[ESTABLISHING A BUSINESS ENTITY IN MEXICO] 332
Residents of Mexico (individuals and corporations) are subject to taxation on their worldwide income, irrespective of the source of income or their nationality. Business entities having the principal administration of their business in Mexico are considered Mexican residents for tax purposes. We would recommend consulting a Mexican accountant or tax expert if specific and further information is required regarding tax matters. Foreign Investment The Mexican Foreign Investment Law ( Ley de Inversión Extranjera ) (“ LIE ”) and its regulations regulate precisely foreign investments activities in Mexico. Such “foreign investment” could be done through: (a) the participation of foreigner investors, in any proportion, in the capital stock or equity of Mexican entities; (b) the activities performed by Mexican companies with majority of foreign capital stock or equity; and (c) the participation of foreign investors in the activities and actions contemplated by the LIE and its regulations. There are a set of rules to be observed in connection with: (i) foreign ownership of real estate properties located in Mexico; and (ii) economic activities restricted to Mexican companies incorporated with the participation of foreign investment in Mexico. (1) Real Estate. A Mexican entity with foreign investment (foreign shareholders or partners) may acquire a real estate property in Mexico; however, it should be noted that, if such
property is located within what is known as the “restricted zone” ( zona restringida ) which comprises an area of 100 kilometers (62.13 miles) across the Mexican border and 50 kilometers (31.06 miles) across the Mexican beaches and is acquired for residential purposes, then, such Mexican entity (as well as foreign individuals or foreign corporations) may not directly acquire such property. Residential purposes shall be considered as those destined exclusively for living purposes of the owner or third parties. In such cases, a Mexican trust must be created whereto the property is settled in trust and whereby such Mexican entity, foreign individual or foreign entity is appointed as beneficiary thereof (no real estate rights can be owned by such Mexican entity, foreign individual or foreign entity, only trust rights and the maximum duration of such trust is 50 years, subject to renewal); provided further that, in such cases it is required to obtain a permit from the Mexican Ministry of Foreign Affairs ( Secretaría de Relaciones Exteriores ) (“ SRE ”) in order for such trust to own the relevant real estate property in the “restricted zone”. As of today, there have been no amendments to the relevant laws in order to delete this Foreign Investment restriction on real estate. On the other hand, a Mexican entity with foreign investment but which agrees to a statement called the “Calvo Clause” (which basically states that any foreign shareholder or partner shall be considered to be Mexican with respect to such participation or interest and shall agree not to invoke the protection
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ILN Corporate Group – Establishing a Business Entity Series
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