powers of Attorney By their very nature, administrators and the partners or shareholders meetings have various powers of attorney over the company, which may be delegated to persons outside the company (legal representatives) through the granting of powers of attorney. This grant is made by public deed and its faculties under said powers of attorney may be limited to the realization of certain purposes, as determined by the shareholder meetings. Examples of the above are 1. General power of attorney for lawsuits and collections. These powers authorize the agent to represent the company before the courts, to defend the rights of the same, and to act in contentious matters in their prejudicial stage. 2. General power of attorney for acts of administration. These powers of attorney allow the agent to represent the company in all types of non-contentious acts, whose purpose is to carry out the corporate purpose and obligations derived from them before any type of person, whether individual or legal entity, private or governmental entity. 3. General power of attorney for acts of domain. These powers of attorney allow the agents to act with powers of attorney of domain over the assets of the company, in such a way that the agent can sell, buy, tax, and impose property limitations to movable and immovable property belonging to the company. 4. General power of attorney for subscription of securities. These powers of attorney allow to endorse unconditional payment obligations on behalf of third parties, sign checks, endorse contracts under which the company is indebted, and guarantee payment obligations on behalf of third parties. 5. General power of attorney of substitution. Through this power of attorney, it is permitted to delegate and revoke powers of attorney from third parties to comply with the purposes of the company, within the powers of attorney of each agent. There are also general powers of attorney over the powers of attorney described above; for specific issues such as powers of attorney in labor, criminal, tax matters, or to participate in public tenders

9 The most common commercial companies are the Stock Company and the Limited Liability Company. Stock Company (S.A.) This type of company is one of the most used in Mexico. It exists under a social denomination and its capital is divided into shares. It is comprised of at least two shareholders, who are only obliged to pay their shares. It is incorporated by public deed. The distribution of profits and social capital are made in proportion to the share of each shareholder in the company s capital stock. MOST COMMON TRADING COMPANIES: ESTABLISHMENT Stock companies have no minimum capital. Their capital stock will be established in the bylaws, which by obligation must be fully subscribed and paid at the time of the creation of the company. The shares are of equal value and confer equal rights. However, it may be stipulated that the share capital is divided into several classes of shares, with special rights for each class. Each share is entitled to only one vote in the decisions of the assembly, though it may be stipulated that a part of the shares shall have the right to vote only in the cases established by the LGSM. Limited Liability Company (in Mexico: S. de R.L.) It is incorporated between partners obligated only to the payment of their contributions, in which the responsibility of the same is limited to the amount of their investment. As in the case of the Stock Company, a minimum capital is not required to establish a Limited Liability Company. LGSM establishes that the social capital will be that which is established in the social contract. The capital will be divided into social participation that may be of unequal value and category, but which will be a multiple of a Mexican peso in every case. The social participation cannot be represented by negotiable securities, to order, or to the bearer, since they will only be transferable in the cases and requirements established by the LGSM. 13

10 DOING Regulated by the Stock Market Law, a Stock Company Promoting Investment provides in certain respects greater flexibility to the rights of shareholders and minorities. It is not subject to supervision by the National Banking and Stock Commission, and it does not require a registration in the National Stock Registry for the issuance and offer of its shares, unless it is intended to make a public placement. A SAPI allows deciding on the following matters without being subject to the LGSM. STOCK COMPANY PROMOTING INVESTMENT (SAPI, FOR ITS ACRONYM IN SPANISH) Restrictions on the transmission of shares. Rights of separation, withdrawal or amortization of shares. Issuance of shares with limited voting rights, non-voting shares, shares without economic rights, shares with special corporate rights. Rules regarding the distribution of dividends. Veto or special voting rights. Rights of preference in decision making. Compared to an S.A., SAPI offers greater protection at the corporate level to minority shareholders. For example, the S.A. requires the agreement of 25% of the capital to appoint directors and examiners, whereas in the SAPI the agreement of 10% is enough. The S.A. requires the agreement of 33% of the share capital stock to convene assemblies, whereas in the SAPI the minimum is 10%. An S.A. requires the agreement of 33% of the social capital stock to demand civil liability against the administrators, whereas in the SAPI 20% is enough. SAPI can become public by registering its shares in the National Stock Registry and listing it on the Mexican Stock Exchange. It can also acquire its own shares, something that is prohibited for an S.A. SAPI shareholders may settle agreements among themselves on the following topics: Obligation to never develop a line of business that competes with the SAPI Rights and obligations for stock options (purchase and sale of shares) Agreements for the disposal of shares in public offering Agreements on rights of preference Agreements on the right to vote in shareholders meetings SAPI should always be managed by a Board of Directors, never by a sole administrator. 15

11 In accordance with the Foreign Investment Law (LIE, for its acronym in Spanish), all commercial companies incorporated in Mexico must stipulate in their bylaws an agreement by which foreign partners declare themselves obligated to be considered as Mexicans regarding shares, social shares or rights acquired with them, assets, rights, obligations, concessions, interests they own, and all those rights and obligations derived from the contracts of which such companies are parties; and, therefore, not to invoke the protection of their governments. Otherwise, they must include a foreign exclusion clause stating that the company will not admit foreign participation in its share capital. According to the LIE, foreign investors can participate in any proportion in the social capital of Mexican companies, acquire assets, or enter new fields of economic activity. However, there are certain activities reserved for the State or for Mexicans, as well as other restricted activities, in which the percentage of foreign investment is limited. FOREIGN INVESTMENT Reserved activities To the Mexican State. Exploration and extraction of petroleum and other hydrocarbons; planning and control of the national electricity system, as well as the public electricity transmission and distribution service; nuclear power generation; radioactive minerals; telegraphs; radiotelegraphy; postal service; issuance of banknotes; coinage; control, supervision, and surveillance of marine ports, airports and heliports; and others that the applicable legal provisions expressly indicate. To Mexicans or Mexican legal entities with a foreign exclusion clause. Domestic ground transportation of passengers, tourism and freight, not including messenger and parcel services; development banking institutions, in the terms of the law of the matter; and the provision of professional and technical services that the applicable legal provisions expressly indicate. Foreign investment cannot directly participate in the aforementioned activities and legal entities, neither through trusteeships, agreements, social or statutory agreements, or pyramid schemes, nor through any other mechanism that grants them control or participation, except as provided in the LIE. 17

12 Restricted activities Foreign investment can participate: A. Up to 10% in cooperative production companies. B. Up to 25% in domestic air transport, air taxis and specialized air transport. C. Up to 49% in the manufacture and marketing of explosives, firearms, cartridges, ammunition and fireworks, not including the acquisition and use of explosives for industrial and extractive activities or the manufacture of explosive mixtures for the consumption of those activities; printing and publication of newspapers of exclusive circulation in national territory; T-series actions of companies that have agricultural, livestock and forestry land; fishing in freshwater, coastal areas, and exclusive economic zones, excluding aquaculture; full port administration; port pilotage services to vessels for inland waterway operations; shipping companies engaged in the commercial exploitation of vessels for inland navigation and coasting, with the exception of tourist cruises and the operation of dredges and naval vessels for the construction, maintenance and operation of ports; supply of fuels and lubricants for ships, aircraft and railway equipment; and broadcasting. In the latter case, the maximum foreign investment will be established according to the existing reciprocity with the country in which the investor or the economic agent who ultimately controls the latter, directly or indirectly, is incorporated. The limits for the participation of the foreign investment indicated in this article cannot be surpassed directly, neither through trusteeships, agreements, social or statutory agreements, or pyramid schemes, nor through any other mechanism that grants them control or participation, except as provided in the LIE. The LIE establishes that a favorable resolution of the National Foreign Investment Commission is required for foreign investments to participate in a percentage higher than 49% in the economic activities and societies mentioned below: Private kinder garden, elementary, middle, upper middle, upper and combined education services. Legal services. Construction, operation, and exploitation of railways constituting a general means of communication and provision of the public rail transport service. The above, only when the total value of assets of the companies in question exceeds the amount determined annually by the commission itself at the time of submitting the purchase request National Registry of Foreign Investments (RNIE, for its acronym in Spanish) Any foreign person, individual or legal entity, who intends to carry out activities in Mexican territory, either by itself, through a Mexican company or through a trusteeship, must be registered in the RNIE for the Mexican Government to have knowledge of the foreign investment participating in Mexico. The information provided to the RNIE is not of a public nature and is for statistical purposes only. The following procedures are carried out in the RNIE: registrations, renewals, cancellations of registrations, notices, reports, and annotations. Port services to vessels to carry out their inland navigation operations, such as towing, rope mooring, and launching. Shipping companies dedicated to the utilization of boats exclusively in high traffic. Concessionaire companies of public service aerodromes

13 The entry and legal establishment of foreigners with plans to carry out remunerated and non-remunerated activities within Mexican territory are regulated by the General Migration Law and its regulations. In this context, foreigners can stay in the national territory under the conditions of stay, using: A. Visitor visa without permission to carry out remunerated activities, which authorizes a foreigner to visit any place destined to the international transit of persons and to request their entry to national territory, with the purpose of staying for an uninterrupted period no longer than one hundred and eighty days counted from the date of entry. MIGRATORY B. Visitor visa with permission to carry out remunerated activities, which authorizes a foreigner to visit any place destined to the international transit of persons and to request their entry to national territory, with the purpose of staying for an uninterrupted period no longer than one hundred and eighty days counted from the date of entry and of carrying out remunerated activities. C. Visitor visa to carry out adoption procedures, which authorizes a foreigner linked to an adoption process in the United Mexican States to visit any place destined for the international transit of persons and to request their entry to national territory, with the purpose of staying in the country until the resolution is issued. D. Temporary residence visa, which authorizes a foreigner to visit any place destined to the international transit of persons and to request their entry to national territory with the purpose of staying no longer than four years. 21

14 Proof of employer s registration E. Temporary student visa, which authorizes a foreigner to visit any place destined to the international transit of persons and to request their entry to national territory, with the purpose of staying for the duration of the courses, studies, research projects or training, proved to be carried out in educational institutions belonging to the national educational system. F. Permanent residence visa, which authorizes a foreigner to visit any place destined to the international transit of persons and to request their entry to national territory, with the purpose of staying indefinitely. These migratory conditions are the forms in which the visas granted to foreigners are classified depending on the activities to be carried out in Mexico, as well as to prove their legal stay in national territory. Natural or legal persons that publish an offer of employment for foreigners or who plan to hire someone from another country, must previously have the proof of employer s registration issued by the National Institute of Migration. This proof of employer s registration will allow them to prove their legal personality and powers of attorney, so that in subsequent procedures in which they act as job bidders or promoters, they will only need to present this proof for proving legal personality and powers of attorney of the legal representatives. Such proof must be updated annually. To obtain the proof of employer s registration, employers must register the tax address of their company. In case of having several branches or offices, they must register the addresses in which the foreign persons are working and, where appropriate, the data of the representative of each of those offices or branches

15 Labor relations are regulated by the Federal Labor Law (LFT, for its acronym in Spanish), which establishes minimum working conditions and rights in favor of workers, whether they are organized in unions or not. These conditions and rights are inalienable and apply to all workers who provide a personal and subordinate service. LABOR RELATIONS Types of labor relations Individual relations. They are given by and between an employer and an employee, to perform a defined set of activities. They can exist for a limited or unlimited time, or for a specific activity. Collective relations. They are presented when workers are organized in unions, with which the employee has signed a collective labor agreement. It is not essential for the contract to be in written form, as in this case the conditions established in the LFT apply. However, it is advisable to have it in written form to determine the working conditions and avoid subsequent litigation. 25

16 Minimum wage. It is the minimum amount that a worker must obtain as consideration for his services per day of work. According to a resolution published in the Official Gazette of the Federation on December 2016 by the National Minimum Wage Commission, the current general wage is $80.04 Mexican pesos. Working day. The employee and the employer can establish the duration of the day, which in no case may exceed eight hours a day, seven hours in a night shift, and seven and a half hours in a mixed shift. WORKING CONDITIONS Overtime. When, due to extraordinary circumstances, the worker provides his services for longer than what is established as a working day, the worker may do so up to three hours in a day and up to three times in a week. Overtime is paid with an additional 100% of the cost of the work hour in normal time. In case the overtime exceeds nine hours a week, the employer is obliged to pay the worker the excess time with an additional 200%, without prejudice to the penalties established in the LFT. 27

17 Days off. For every six days of work, the worker will enjoy, at least, a day off with full salary. The following non-working days are mandatory: Annual Bonus. Workers are entitled to an annual payment equivalent to at least 15 days of salary, which is delivered before December 20th of each year. If a worker stops working before that date, they must receive the proportional part of the days he worked. January 1st The first Monday of February The third Monday of March May 1st September 16th The third Monday of November December 1st December 25th First day of the year Constitution Day Anniversary of the birth of Benito Juárez Labor Day Independence Day Revolution Day (every six years when it corresponds to the transfer of the Federal Executive Power) Christmas Seniority premium. It is a payment equivalent to 12 days of salary for each year of work, which is delivered in accordance with the following: When the separation is voluntary and the worker has worked 15 years or more. In case of death of the worker regardless of the years worked. In case of dismissal ( justified or unjustified). Unjustified dismissal. If the worker can demonstrate to the Conciliation and Arbitration Board ( JCA, for its acronym in Spanish) that they were dismissed without justifiable cause, the employer will be obligated to make the following payments: Three months salary. 20 days of salary for each year worked. Premium of seniority, equivalent to 12 days of salary for each year worked. Unpaid wages from dismissal to moment of resolution of the JCA. Accumulated benefits. Holidays. Workers enjoys six days for holidays after completing one year of work, and will have two more days for each additional year, during the first five years. From the fifth year onwards, two additional days are added for each five-year period. Holidays are paid in full, in addition to a holiday amount equivalent to 25% of the normal salary. Maternity. Women shall have the right of not working for six weeks before the date of birth and six weeks after the date of birth. Unions. For its legal existence, 20 or more workers are required. The purpose of trade unions is the study and defense of the common rights and interests of the workers and the negotiation of the working conditions with the employers

18 FOREIGN TRADE The Mexican Government maintains the policy of gradually eliminating import restrictions. Before importing, it is necessary to register in the General Register of Importers before the Ministry of Finance and Public Credit and, in some cases, in the Register of Specific Sectors, depending on the goods to be imported. To this end, the company must be up to date in fulfilling its tax obligations, accredit before the customs authorities that it is registered in the Federal Taxpayers Registry and comply with certain requirements established by the Customs Law. 31

19 The tax provisions are scattered in different legal systems, but mainly in the Political Constitution of the United Mexican States, the Income Tax Law, the Value-Added Tax Law, and the Fiscal Code of the Federation. Laws in Mexico, including fiscal laws, are at one of the following levels: A. Federal laws B. State laws C. Municipal laws TAX SYSTEM Among the federal tax laws in Mexico, the Fiscal Code of the Federation, the Income Tax Law, and the Value-Added Tax Law stand out. Fiscal Code of the Federation It contains the administrative procedures applicable to federal taxes, unless specific provisions are contained in other laws. It also regulates, among other matters, the address, residence, registration, returns and limitations, fiscal year, updates, nullity lawsuits, and other appeals against tax resolutions. Contributions include: taxes, social security contributions, contributions of improvements, rights and accessories of the contributions and uses. 33

20 Income Tax Law This law defines the concepts of residence and source of wealth for determining which persons are subject to the payment of income tax. All those men and women that according to the Tax Code are considered residents in Mexico, must pay tax on the income obtained worldwide. Specific provisions of the law define the cases in which an income received by a nonresident in the country qualifies as a source of wealth in Mexico. The terms of permanent establishment and fixed base were incorporated into the income law to tax nonresidents when they obtain income from a fixed base or establishment located in Mexico. The rate varies depending on the lower limit in which the base is located, and can range from 1.92% to 35% for natural persons. For legal persons, a fixed rate of 30% is established. Value-Added Tax Law All persons who dispose of goods, provide independent services, grant temporary use or enjoyment of goods, or import goods and services in national territory are obliged to pay this tax. The applicable rate is 16% at the national level. However, those obligated to pay this tax transfer it expressly to the people who purchase the goods, use or enjoy them temporarily, or receive services. 34

21 We hope this document will be useful and of interest. If you would like to know more about how to do business in Mexico, please contact us. At ARRANGOIZ & ASOCIADOS Business Counsel we may advice and assist you with the highest standards of quality and service. Gonzalo Arrangoiz T: +(52 55) / M: +( ) garrangoiz@

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