Foreign Investment Rules in Mexico: Restricted Sectors, Approvals and Real Estate

Mexico's Foreign Investment Law (Ley de Inversión Extranjera, LIE) starts from an open position. Foreign investment may hold any percentage of the capital of Mexican companies. It may also acquire fixed assets, enter new fields of activity, manufacture new product lines, and open, expand or relocate establishments. The exceptions are the ones the law itself lists.

The law defines "foreign investment" broadly. It covers foreign investors holding any share of a Mexican company's capital, investment made by Mexican companies that are majority foreign-owned, and foreign participation in the other activities the law regulates. A "foreign investor" is any individual or legal entity of non-Mexican nationality, including foreign entities without legal personality, such as some funds.

Before investing, check where your activity sits among four categories: activities reserved to the State, activities reserved to Mexicans, activities with percentage caps, and activities where foreign investment above 49% needs prior approval.

Certain strategic areas are reserved exclusively to the Mexican State, as far as the functions defined by the applicable laws are concerned. They include exploration and extraction of oil and other hydrocarbons; planning and control of the national electricity system and the public service of electricity transmission and distribution; nuclear energy generation; radioactive minerals; telegraphs, radiotelegraphy and mail; issuing banknotes and minting coins; and control and supervision of ports, airports and heliports.

Other sector laws may still allow private participation around these functions, so a sector-specific legal review is essential.

Some activities are reserved to Mexican nationals or to Mexican companies whose bylaws exclude foreign shareholders. These are domestic land transportation of passengers, tourism and freight (courier and parcel services are not included), development banking institutions, and professional and technical services that other laws expressly reserve.

Foreign investors may not take part in these activities directly. They also may not do so through trusts, agreements, bylaw arrangements, pyramid structures or any other mechanism that gives them control or participation. The only exception is "neutral investment", explained below.

In some activities the law sets a maximum foreign shareholding. Foreign investment is capped at 10% in production cooperatives.

It is capped at 49% in a longer list. That list includes: manufacturing and sale of explosives, firearms, cartridges, ammunition and fireworks; printing and publishing newspapers circulated only in Mexico; series "T" shares of companies owning agricultural, livestock or forestry land; freshwater and coastal fishing and fishing in the exclusive economic zone (aquaculture excluded); integral port administration; port pilotage services for inland navigation; shipping companies operating vessels for inland and coastal navigation (with exceptions such as tourist cruises); supply of fuel and lubricants for vessels, aircraft and railway equipment; broadcasting, subject to reciprocity; and domestic air transport, air-taxi international transport and specialized air services.

These caps cannot be exceeded indirectly through trusts, agreements, pyramid structures or other control mechanisms. However, foreign investment made indirectly through a Mexican company that is majority Mexican-owned, and not controlled by foreign investors, does not count toward the cap.

For some activities, foreign investment may exceed 49% only with a favorable resolution from the National Foreign Investment Commission (Comisión Nacional de Inversiones Extranjeras, CNIE). These activities include port services for inland navigation (towing, mooring and lighterage), shipping companies operating only in international traffic, public-service airfields, private education at all levels, legal services, and the construction and operation of railways and public rail transport.

Separately, CNIE approval is needed for foreign investment to take more than 49% of any Mexican company whose total assets exceed a threshold the Commission sets each year. This can catch acquisitions in fully open sectors, so check the current threshold before signing.

The CNIE is made up of the heads of several federal ministries and is chaired by the Minister of Economy. It must decide within 45 business days of the application. If it does not, the application is deemed approved as filed. When evaluating an application it considers employment and training, technological contribution, environmental compliance and competitiveness. For national-security reasons it may block acquisitions by foreign investors.

"Neutral investment" is investment in Mexican companies or authorized trusts that does not count when calculating the foreign percentage of a company's capital. One example is non-voting shares or shares with limited corporate rights, with prior authorization from the Ministry of Economy and, where applicable, the National Banking and Securities Commission. The Ministry has 35 business days to decide, and silence means approval.

The Constitution bars foreigners from acquiring direct ownership (dominio directo) of land and water within a strip 100 km wide along the borders and 50 km wide along the coasts. This area is known as the restricted zone (zona restringida). Outside it, the State may grant foreigners the right to acquire property if they agree, before the Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores, SRE), to be treated as Mexican nationals with respect to that property and not to invoke their governments' protection. If they break that agreement, the property is forfeited to the Nation.

Foreign individuals buying property outside the restricted zone must first file that agreement with the SRE and obtain a permit. If the municipality lies entirely outside the zone, the permit is deemed granted unless a denial is published in the Federal Official Gazette (DOF) within five business days. If the municipality is partly inside the zone, the SRE has 30 business days to decide.

Inside the restricted zone, foreigners and Mexican companies with foreign shareholders use a bank trust (fideicomiso). The bank, as trustee, holds title, and the foreign beneficiary has the right to use and enjoy the property, including renting it out. The trust requires an SRE permit and may last up to 50 years, renewable on request. The SRE must decide within five business days at its central office, or within 30 business days if the application is filed at a state office. Silence means approval.

A Mexican company with foreign shareholders and the Calvo clause in its bylaws may directly own restricted-zone property used for non-residential purposes, such as hotels, factories or offices. It must notify the SRE within 60 business days of the acquisition. For residential property in the zone, it must also use a trust.

A foreign legal entity that wants to carry out commercial acts habitually in Mexico, for example through a branch, needs authorization from the Ministry of Economy. Authorization is granted if the company shows it was validly incorporated under its home law, its documents do not conflict with Mexican public order, and it establishes a branch or agency in Mexico. Complete applications must be decided within 15 business days, and silence means approval.

The National Registry of Foreign Investment (RNIE) is not public. The following must register within 40 business days: Mexican companies with foreign investment (including through a trust) or with neutral investment; foreign individuals and entities that habitually carry out commercial acts in Mexico; and trusts that grant rights to foreign investors. Registration must be renewed every year with an economic and financial questionnaire, and changes must be reported.

Penalties are expressed in multiples of the daily general minimum wage. Fines are 1,000 to 5,000 times that wage for investing without a required CNIE approval, 500 to 1,000 times for a foreign company trading habitually without authorization, and 30 to 100 times for missing, late or inaccurate RNIE filings. Sham arrangements to give foreigners use of restricted-zone property can be fined up to the value of the transaction.

SDV can help you classify your activity under the Foreign Investment Law, prepare RNIE registrations and annual renewals, and coordinate CNIE, Ministry of Economy or SRE filings with specialist counsel. For real estate and regulated sectors, get a transaction-specific legal opinion. This guide is general information and not legal advice.