An Overview of Recent Amendments to the Rules for Establishing Branches of Certain Foreign Companies in Mexico Pursuant to the Mexican Foreign Investment Law

This GT Alert provides a general overview of the recent amendments to the Rules for Establishing Branches of Foreign Companies in Mexico pursuant to the Mexican Foreign Investment Law, applicable to branches of companies from the United States of America, Canada, Chile, Costa Rica, Colombia, Nicaragua, El Salvador, Guatemala, Honduras, Uruguay, Japan and Peru.

On August 8, 2012, the “General Resolution which establishes the Criteria for the Application of  Article 17 of the Mexican Foreign Investment Law in relation to the Establishment of Foreign Companies in Mexico” (the “Resolution”) was published in the Mexican Official Gazette of the Federation by the Mexican Foreign Investment Agency (the “Agency”) of the Mexican Ministry of Economy.

Article 17 of the Mexican Foreign Investment Law (the “Law”) reads as follows:

“ARTICLE 17.- Notwithstanding the provisions of the international treaties and agreements of which Mexico is a party, the following shall obtain authorization from the Ministry (of Economy):
I.- Foreign companies which intend to perform commercial activities in Mexico on a regular basis, and
II.- Those referred to under article 2,736 of the Civil Code of the Federal District and for the Federation, which intend to establish in Mexico and that are not regulated by other applicable provisions.”

Pursuant to such provision, any foreign company purporting to establish a branch in Mexico was required to obtain authorization from the Agency and to register before the Mexican Foreign Investment Registry (the “Registry”). Such authorization required the filing and delivery of information and documents in connection with the parent company and with the relevant branch. Such information shall be furnished complying with requirements such as filing the documents translated into Spanish by an expert translator and notarized before a Mexican notary public.

The Agency issued the Resolution in order to eliminate the requirement to obtain any authorization from the Agency to establish a branch in Mexico of those companies created under the laws of the United States, Canada, Chile, Costa Rica, Colombia, Nicaragua, El Salvador, Guatemala, Honduras, Uruguay, Japan and Peru.

The purpose of such Resolution is to honor the free trade treaties and agreements entered into by Mexico with such countries and its obligation to provide “national treatment” to companies based in such countries.

In lieu of requesting the authorization from the Agency to establish a branch, the foreign company wishing to establish a branch in Mexico shall file a writ before the Agency stating under oath the following information:

a) its incorporation documents are not contrary to “public policy”;

b) the main activity is intended to be carried out in Mexico, and that such activities are within the provisions of Mexican Law;

c) it is duly incorporated pursuant to the laws of its country of incorporation;

d) it is domiciled in Mexico; and

e) a representative with a domicile in Mexico is  authorized to respond for the company´s obligations.

Furthermore, such writ shall be filed before the Registry to comply with the requirement for foreign companies to be registered before the Registry, as set forth under article 24 of the Mexican Commercial Code (Código de Comercio) and article 251 of the Mexican General Corporation’s Law (Ley General de Sociedades Mercantiles).

The Resolution eliminates certain  requirements that consumed time and resources, such as the notarization or legalization, as appropriate, of the incorporation documents, powers of attorney, current bylaws and other incorporation documents; the further translation and seal by a Mexican official expert translator; and the filing of the above before the Agency. Authorization from the Agency is no longer required since the furnishing of the writ described above will suffice.

Even though the requirements to establish a branch of a company created under the laws of the above mentioned countries were considerably diminished, there are several legal – and practical – reasons to consult with your Mexican lawyer about the advantages and disadvantages of establishing a branch of a foreign company in Mexico versus incorporating a Mexican entity.