SANCHEZ MEJORADA Y CREEL CARLOS SANCHEZ NEHIRADA LUTS J. CREEL LUJAN CARLOS SANCHEZ MEJORADA (JR.) Februrary 2, 1960 Mr. O. L. Dykstra, Treasurer Utah Construction & Mining Company 100 Bush Street, San Francisco 4, Calif. Dear Mr. Dykstra: In connection with the opinion you requested during your last trip to Me-xico regarding the advantages and disadvantages of operating in this country through a foreign corporation, I beg to give you the following information: 1. According to law, there are certain activities that must necessarily be carried out by a Mexican corporation; among such are the chemical, the fertilizer, the insecticide, the fishery and the soft drink industries. Furthermore. also according to law, no foreign inidividual or corporation car hold land within the so called prohibited zone, which is an area of 100 kilometers wide on the international borders and 50 kilometers wide on the sea coasts. 2. If there is no legal impediment to operate in Mexico through a fo-reign corporation, it will be necessary to fulfill the following requirements in order to have said foreign corporation qualified in this country. a). Submit evidence that the foreign corporation has been duly incor-porated in accordance with the laws of its place of incorporation; this evidence consists in: i). A copy, duly certified by the Secretary of State of the State where the corporation was incorporated or by the competent authority, of the deed, of incorporation and of the other pertinent corporate document:. This certified copy must be duly authorized by the competent Mexican diplomatic or consular representatives. ii). A certification from the competent Mexican diplomatic or consular authorities that the foreign corporation has been duly incorporated and is qualified according to the laws of the country of incorporation to act. b). An official translation prepared by order of a Mexican Court, of the documents referred to in a) i). SANCHEZ MEJORADA Y CREEL ABOGANDOS - 2 - Mr. O. L. Dykstra San Francisco 4, Calif. February 2, 1960. c). A Mexican Court ruling that the foreign corporation's charter and bylaws is not contrary to the provisions of public policy of the laws of this country. d). Legalization by the Ministry of Foreign Relations of the do-cuments referred to in paragraph a). e). A permit from the Ministry of Foreign Relations, in which it will be provided that the stockholders of the foreign corporation will consider themselves as Mexican citizens in all matters pertaining to the operations of the corporation in Mexico and that they waive the right of ever requesting diplomatic protection in connection with the activities carried forth in this country. f). A permit from the Ministry of Industry and Commerce, who will examine all the documents referred to in preceding paragraphs and will, at his discretion, authorize qualification of the foreign cor-poration to operate in this country. g). Registration of the official Spanish translation of the charter and. bylaws of the foreign corporation, as well as of all other documents such as the permits from the Ministries of Foreign Relations and of Industry and Commerce at the Public Registry of Commerce. h). The appointment of a permanent representative of the foreign corporation in Mexico. i). The establishment of permanent offices in Mexico. j). Registration of the corporation in question with the appropriate industrial chamber or chamber of commerce and with the competent tax authorities. k). The opening of books of accounts, duly legalized by the Tax Authorities. 1). The publication in the Federal Official Daily of the yearly balance sheet of the foreign corporation. 3. The foreign corporation operating in Mexico will naturally be ABOGANDOS - 3 - Mr. O. L. Dykstra San Francisco 4, Calif. February 2, 1960. subject to compliance of all legal requirements pertaining to Me-xican taxation, such as the filing of returns. Though the tax laws provide for specific rules in determining the taxable income of fo-reign corporations operating in this country, there is the possibility that due to the internal organization of the corporation, it would be hard to comply with the requirements of the tax laws, primarily the Income Tax legislation, regarding certain deductions. To overcome this difficult there is the possibility of entering into agreements with the Mexican Tax Authorities which would establish the basis for computing the taxable income. In my experience I know of very few foreign corporations which operate directly in Mexico and in my experience, those who started of on said basis have decided to establish Mexican corporations as subsidiaries of the parent The major drawback is the tax question and I would recommend that the opinion of the Mexico City Office of your independent auditors, Price Waterhouse & Company, be obtained. please let me know if you will require any additional information and oblige, Yours very truly, Luis J Creel Luis J. Creel Lujah. c. c. Mr. L. B. Shelley LJCL:gaa l/3