BUSINESS
INFORMATION
LEGAL MARGIN AND INCENTIVES FOR TOURIST INVESTMENTS
IN BAJA CALIFORNIA
The Mexican Government has made diverse reforms to
investments legislation including the passing of various
economic areas to the private sector and it has turned
the Mexican economy into one of the most open economies
in the world.
Currently, investors from all over the world participate
in the Mexican economy and they have a solid and well-articulated
protection for their investments in Mexico.
The Mexican Legal System
Mexico is a federal democratic republic divided in
to 31 states and one Federal District. Each state has
its own Constitution based on the Federal Constitution,
and it is free and sovereign to legislate in areas not
included in the Federal Constitution.
The Federal Government and each one of the states and
cities have three government branches: legal, executive
and judicial.
It is different than other legal systems and opposite
to the common law system. Laws are contained in codes,
regulations and enactment, nonetheless the judicial
interpretation of the law is limited to the parties
involved in a particular case, bearing in mind as an
option, judicial resolutions that are not contemplated
in any code. Thus, it is up to the judge to apply adequate
dispositions and to reason in a deductive manner, consulting
the judicial precedence.
National Law for Foreign Investments
The Law for Foreign Investments allows people of any
origin to participate in the formation of Mexican Commercial
Groups dedicated to productive activities at up to 100%
of the capital.
This law allows commercial groups that have been constituted
according to Mexican legislation to directly obtain
real estate property located within the "restricted
zone", between the limits of 100 Km from the international
border or less than 50 Km from the coast, if and when
the property is to be used for productive activities
- non residential - and it, is registered under the
Foreign Affairs Secretariat.
In the same fashion, the Law stipulates that Mexican
corporations/societies with foreign investors, as well
as foreign free-lance workers and hired personnel can
acquire indirectly real estate in restricted zones for
residential purposes. For such a step to take place,
a trusteeship must be made through a credit institution
(banck) for a maximum period of 50 years that can be
extended at the petitioner's request, with a previous
authorization of the Foreign Affairs Secretariat.
Economic Promotion Law of the State of Baja
California
Through the Economic Promotion Law of the State of
Baja California, it is possible to support the establishment
of new companies and the growth of those that already
exist through the act of granting the following incentives:
Reduction of temporary exemption of taxes and rights.
Possibility to use personal property and real estate
owned by the state or the city.
State participation in infrastructure related works
that generate and help develop new investments.
Access to pre-investment and feasibility research studies.
The incentives are granted to companies that comply
with the establishing requirements in areas previously
defined as of a main priority, that develop exports
or substitute imports, invest in technological development,
job training or in goods that generate jobs.
Land Ownership
The Mexican Constitution of 1917 established the more
extensive form of land use: The common land. These are
federal land properties transferred in through grants
to agricultural cooperative groups that used to maintain
only the right to use the land, without being able to
sell, alienate or transfer it.
With the purpose of increasing the economic activity
of the common lands, in 1992 modifications to Article
27 of the Constitution were approved by which common
land users can acquire direct property from the common
lands for its later sale, alienation or change in its
use.
This was a significant change that broadens the range
of possibilities for the tourism industry in the country
and in Baja California in particular, because now national
or foreign investors can participate, with absolute
reliability in the development of these traditionally
untouchable lands, through its presence in a Mexican
company.
Protection of Trademarks and Licenses
An element of great importance for the Mexican Government
is promoting a technological innovations culture and,
because of this, the protection of industrial property
rights. The Mexican Industrial Property Institute (IMPI
in Spanish) watches and protects the property rights
of licenses and trademarks as well as other forms or
industrial property in two contexts:
Inventions and innovations through the registration
of licenses, utility models, industrial designs and
industrial secrets.
The creation of distinctive signs such as: brands,
labels and commercial names as the denominations of
origin.
Environmental Legislation
There are federal, state and city laws oriented/addressed
to the care and protection of the environment in Mexican
territory to regulate the use of protected natural areas
and endangered species, as well as to avoid pollution
due to a bad use of industrial waste. These laws guarantee
an environmental quality that has become an important
factor as far as attracting tourism goes.
This is why, before beginning operations, companies
must submit to the proper authorities an environmental
impact study that guarantees the environmental care
conditions of the project to obtain authorization to
operate.
Law for Ecological Balance and Protection of
the Environment of the State of Baja California
For the State Government of Baja California, protecting
its natural resources and reasonably taking advantage
of them is a priority. The Law for Ecological Balance
and Protection of the Environment of the State of Baja
California has the purpose to regulate the preservation,
prevention, protection and restoration of ecological
balance within the territory of the state. The institution
in charge of applying and following this law is the
General Ecology Office (Direccion Estatal de Ecologia)
that operates under the supervision of the State Ecology
Council, a group that gives standars and balance between
society and the government, creating with the goal to
enrich and broaden the alternatives for solution to
the environmental problem that the State deals with.
The Ecology office has internal and external auditors
who, among other duties, support investors and businessmen
to formulate environmental management plans to obtain
ecological permits or licenses to operate, as well as
supervise industrial processes, a job that follows the
proper functioning of anti-pollution equipment and all
the information required by the Ecology Office, and
indicating urgent corrective technical procedures that
must be applied.
Mexican Corporate Figures
The General Law of Commercial Companies (Federal Law)
grants diverse alternatives to organizations so that
they can establish a company; each one varies in its
legal and tax structure.
Concerning corporations with limited liability actions,
the joint stock Company (S.A. in Spanish) is the legal
figure more frequently used to establish companies with
Variable Capitals (S.A. de C.V in Spanish). Recently
the Limited Liability Company (S. de R.L. in Spanish)
has been formed and it has become popular when it comes
to establishing corporations controlled by a small number
of stock holders, and it can also have a Variable Capital.
The Participation Company (A.P in Spanish) is another
common way of making business in Mexico. An A.P. is
an agreement in which one of many associates grant good
or services to an "associated manager" that
is responsible for the negotiations made with third
parties, in exchange he/she will be able to participate
in the profits derived from the commercial operations
made by him/her. Mexico has yet to issue an Agreements
or Technology Transfer Act.
The Articles of Incorporation and Statutes By-laws
of the companies establish limitations for the execution,
performance and causes for termination.
The legal mechanisms already mentioned are directed
by the contractual provisions that will be determined
in its jurisdictions, as well as in other Latin American
countries. The Articles of Incorporation and Statutes
By-laws establish limitations in the execution, functioning
and causes for termination of the contracts. Any of
the proceeding vehicles will operate under a general
contract stipulations by the parties involved.
Foreign companies are legally acknowledged and can
operate through Mexican branches. However, they must
be approved by the National Foreign Investments Commission
and by the Foreign Affairs Secretary. Also, later they
must be registered in the Public Commerce Registry.
The companies that have foreigners participating in
them only can acquire goods in the restricted areas
though trusteeships.
Trusteeship
The trusteeship in made up by a fiduciary that, without
any variation, must be a Mexican bank that will be the
legal holder of the property; a trustee that is the
one that contributes the resources to the trusteeship
and another trustee that is in control of the administration
and operation of the goods and properties and he/she
can be the same trustee that handles the other aspects
just mentioned.
The fiduciary will act in behalf of the trustee in
transactions that involve the property maintained in
trusteeship, nonetheless the trustee controls and makes
decisions with regards to the property including the
decision to transfer such property to another investor,
national or foreign, to assign or dispose of the resources
in the trusteeship according to his/her interests.
Labor Regulations
Labor regulations are established in spite of the labor
agreement when there is an element of subordination
(the employee follows the instructions given by his/her
employer) and of economic dependence of the employee.
In this context, commercial agents and promoters are
considered employees when their activity related with
the hiring company is a permanent one. The employees
can be fired because of the reasons defined in labor
contracts as well as by serious violations to the employer.
In cause of unjustified dismissal the employee has
the following options:
Taxes
The corporate tax is a maximum of 34% and must be paid
annually from taxable profits. The largest part of the
income of the companies accumulates at the moment in
which bill is issued or when the goods are delivered
to the buyer if the bill is not yet issued. Deductible
expenses are only those that directly refers to the
operation and administration of the company. Allowed.
The Federal Tax over assets is of 1.8%.
Employees who receive a salary pay a tax of up to 35%.
Companies contribute to concepts such as social security
and others that ascend to plus 35% of the payroll.
The Added Value Tax (what is equivalent to a Sales
tax) is charged to all the goods, based on the selling,
rent, import or export price of goods and services.
Companies deduct the paid IVA (IVA in Spanish meaning
Impuesto al Valor Agregado) from the IVA that has been
transferred to the consumers, so only the difference
is paid to the government.
Temporary Migration of Persons
There are different types of visas. The most commonly
used is the Visitor Visa. If a foreign company sponsors
the visa, the visitor will not be allowed to embark
in paid activities in the country. However, if a Mexican
company sponsors the visa a person can be employed in
Mexico and engage in productive activities.
Both types of visas must be renewed each year.
Recently a new visa has been put into effect called
"FM-N" that allows businessmen to
CEOs who are from countries in the Free Trade Agreement
(Canada and the U.S.A) to remain in Mexico for up to
30 days to do business as long as they are not paid
in Mexico.
Non Immigrant Right (DNI in Spanish)
The purpose of the non-immigrant right is to modernize
the Mexican immigration mechanism and procedures to
boost international tourism promotion. It has a charge
of $170.00 pesos (around $16.00 dollars) or its equivalent
in dollars for foreigners (non-immigrants) that visit
Mexico. It applies to foreigners that enter Baja California
through the northern border and travel more than 26.30
km or 16 miles except:
Financial Support for Tourism on a Federal
Level
In Mexico, the sources of credit and financing for
companies are the Bank of Development (Banca de Desarrollo),
the Commercial Bank (Banca comercial), the financial
intermediary bankers and non-bankers, as well as the
capital market through the Mexican Stock Exchange or
the private allocation of paper.
The Bank of Development plays a key role when it comes
to financial support, more so with regards to the attention
given to small and medium sized companies.
FIDEC is Organism of the Bank of Mexico that traditionally
has supported small businesses such as travel agencies
and restaurants; it has developed an aggressive financing
program for tourist transport and recently for remodeling
hotels.
Nacional Financiera (National Finance) has reopened
its second level support to tourism companies as a part
of its services. Also, it has instrumented a program
of warranties destined to the Commercial Bank to facilitate
credit to small and medium sized companies that did
not have access to financing because of a lack of collateral
support.
The Foreign Commerce Mexican Bank, Bancomext in Spanish,
has opened a larger support channel in a direct manner
to tourism companies, handling more than 30% of financing
deals as a first level bank. In 1998 it channeled more
than 462 million dollars to the tourism industry, reason
for which tourism was the third most supported system,
next to the textile and the metal-mechanic sectors.
The main support mechanism in the tourism branch was
aimed at developing investment projects, labor capital,
buying-selling hotel spaces and rights to use shared
time residential complexes.
As a necessary complement to improve tourist destinations,
the National Bank for Public Works and Services, Banobras
in Spanish, has designed diverse programs to channel
financial resources to cities with tourism activity,
this way accelerating the improvement process as far
as urban infrastructure goes.
Within its lines of action, the financial distribution
and technical assistance for research and projects for
tourist development programs stands out, strengthening
city administrations and decentralized organisms that
provide public services (drinking water, sewage treatment
plants, housing, transportation, waste collection and
treatment, among other); improvement of the city tourist
infrastructure in historic quarters, ecological areas,
convention and exhibit centers.
Promotion Instruments for the Tourist Development
of the State of Baja California
The three levels of Government and the Private Sector
have joint efforts to promote actions and attract more
investments to the state, for example: