Baja California State Information

Located in the northwestern part of Mexico, Baja California has become a hub for development and opportunity for companies from all over the world.

The reasons for this are well recognized around the world: strategic geographic location, sharing a border with California and the Pacific rim, the proven quality of its human resources, abundant natural resources and infrastructure, along with the advantages brought from trade agreements with various nations that make up the American continent.

Baja California has more than 932 miles of coastline, 2 seas, and fertile agricultural valleys. The state is made up of 5 municipalities. Mexicali, the capital of the state, is a city of great industrial and agricultural activity: Tijuana has a dynamic foreign assembly plant industry; Ensenada is an important commercial and fishing port; Tecate is famous for its brewery industry, and the beaches of Rosarito are a much visited tourist spot. Baja California’s population exceeds 2 million people. It is one on of the states in Mexico with the highest per capital income, and distinguishes itself for its governmental services in education and health.

There are 15 institutions for higher education and 5 research centers. At an intermediate level, there are vocational centers that provide work training studies for the formation of technicians in a general field. Baja California is the state with the biggest investment in education.

The state of Baja California limits to the north with the United Sates, to the east with the Colorado River and the Sea of Cortez, and on the 28th parallel to the Pacific Ocean.

The principal municipals of Baja California are as follows:

Tecate, is a border town that is located on the Federal Highway No.2, 30 miles east of Tijuana and 88 miles west of the city of Mexicali. Ensenada is located 68 miles south of the city of Tijuana, by road on the Federal Highway No.1. Tijuana is located 124 miles west of the city of Mexicali via Federal Highway No. 2, in the northwest corner of the Baja California Peninsula.

The area near Rosarito Beach is famous for its lobster restaurants. This area is mostly a tourism spot for weekend dwellers and summer tourists. It supports a sizable and permanent population of Americans and Canadians. It is actually at a commuting distance from San Diego or Chula Vista California.

San Felipe, on the other hand, is a winter vacation spot. Its weather is fantastic in the fall, spring and winter. The summers in San Felipe are a little to hot for most people, but when you’re close to the beach it makes it a lot better.

 BENEFITS

In Baja California, the investor has all the facilities to develop their projects and create successful business ventures. Governmental authorities have implemented programs for the integral development of the state of Baja California, a state that is now a strategic site for investment and a world class manufacturing concentration.

These are some of the advantages Baja California has to offer:

More than three decades of Maquiladora experience have shaped our infrastructure and made our services so sophisticated that nowadays the entire economy supports the industrial growth.

Baja California offers a wide variety of public and private organizations, whose sole purpose is to streamline the establishment of new industries and help them optimize their operations. Human and technical support is available from Municipal, State and Federal Government offices, as well as from private businesses.

You will also find many firms, including custom brokers, accountants, attorneys, contractors, multimode carriers, industrial parks and more that cater to your industrial needs.

The North American Free Trade Agreement facilitates even more business interaction among companies throughout the world. Mexico has also signed Free Trade Agreements with Latin American countries, Israel and the European Economic Union, enhancing the ability to compete in the world market.

 

General Information of Industrial Sectors

The Maquiladora activity has been successful in Baja California because of the many advantages it can provide. As of today, this is the region with more establishments, and the second state in the nation with personnel hired by them; it also has the highest amount of added value.

In Baja California, the Maquiladora activity began under the protection of a free-zone regime, which was put into force during the sixties. Free temporary importing of machinery and equipment and raw materials were allowed. Therefore, it extended to the rest of the Northern border, afterwards to the coast and other borders, and finally to the rest of the country.

At first, the predominant investment came from the United States, due to the proximity with that country. However, in these past years, Asian countries have acquired a great impulse and dynamism into the region during the 1998-2000 period.

The number of establishments has greatly increased on an average rate of 10 percent annually, as well as the hiring of personnel, which grows at a yearly rate of 11 percent. Moderate studies estimate, that due to the expected benefits that recently signed FTA's will bring to the region, in the coming five years, this increment pace will not decline but might even increase.

Here we have important worldwide renowned firms represented such as Baxter, Black & Decker, Casio, Daewoo Electronics, Hitachi, Hughes, Aircraft, Hyundai, Matsushita, Mattel, Mitsubishi, Rockwell, Samsung, Sanyo, Smith-Corona, Sony, Kyocera, Pioneer and many, many more.

Baja California borders California, the state with the most important economy in the world's largest market. Baja California is part of the high-tech corridor, which includes Seattle, Portland, Silicon Valley, Los Angeles and San Diego. Our unique geographical location offers direct access to Asian Pacific economies. We are your gateway to the global market.

Yet more than geographical location, Baja California offers ample natural resources, skilled work force and the infrastructure to support lower production costs and higher profit margins.

The Shelter Program is an efficient and professional way to start operations in Mexico that can set up your production in 90 days or less.  It enables you to avoid administrative and language entanglements, as well as legal involvement in Mexico.  You can also avoid large financial investments and risks as well as long-term commitments. 

You have to provide your New Mexican facility with:

The Mexicali Shelter Program provides:

You pay the Shelter Program (in U.S. dlls) for:

 

Legal Information on Investment In Mexico

 

 Legal Framework for Foreign Investment

The new Foreign Investment Law (FIL), effective as of December 28,1993, opened the possibilities to foreign investors in general to invest in various economic activities previously restricted by the former law. (The following comments do not address the NAFTA rules, which on occasions are less restrictive than the FIL).

This law provides only 14 areas limited exclusively for the Mexican State, and 6 others to Mexican nationals or corporations with a foreign exclusion clause. Among its purposes, this law promotes the benefits of the so-called "neutral investment" and intends to simplify the administrative procedures on this subject.

Participation of Foreign Investment

The FIL allows foreign investors to own up to 100 percent of equity in Mexican companies, without prior approval from the Government, with the exception of some activities which are reserved exclusively to the Mexican Government, Mexican Individuals or Corporations with a Foreign Exclusion Clause. 

 Activities Reserved to Mexican Investors

Specifically Regulated Activities and Acquisitions

The law also provides activities where foreign capital may only share in certain proportions that range between l0 percent and 49 percent, such as domestic air transportation and basic telephone services. It also provides areas where foreign investment can participate in excess of 49 percent, as is the case of rendering of legal advice or providing cellular telephone services, subject to prior authorization of the National Foreign Investments Commission.

Acquisition of Property and of Trusts

Under the Mexican Constitution, foreign individuals and entities may not hold legal title to real estate in Mexico located within 100 kilometers along the borders or 50 kilometers along the coastlines (Restricted Zone). However, foreign investors may hold the beneficial interest in such real estate under a trust. Real estate trusts have a maximum term of 50 years, which term may be extended and the trustee must be a Mexican bank. The law however, allows Mexican companies with foreign equity participation to hold direct title to real estate located in the Restricted Zone if they engage in non-residential activities and if their by-laws provide the agreement executed with the Foreign Affairs Department provided in Article 27 of the Mexican Constitution.

Foreign investors must agree to be deemed a Mexican national with regard to the investment in question, and should not seek the protection of its Government in the event of a dispute, under penalty of forfeiting its interests in favor of the Mexican nation, if it seeks such protection. If foreign investors engage in residential activities they may hold real estate through a trust.

Organization and Modification of Corporations

As to the incorporation of a business entity, the law first requires an approval from the Foreign Affairs Department. In addition, such corporations by law must include the foreign exclusion clause or the agreement provided in Article 27 of the Mexican Constitution. 

Industrial Property Law

This law, which became effective on June 28, 1991, contains several improvements over the former Law on Inventions and Trade Marks. This legislation was developed from international standards by the World Intellectual Property Organization (WIPO) and is comparable with the ones applied by the most industrialized nations.

Among the most important provisions of the new Law, are the following:

* Patents are protected for a 20 years term from the filing date.

* Patented foreign inventions that have not yet been produced in or imported to Mexico qualify for a national patent. The patent will be granted to the original applicant abroad, provided he or she files an application in Mexico within a year as of the date of enactment of this law. Such patent protection is available for chemical, pharmaceutical and biotechnological products and processes.

* Industrial and trade secrets are protected. Unauthorized disclosure by any person previously warned as to the confidentiality of the information constitutes a criminal offense.

* Minor inventions qualify for legal protection as utility models for a period of 10 years from the filing date. Also, industrial designs are protected against unauthorized imitation for 15 years.

This Law repeals the Law on Inventions and Trademarks, as well as the Law for the Control and Registration of Transfer of Technology and the Use and Exploitation of Patents and Trademarks and its derivative statutes. Any agreement related to technical assistance, transfer of technology (know-how), royalties or others to which the repealed law makes reference to, shall no longer be required to be recorded before the extinct National Registry for the Transfer of Technology.

Law to Promote and Protect Industrial Property Rights from Foreign Trade

Mexico has enacted a new Foreign Trade Law, effective as of July 28, 1993. Regulating international trade and prohibiting unfair trade practices such as dumping and trade subsidies. The law generally follows GATT principles and follows the requirements of NAFTA.

Antitrust Law (Federal Law of Economic Competition)

This Law became effective on June 22, 1993. The ultimate meaning and significance of the Federal Law of Economic Competition will depend on the regulations, decisions, and opinions issued by the Federal Commission of Competition which is a decentralized administrative entity of the Department of Commerce and Industrial Development.

The Law forbids monopolies, cartels, and activities that, under certain terms, diminish or obstruct the competition and free markets in the production, processing, distribution and commercialization of goods and services. Also the absolute monopolistic activities are prohibited in this Law and some are declared void and are subject to penalties in addition to criminal liability under other Laws. Regarding these activities, the Law forbids contracts, agreements, arrangements or combinations of economic agents that are competing amongst themselves, whose purpose or effect is to fix, raise, coordinate or manipulate prices.

This Law under certain circumstances, acts, contracts, agreements or combinations whose purpose or effect is to displace other market agents, substantially obstruct their access to the markets or establish exclusive advantages in favor of one or various persons, shall be considered monopolistic activities.

The Law provides that the above mentioned Commission should be notified of certain concentrations before they are created, for example, a transaction involving two or more economic agents whose assets or annual sales, taken together or separately, amount to more than $205 U.S. million. 

Railways Industry Law  

This Law regulates the construction, operation, exploitation and maintenance of railroads, as well as public railroad transportation and auxiliary services. The mentioned Law became effective in May 1995, and allowing foreign corporations to participate up to 49 percent and in some cases allowing exceeding the mentioned percentage with a favorable resolution from the Foreign Investment Commission. 

Telecommunications Federal Law

This Law regulates Article 28 of the Mexican Constitution. It is an important legal instrument, which has improved the telecommunications services, as well as to allow an efficient exchange of information between Mexico and other nations. 

Radiotelegraphy and telegraphy services are still reserved to the Mexican Government. Foreign investment may participate up to 49 percent in the telecommunications industry. It is possible to participate with higher percentage in the telecommunications industry with a favorable resolution from the Foreign Investment Commission.

Airports Law

This brand new Law became effective last December 23, 1995, regulating the construction, administration, operation and exploitation of Civil Airdromes. Foreign investment may participate up to 49 percent or more with a favorable resolution from the Foreign Investment Commission.

Social Security Law

According to the most recently modifications to the aforementioned Law, some authorized insurance companies would be able to handle old-age social security pensions, an activity that was performed exclusively by the Social Security Mexican Institute.

 

Immigration Requirements for Foreigners

All foreign personnel rendering services in Mexico must apply for and obtain a proper work permit.

Foreigners who come for the first time to Mexico or who do not have a definitive Work Permit (non immigrant visa) must obtain a temporary permit (FMN for U.S. and Canadian nationalities, and FMVC for all others except restricted nationalities, such as: China, Taiwan, India, Pakistan, Honk Kong), valid for 30 days with multiple entries. Foreigners must have an international passport, and pay a Government Fee in order to obtain the temporary permit.

Before the expiration of the FMN or FMVC, all administrative and technical personnel that are to stay in Mexico for a term to exceed 30 days, must request a definitive work permit (FM-3) from the National Immigration Institute (INM). This document allows a foreigner to legally stay in Mexico for a year, with multiple entries, with the option to renew such permit four additional one-year terms.  After all renewals have expired a new FM-3 may be requested.

It is important to mention that the Mexican Company, in which the foreigner renders his services to his or her foreign employer, must be duly incorporated in order to be able to request work a permit.

*  To obtain an FMN, the following documents are required:

*  To obtain an FM-3, the following documents are required:

Once the stated documents have been submitted to the INM, a file number will be assigned which will allow the applicant (foreigner) to temporarily enter Mexico while the permit process takes place.

FM-3 renewals must be requested 30 days prior to the expiration date. It is important to underscore that all permits requested, FMN, FMVC or FM-3 (if not renewed) must be returned at its expiration to the INM, or when leaving Mexican Territory definitively.

Work Permits may also be obtained from the Mexican Consulate located in the applicant’s country.

 

Taxes

Property taxes are very low in Mexico as a whole. The property tax, known as a predial is .1% of the assessed value. Taxes are paid annually, with the assessed value determined at the time of sale. If you purchase a property with an assessed value of $100,000US dollars your annual tax rate would be $100.00US dollars. The reason taxes are so low is due to the fact that they have never been a source of revenue for the Mexican government.

Real Estate Acquisition Tax (transfer tax): Individuals or companies purchasing real estate, consisting of land, or land and its improvements in Mexico, are subject to the payment of a real estate acquisition tax calculated at the rate of 2% of the value of the property (the rate may vary from state to state from 2% to 3.3%). All purchasers of real estate property must pay this tax whether the acquisition is carried out through a purchase and sales agreement, donation, trust, assignment, mergers of companies, split-off, or payment in kind.

Mexican real estate is subject to a 20% capital gains tax on the gross proceeds from the sales without any deduction. There is another option net basis taxation up to 35% (depends on the state and the interpretation of the notary). Under this tax plan, gain is calculated by deducting from the gross proceeds (1) the original cost of acquisition, (2) the cost of improvements, (3) notarizes expenses and other costs of sale, including appraisal costs, and (4) commissions. The original cost is separated between land cost and cost of buildings, with at least 20% allocated to land. The cost of buildings and any other improvements is then decreased at 3% per year between the date of acquisition and date of sale, but the cost is not decreased below 20% of the original amount. The cost of the land is increased based on changes in the National Consumer Price Index.

Formula for capital gains tax: AV2 (appraised value 2) -AV1 (appraised value 1)? Improvements - Cost of the Sale=Taxable Amount x 35%=Tax Due

Your FM2 or FM3 can help you to avoid capital gains taxes when selling your property. If someone proves they were living on their property for two years in Mexico, they can avoid paying any type of capital gains.

Individuals in the restricted zone, who are residents of Mexico (have an FM3), and who rent their rights in trust property (fideicomisos) must make provisional payments on their Tax on Rents (Impuesto Sobre la Renta) for income generated from cash deposits, credits, exchanges coming from rents or sub-rentals. The calculation will be based on one of two methods; one option is to pay 1% (on average, based on state) of the gross amount received during a three-month period, or you can opt to pay around 35% (on average, based on state) of your net profit.

In order for any authorized expense to be deductible, the taxpayer must obtain an official invoice, which is known as a FACTURA. This receipt must be printed on the press of a government-authorized printer and will contain the taxpayer ID number (RFC) of the individual or company issuing the receipt.

The following are the authorized items for deductions:

 

1.  Property taxes, as well as any contributions or local taxes for improvements, planning or public works expenditures.

 

2.  Maintenance costs that are not related to improvements or additions; water payment when not paid by the tenant who occupies the property.

 

3.  Interest paid for loans obtained for the purchase, construction, or improvements of the property.

 

4.  Employees directly employed at the rental property. Salaries, commissions and/or fees are deductible, as well as taxes and benefits paid on those salaries.

 

5.  Insurance premiums on the properties.

 

6.  Investment in construction, including additions and improvements. These expenses are amortized at the rate of 5% per year for construction and 10% for installation expenses or improvements.

 

Mexican residents must file a declaration with authorities by the 17th of each month. An annual declaration is due no later than April 1st the following year, and the difference between provisional payments made and total tax due, based upon global Mexican income, is due with the annual return.

Mexico has signed a number of treaties to avoid double taxation with other countries, and their benefit can be applicable depending on the type of transaction. Taxes that are paid on Mexican income are generally deductions on U.S. and Canadian income. It is wise, however, for the foreign taxpayer to check with his or her personal accountant to determine how to declare these foreign tax payments.