Investment opportunities in Mexico (Part 1)

The Mexican government has made significant efforts to make the country a competitive place for investment, business development, and productivity. The Mexican economy aims to maintain stable growth and positive prospects for the coming years. The country benefits from the confidence of domestic and foreign investors that it is a safe and attractive place to invest.

Why Mexico

• Territory, location and borders

More than 11,000 km of coastline, divided between the Atlantic coast with 3,294 km (the Gulf of Mexico and the Caribbean Sea) and the Pacific coast with 7,828 km, put Mexico in a strategic position, facilitating access to the main consumption centers around the world. As a result, companies operating in the country can respond more quickly, reducing logistics and warehousing costs.

Mexico shares a 3,152 km border with the United States of America. On average, more than a million people, 300,000 vehicles and 70,000 trucks cross this border daily through 56 international crossings.

To the south, the country shares a 956 km border with Guatemala and 193 km with Belize (not including the 85,266 km maritime border in Chetumal Bay), with 8 border crossings with Guatemala and 1 with Belize, which represent the entrance to Central America, the Caribbean and South America.

• Natural resources

The geography, topography and diversity of weather conditions make Mexico the 4th most biodiverse country, with 9 of the 11 different types of ecosystems and about 200,000 different species of flora and fauna.

• Market with great potential and human capital

Mexico is one of the largest markets in the world, with a population of over 130 million inhabitants, of which 59.30% (61 million) are economically active and 59.7 million are employed. About 43.80% of the population is under 25 years old, and the median age is 29.

In 2024, Mexico ranked 2nd among the member countries of the Organization for Economic Cooperation and Development (OECD) with the lowest unemployment rate. Formal employment is expected to continue to grow in the coming years, with the unemployment rate remaining below 4%.

• A robust and open economy

The Mexican economy is the second largest in Latin America and the 13th largest in the world, and has demonstrated robust growth as a result of long-term economic policies.

To stimulate higher growth, the Mexican government has taken a number of measures, such as:

• Increasing spending on infrastructure investment.
• Reconfiguring global value chains.
• Economic development in the southern region of the country.
• More efficient resource allocation, higher returns on investment, and greater efficiency in the combination of factors of production, achieved through a strategy of pacification, reducing violence, fighting corruption, and generally strengthening the rule of law law.
• Retraining of personnel.

• Financial system and fiscal policy

Mexico has an efficient financial system that prioritizes consumption and investment. The Mexican financial system has a capitalization ratio that exceeds international standards and is regulated by a modern legal framework that includes best practices in terms of prudential standards, risk, accounting, and corporate governance. In 2013, Mexico pre-implemented the Basel III framework to consolidate its financial system regulation, supervision and risk management, and is considered one of the most robust financial systems in the world.

The federal government, through the Ministry of Finance and Public Credit (SHCP), is actively working to define and implement fiscal policies aimed at achieving a balance between public expenditures and revenue programs.

As a result of these fiscal policies and the improved efficiency of tax collection systems, the taxpayer base has expanded, and Mexico has consistently increased tax collection in recent years and reduced its dependence on oil revenues.

In this regard, the 2025 Economic Package sets fiscal targets consistent with a healthy trajectory for public finances. The budget deficit levels are estimated at 5.9% and 3.9% of GDP for 2024 and 2025, respectively.

Fiscal policy directs public resources toward results, with the goal of having a greater impact on people's well-being and ensuring the efficiency of public spending through responsible and prudent management of public finances.

Mexico has solid and prudent public debt management based on risk diversification and sustainability. As a percentage of GDP, this debt is lower than countries such as Japan, Brazil, South Africa, and the United States.

The 2025 Economic Program plans to establish measures to guarantee the sustainability of public finances. Both revenue and expenditure policies aim to expand fiscal coverage to finance priority development programs and projects and, therefore, inclusive growth of the economy, without causing imbalances in public finances.

The monetary policy implemented by the Bank of Mexico has created favorable conditions for sustainable economic growth, achieving stable and significantly low inflation.

Investment Legislation

Mexico is open to foreign direct investment (FDI) in most sectors of the economy and has consistently been one of the largest recipients of FDI among emerging markets.

The 1993 Foreign Investment Law, last updated in March 2017, regulates foreign investment in Mexico, including which business sectors are open to foreign investors and to what extent. It provides national treatment, eliminates performance requirements for most foreign investment projects, and liberalizes the criteria for automatic approval of foreign investment. Mexico is also a party to several Organisation for Economic Co-operation and Development (OECD) agreements related to foreign investment, notably the Codes of Liberalization of Capital Movements and the Instrument of National Treatment.

The Mexican government dissolved the former trade and investment promotion agency ProMexico in 2019, and Mexico’s Secretariat of Foreign Affairs (SRE) assumed some of its responsibilities, creating the General Directorate for Global Investment (GDGI) in June 2021.

GDGI works closely with Mexico’s secretaries of state for the economy to promote trade and attract foreign direct investment through partnerships with SRE’s diplomatic missions abroad. The Directorate General of Foreign Investment of the Mexican Secretariat of Economy also promotes trade and investment opportunities and launched a one-stop shop for investors (“Ventanilla Unica”) in 2023 to facilitate investments among business communities around the world.

Foreign Investment Promotion and Protection Agreements (FIPPA)

Foreign Investment Promotion and Protection Agreements (FIPPA) help promote and protect investments by foreigners in Mexico and Mexicans abroad, thus directly contributing to a favorable climate for business development. Mexico has signed a total of 30 FIPPAs.

These agreements provide mechanisms for the resolution, through international arbitration, of any disagreements that may arise between two countries party to a FIPPA regarding the interpretation or application of the agreement, or between an investor and the country receiving the investment, regarding the latter’s breach of the obligations contained in the agreement.

This not only provides legal certainty through national laws, but also raises it to the international level through the Arbitration Rules of the United Nations Commission on International Trade Law, as well as the rules incorporated into the rules of the International Chamber of Commerce of Paris (ICC).

Double Taxation Agreements

Mexico has concluded more than 60 double taxation agreements, which strengthen bilateral relations and allow tax paid in any of the signatory countries to be offset against tax payable in the other country, in order to avoid double taxation. taxation.

Expropriation and Compensation

Mexico may not expropriate property, directly or indirectly, except when necessary for a public purpose, on a non-discriminatory basis, subject to prompt, adequate and effective compensation, and in accordance with due process of law. Expropriations are governed by international law and require compensation at fair market value without delay, including accrued interest.

ICSID Convention and New York Convention

Mexico ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention of 1958) in 1971 and codified it into national law. Mexico is also a party to the Inter-American Convention on International Commercial Arbitration (Panama Convention of 1975) and the Montevideo Convention on the Rights and Duties of States of 1933. In 2018, Mexico signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and codified it into law that same year.

International Commercial Arbitration and Foreign Courts

The Mexican Arbitration Center (CAM) is a specialized private institution that administers commercial arbitration as an alternative dispute resolution mechanism. The Commercial Code prescribes that an arbitration award, regardless of the country in which it was rendered, must be recognized as binding. The award must be enforced upon the filing of a formal written petition with the judge.

The internal laws of PEMEX and CFE establish that all national disputes of any nature must be resolved by federal courts. State-owned enterprises (SOEs) and their production subsidiaries may choose alternative dispute resolution mechanisms in accordance with applicable commercial laws and international treaties to which Mexico is a signatory. When contracts are concluded in a foreign country, PEMEX and CFE have the option of following procedures governed by non-Mexican law, using foreign courts or participating in arbitration.

Real Estate

Article 27 of the Mexican Constitution guarantees the inviolability of private property. Expropriation may only be carried out for public use and with due compensation. There are four categories of land ownership in Mexico: private property, communal property (ejido), state property, and non-saleable or transferable.

Only Mexican citizens (by birth or naturalization) and Mexican companies may acquire title to land, water, and related facilities and obtain mining concessions or water sources and waterways.

The state may grant the same rights to foreign nationals, provided that they agree with the Ministry of Foreign Affairs to be considered Mexican citizens with respect to such property and undertake not to invoke the protection of their governments with respect to such property. Otherwise, land acquired in default is confiscated and transferred to the Mexican state.

Mexico prohibits foreigners from acquiring title to residential real estate in so-called "restricted zones" within a radius of 50 km from the country's coast and 100 km from its borders. The "restricted zones" cover approximately 40% of Mexico's territory. Foreigners may obtain the right to effective use of residential real estate in the "restricted zones" by creating an extendable trust (fideicomiso) organized through a Mexican financial institution. Under this trust, the foreign investor receives all rights to use the property, including the right to develop, sell and transfer the property.

The Public Registry of Business and Property (Registro Publico de la Propiedad y de Comercio) contains publicly available information on the Internet about land ownership, liens, mortgages, restrictions, etc.

Mexico has a nascent but growing financial securitization market for real estate and infrastructure investments that investors can access through the purchase and sale of Fideicomisos de Infraestructura y Bienes Raíces (FIBRA) and Capital Development Certificates (CKD) listed on the Mexican stock exchange BMV.

Investment Incentives

The Mexican government has created an open and safe environment for foreign investors. The Invest in Mexico Business Center was created in 2022 to promote investment. Land grants or rebates, tax credits, and funding for technology, innovation, and workforce development are commonly used incentives.

Mexico has introduced new tax incentives for corporate taxpayers that will run from 2025 to 2030. The regime is part of the Plan Mexico, a strategy presented by the new president to stimulate the Mexican economy.

The incentives were introduced by presidential decree on January 21, 2025, and will be applied until September 30, 2030, with a total incentive limit of 30 billion for the duration of the program. The strategy applies to all companies, regardless of size, industry, or location. To be eligible for the program, taxpayers must have a Mexican tax identification number and be current with all compliance obligations.

The incentives include accelerated depreciation for investments in new fixed assets acquired to carry out productive economic activities. Depreciation rates range from 41 to 91% for fiscal years 2025 and 2026 and from 35 to 89% for fiscal years 2027-2030, depending on the type of asset.

An additional deduction is also offered for training and innovation expenses, estimated at 25% of the increase in expenses over the average of the last three financial years. Qualifying companies receive a 100% tax credit on income tax earned during the first three years, as well as a 100% tax credit on VAT earned on the sale of assets, provision of services or lease of assets between companies located in designated investment zones.

Entities and individuals wishing to benefit from the regime must obtain approval from a government assessment committee, which was set up to regulate the regime and ensure transparency. The committee will regularly audit companies for compliance, and non-compliance or abuse of incentives will result in fines and restitution of benefits.

Free Trade Zones (FTZs) and the IMMEX program, formally known as the IMMEX maquiladora program, allow foreign manufacturers to import raw materials and components into Mexico free of taxes and duties, as long as 100% of all finished goods are exported from Mexico within government-set deadlines.

New Entry Certified Companies (NEEC) program. NEEC certification allows companies to import and export goods from Mexico quickly and with less paperwork.

Free Economic Zones and Free Trade Zones

Special Economic Zones (SEZs) were created to attract investment to economically underdeveloped areas of the southern states of the country. Companies that establish themselves in these SEZs will receive various incentives, trade benefits, duty-free customs privileges, infrastructure development privileges and simplified regulatory processes. The main Special Economic Zones are:

• Pacific Port of Lazaro Cardenas (on the border of the states of Michoacan and Guerrero)
• Salina Cruz
• Puerto Chiapas (Chiapas)
• Coatzacoalcos / Ciudad del Carmen Corridor (Campeche)
• Champoton

Mexico has created several Free Trade Zones (FTZs) whose policies are aimed at maximizing economic benefits. Notable zones include the San Luis Potosi Free Trade Zone, the Altamira Industrial Park in Tamaulipas and the Progreso Free Trade Zone in Yucatan. These regions are building modern infrastructure and introducing a range of tax incentives, making them very attractive to international businesses.

Main Benefits of Free Trade Zones

1. Tax Incentives and Exemptions.

One of the most compelling benefits for companies expanding in Mexico's Free Trade Zones is the range of tax incentives and exemptions available. Companies operating in these zones can take advantage of reduced or zero tariffs on imports and exports, as well as exemptions from value-added duties (VAT) and other duties. These financial advantages can significantly reduce costs, increase profitability, and improve competitiveness.

2. Efficient Customs Procedures.

Mexico's Free Trade Zones are designed with lenient customs procedures that make it difficult to move goods.  Simplified customs steps improve supply chain efficiency, benefiting industries such as manufacturing, logistics, and distribution.

3. Advanced Infrastructure.

Companies making changes in Mexico’s FTZs can take advantage of a modern infrastructure. It supports operational digital systems and reduces logistical challenges, ensuring that products can be delivered quickly and efficiently. For companies involved in manufacturing and exporting, access to world-class facilities is an advantage.

4. Access to a Skilled Workforce.

Mexico’s free trade zones provide access to a skilled and diverse workforce. Many zones are located near educational institutions and university centers, providing a steady supply of skilled workers. This proximity helps businesses maintain high levels of productivity and innovation, giving companies a competitive advantage in their respective industry.

5. Proximity to Major Markets.

The geographic location of Mexico’s Free Trade Zones provides easy access to major global markets, particularly the U.S. and Canadian markets. This proximity translates into significantly lower transportation and shipping costs, allowing companies to manage their supply chains efficiently. In addition, Mexico’s integration into trade agreements such as the U.S.-Mexico-Canada Agreement (USMCA) further enhances market access and trade opportunities.

6. Attracting Foreign Direct Investment.

The favorable business environment in Mexico’s FTZs serves as a magnet for foreign direct investment (FDI). By offering a stable and accessible regulatory framework, these zones encourage multinational corporations to set up operations in Mexico. Not only does FDI inflows stimulate economic growth, they also create jobs, benefiting both companies and the local economy.

7. Promoting Innovation and Technology Transfer.

Mexico’s FTZs focus on innovation and technology transfer, providing a favorable environment for research and development (R&D). Companies operating in these zones often collaborate with research institutes and universities, facilitating the exchange of methods and technological advances. This collaborative ecosystem stimulates innovation and positions Mexico as a hub for advanced industries.

8. Support for export-oriented businesses.

Free Trade Zones play a crucial role in supporting export-oriented businesses. By reducing economic barriers and costs, these zones enable companies to compete effectively in the global market. Industries such as automobiles, electronics and textiles benefit greatly from the advantages provided by FTZs, which further contributes to their export earnings.

Public-Private Partnerships (PPPs)

PPPs are projects implemented under any model that establishes contractual long-term relationships between the public and private sectors (concessions, leases, service projects, financed public works) for the delivery of public services, where some or all of the necessary infrastructure is provided by the private sector. The purpose of PPP is to encourage private investment in infrastructure to improve the efficiency of public service delivery.

The PPP Law regulates the various schemes used to develop projects under the public-private partnership mechanism and was passed in January 2012 with the aim of creating a single regulation for the development of these projects, while ensuring transparency and accountability in the use of public resources.

In Mexico, there are various schemes for the implementation of projects involving the public and private sectors, including:

• Concessions. The private sector builds and manages the project. Typically, the investment is recouped through fees paid by project users. The scheme is mainly used for roads, ports and airports.
• Financed Public Works. The private developer carries out all the investments required by the project; upon completion of the work, the public body makes payments for all contracted investments. Typically used in the electricity sector.
• Joint ventures. Special risk-sharing arrangements, mainly for the hydrocarbon sector.
• Public-private partnerships. A private developer provides some or all of the infrastructure to provide public services over the long term. The public sector pays the private sector a fee for such services. This scheme is mainly used for hospital projects, road maintenance, penitentiary centers and hydraulic infrastructure.

PPPs can be implemented by:

• Federal public administration entities.
• Federal public funds.
• Federal entities with constitutional autonomy.
• Federal entities (states), municipalities and other public entities with federal resources.

PPPs are not subject to the provisions of the procurement laws (Ley de Adquisiciones, Arrendamientos y Servicios del Sector Público / Ley de Obras Públicas y Servicios Relacionados con las Mismas). These projects must have technical, economic, legal, social and environmental feasibility studies, as well as a cost-benefit analysis that concludes that it is appropriate to develop the project as a PPP. It is important to note that compliance with the PPP law is not mandatory, as other federal laws applicable to the sector may apply.