Pérez-Llorca

Introduction Mexico stands as one of Latin America’s largest and most dynamic economies, offering a strategic geographical location, abundant natural resources, and a skilled workforce. As the 13th largest economy in the world and the 2nd in Latin America, Mexico offers a strategic location with access to both the Pacific and Atlantic Oceans, making it a crucial hub for international trade. With a population of over 130 million and proximity to the United States, Mexico is a key player in global trade and a gateway to the Americas. The country’s extensive network of free trade agreements, including the United States-Mexico-Canada Agreement (“USMCA”), positions it as a competitive destination for international investment. Furthermore, its diverse economy encompasses strong manufacturing, energy, tourism, and agriculture sectors, making it an attractive landscape for foreign businesses. Despite its potential, doing business in Mexico requires navigating its unique legal, regulatory, and cultural frameworks. Mexico’s legal framework continually evolves to accommodate its growing economy and international partnerships, making it an attractive destination for foreign investors. This article highlights essential aspects for investors, including corporate structures, investment protections, and the impact of recent legal reforms.   Most Common Companies and Foreign Investments Mexico’s corporate landscape offers various legal entities for conducting business, the most common being the Sociedad Anónima (S.A.) and the Sociedad de Responsabilidad Limitada (S. de R.L.). The S.A. is akin to a corporation, while the S. de R.L. resembles a limited liability company. The choice between an S.A. and an S. de R.L. depends on the specific goals and needs of the business. An S.A. might be better suited for larger enterprises seeking to attract significant investment. At the same time, an S. de R.L. could be more appropriate for smaller, closely-held businesses prioritizing operational flexibility and control. Both structures offer the benefit of limited liability, protecting shareholders’ assets from business liabilities. Mexico has implemented a robust legal framework to promote and protect foreign investments. This framework ensures compliance with international standards while fostering a competitive economic environment. This regime balances investor rights with the state’s authority to regulate its economy. (i) Investment Protection and Foreign Direct Investment (FDI) Regime Investment protection in Mexico is primarily derived from its extensive international treaties, such as the Bilateral Investment Treaties (BITs), and free trade frameworks, such as the already mentioned United States-Mexico-Canada Agreement (USMCA). These agreements typically include provisions for non-discrimination, fair and equitable treatment, protection from expropriation without compensation, and access to investor-state dispute settlement mechanisms. At the domestic level, the Foreign Investment Law (Ley de Inversión Extranjera) ensures that foreign investors enjoy equal treatment as nationals in most sectors, with specific exceptions outlined under the law. In this regard, even though Mexico welcomes FDI across various sectors, there are certain industries that remain restricted or regulated for national security or strategic interests. Foreign ownership limitations exist in areas such as energy, telecommunications, and aviation. For instance, specific sectors, such as oil exploration or radio broadcasting, have historically been reserved for the state or limited to a capped percentage of foreign ownership. Mexico’s FDI regime provides that transactions in certain industries and those resulting in foreign capital acquiring over 49% of Mexican entities with high asset value require the authorization of the National Commission of Foreign Investments, which looks into the transactions’s labor, environmental, economic and scientific impact. Further, Mexico has established mechanisms, including, under the National Registry of Foreign Investments (Registro Nacional de Inversiones Extranjeras, RNIE) to facilitate and track FDI, which oversees compliance and reporting requirements for foreign investors. Additionally, reforms in the energy and infrastructure sectors have attracted significant FDI, opening previously restricted areas to private and foreign participation. These efforts have contributed to Mexico’s position as a leading recipient of FDI in Latin America. (ii) Antitrust Regulations Currently, the Federal Economic Competition Law governs Mexico’s antitrust framework (Ley Federal de Competencia Económica), enforced by the Federal Economic Competition Commission (COFECE) and the Federal Teñecommjnicayions Institute (IFT). COFECE and the IFT are autonomous authorities that promote free competition and prevents monopolistic practices. The law prohibits abuse of market dominance, cartels, and other anti-competitive behavior. Companies considering mergers or acquisitions that meet certain thresholds must also notify COFECE (or the IFT, if the transaction involves the telecommunications or broadcasting industries) for approval to ensure they do not harm market competition. In December 2024, Mexico enacted a significant constitutional amendment aimed at streamlining government agencies, which directly impacts the country’s antitrust regulatory framework. This reform involves the dissolution of COFECE and the IFT, with their responsibilities being consolidated into a single economic competition authority under the Ministry of Economy (Secretaría de Economía). This new body will possess its own assets, and operate with technical and operational independence. However, this new period also brings certain level of uncertainty and some transition challenges, since there is also a risk that increased political oversight under the Ministry of Economy might introduce delays or affect transparency. Therefore, it will be important to monitor how effectively this consolidated authority addresses antitrust approval procedures. The reform mandates the Mexican congress to develop secondary laws on competition, free market access, telecommunications, and broadcasting and to define the structure and powers of the new authority, but fails to set a deadline for this to happen. COFECE and the IFT will disappear 180 after the enacting of the new antitrust statute. During this transitional period, COFECE and IFT will continue their operations until the new framework enters into force.   Investment Opportunities: Main Sectors and Key Investors Mexico presents vast opportunities for investment across several sectors: Energy. Despite recent reforms to strengthen state control, private investment in renewable energy and oil and gas remains significant. In particular, Mexico’s solar and wind energy potential has attracted global players seeking to develop sustainable projects. Manufacturing. As a hub for automotive and aerospace industries, Mexico benefits from nearshoring trends and advanced industrial parks. The USMCA has further boosted the competitiveness of Mexican manufacturing by ensuring stable trade conditions with the United States and Canada. Technology. The country’s growing digital economy and startup ecosystem attract venture capital and innovation-focused investors. Initiatives such as fintech regulations and support for tech incubators highlight Mexico’s commitment to fostering technological growth. Key investors in Mexico include the United States, Canada, and Spain, driven by proximity, trade agreements, and historical ties. China has also emerged as a significant player in infrastructure and technology projects.   Trends in Capital: Mexico-Spain Interconnection The historical, cultural, and economic ties between Mexico and Spain have fostered a robust bilateral relationship, making Spain one of Mexico’s most significant foreign investors. Spain consistently ranks among the top foreign direct investors in Mexico. According to recent data, Spanish companies account for over 12% of total FDI inflows to Mexico, positioning Spain as the second-largest European investor after the Netherlands. This relationship is particularly evident in the energy, telecommunications, and infrastructure sectors, where Spanish companies like Iberdrola, Telefónica, and Acciona have a strong presence. Likewise, Mexican multinationals are expanding into Spain, particularly in the food and beverage, cement, and telecommunications sectors (e.g. Grupo Bimbo, Cemex, and Grupo Carso). Below are a few examples of the role of Spanish companies in Mexico: As for the energy sector, Spanish companies have played a significant role in Mexico’s renewable energy sector. Firms like Iberdrola, Acciona, and Naturgy have been instrumental in developing wind and solar energy projects nationwide. The 2013 Energy Reform opened opportunities for Spanish energy companies to participate in electricity generation and transmission projects. However, the recent policy shifts under Mexico’s current administration, prioritizing state-owned companies like CFE and PEMEX, have raised concerns about regulatory changes and contract uncertainty among these investors. In this regard, if the new administration is willing to adopt greener policies, this would benefit the Spanish companies in Mexico. As for banking and financial services, Spanish banks such as BBVA and Santander dominate Mexico’s financial services landscape. In fact, BBVA Mexico is the largest bank in Mexico, controlling a significant market share. These institutions have been critical in financing infrastructure projects and providing financial services to Mexican consumers and businesses. As for the infrastructure sector, Spanish companies have also actively participated in large-scale infrastructure projects in Mexico. ACS Group, Ferrovial, and FCC have been involved in highway construction, airport development, and other critical projects.   Energy Reform and Trends in the Energy Sector Mexico’s energy sector has undergone significant transformations in recent years, primarily driven by legal reforms to reshape the industry’s regulatory framework. These reforms, initiated under the 2013 Energy Reform and further influenced by recent administrations, have profoundly impacted domestic and foreign investment in the sector. The 2013 Energy Reform opened the oil, gas, and electricity markets to private investment for the first time in decades, ending a 75-year monopoly held by state-owned companies Pemex (Petróleos Mexicanos) and CFE (Comisión Federal de Electricidad). This reform encouraged FDI and introduced mechanisms such as production-sharing contracts, joint ventures, and competitive electricity markets. It aimed to boost efficiency, foster competition, and attract cutting-edge technology to enhance exploration, production, and distribution capabilities. However, the legal landscape shifted significantly under President Lopez Obrador’s administration and will continue to change during President Sheinbaum’s term. The government has pursued an agenda focused on energy sovereignty, rolling back some key aspects of the previous reforms. The most notable proposal, colloquially called the “Energy Counter-Reform,” seeks to strengthen PEMEX and CFE by prioritizing their roles in the energy market and limiting private-sector participation. On February 26, 2025, the Mexican Senate approved an energy reform that strengthens the dominant role of Pemex and CFE while allowing limited private sector participation. The goal is to achieve energy self-sufficiency in Mexico. The reform passed with 85 votes in favor, 39 against, and one abstention, and will now move to the Chamber of Deputies for final approval. (i) Pemex’s increased role Pemex gains more autonomy and preferential conditions to collaborate with private companies in investment projects while maintaining control over them. (ii) CFE’s market dominance The CFE must generate at least 54% of Mexico's electricity, prioritizing its supply in the power grid. The system must operate under reliability and continuity principles, promoting a transition to renewable energy. (iii) State-controlled energy sector This reform is part of President Sheinbaum’s broader energy policy, aligning secondary laws with constitutional changes made in October 2024. Pemex and CFE will be reclassified as public state-owned companies rather than productive state enterprises, shifting the focus from profitability to social benefit. (iv) Dissolution of independent regulators The Energy Regulatory Commission (CRE) and the National Hydrocarbons Commission (CNH) will be eliminated. Their responsibilities will be transferred to the newly created National Energy Commission (CNE), which will be under the direct control of the Ministry of Energy. (v) Private sector participation Private companies will still be allowed in power generation but under stricter regulations, ensuring the CFE maintains a majority stake in the sector. Specific models for distributed generation and self-supply will be introduced, with capacity limits and simplified permitting processes.   Other Recent Legal Reforms in Mexico (i) Judicial The judicial reform in Mexico has introduced a controversial proposal related to the concept of “voto popular” (popular vote), which aims to increase democratic participation in the judiciary. Under this approach, certain high-level judicial positions, including Supreme Court justices and electoral tribunal judges, would be elected directly by citizens rather than appointed through the current process, which involves nominations by the president and approval by the Senate. The reform is intended to make the judiciary more accountable to the public and reduce perceived elitism or political bias in judicial appointments. Proponents argue that it democratizes the justice system, giving citizens a direct role in shaping it. In fact, part of the justification for the reform is to grant legitimacy to judges through popular vote. However, critics warn that “voto popular” could politicize the judiciary, undermining its independence and impartiality, as judicial candidates might feel pressured to campaign and make decisions based on public opinion or political interests rather than the rule of law. This aspect of the reform has sparked significant debate, with concerns about its long-term implications for judicial autonomy in Mexico. Lastly, this judicial reform has already changed the way the “jurisdiction” clause is negotiated in M&A deals and, more generally, in legal contracts. Arbitration or a jurisdiction outside of Mexico will generally prevail as the dispute resolution mechanism for transactions with a nexus to Mexico, primarily due to the legal uncertainty introduced by this reform. (ii) Labor Mexico’s labor reform introduced significant changes, including the implementation of independent labor courts and a shift toward collective bargaining. Unlike the United States, employment in Mexico is not “at will,” offering workers greater job security and limiting unjustified dismissals. Employers must also navigate stricter compliance requirements related to outsourcing and workplace equality, reflecting the government’s focus on improving labor standards. (iii) Tax Mexico’s tax regime includes corporate income tax at 30% and a value-added tax (VAT) of 16%. Recent measures focus on combating tax evasion and implementing stricter reporting obligations for multinational enterprises under OECD guidelines. Additionally, tax incentives are available for companies investing in priority sectors such as renewable energy and technology, further encouraging economic growth.   Potential U.S. Tariffs ​In February 2025, President Donald Trump announced a 25% tariff on all imports from Mexico, citing concerns over illegal immigration and drug trafficking, particularly fentanyl. These tariffs were initially set to take effect on February 4 but were postponed to March 4 following negotiations with Mexican President Claudia Sheinbaum, who agreed to deploy 10,000 National Guard troops to the northern border and extradite cartel leaders to the U.S. Despite these efforts, the tariffs were implemented on March 4, prompting Mexico to prepare retaliatory measures. Subsequently, the U.S. granted a one-month reprieve for goods compliant with the United States-Mexico-Canada Agreement (USMCA), delaying tariffs on these products until April 2. This ongoing trade tension has raised concerns about potential economic impacts on both countries, including disruptions to supply chains and increased consumer prices.   Final Remarks and Challenges Ahead Mexico’s strategic advantages and economic potential make it a compelling destination for foreign investors. However, challenges remain, including regulatory uncertainty, corruption, and security concerns. Investors must stay informed about legal developments and engage local experts to navigate these complexities effectively. As Mexico continues to adapt to global economic trends and implement structural reforms, opportunities abound for those prepared to embrace its dynamic business environment. The country’s resilience and adaptability ensure its place as a key player in the international investment landscape. Addressing issues such as infrastructure gaps, environmental sustainability, and workforce development will be crucial for maintaining Mexico’s competitive edge. Businesses can thrive in this vibrant and evolving market with the right strategies and partnerships.