Doing Business in Mexico

08 February 2007 Past Event

The Fifth Annual Hospitality Law Conference

I. SCOPE OF ARTICLE

This article highlights ten significant issues foreign investors may encounter when conducting business in Mexico. While most of the specifics and terminology relate to development transactions and ongoing operations in Mexico, many of the concepts addressed in this article are similar in the Caribbean and elsewhere in Latin America.

This article is intended as an overview of issues that may impact hospitality transactions in Mexico. Of course, each transaction is unique, but these ten issues are common hurdles foreign investors encounter when doing business in Mexico. Knowledge of these issues will hopefully help lawyers and business people alike better understand the costs, timing, and other complexities of international transactions.

II. TITLE TO LAND

In general, the Mexican Constitution (the "Constitution") enables foreigners to acquire direct title to land without restriction, provided they agree in writing to be bound by Mexican law as to matters regarding title. Nevertheless, investment restrictions set forth under the Constitution (Art. 27) along with its foreign investment law, forbid foreigners from acquiring direct title to land for residential purposes within the so-called "Restricted Zone.” The Restricted Zone encompasses areas within 50 km (approximately 30 miles) of the coastline and 100 km (approximately 60 miles) of Mexico's borders and represents approximately 40% of the land in Mexico. However, foreigners may acquire the effective use of residential property within the Restricted Zone through the establishment of a 50-year renewable trust, or fideicomiso, arranged through a Mexican banking institution that will hold title to the property for the benefit of the investor and future beneficiaries. Under such a scheme, the foreign investor is able to direct the trustee (the bank) in regards to every matter including financing, development, and transfer of title.

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