Mexico. Executive summary

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1 December 2012 HR and tax alert Mexico New immigration regulations come into effect Executive summary Further to our previous Immigration alert issued in October 2012, the Manual of Criteria and Immigration Processes was published in the Official Federal Gazette (Diario Oficial ( DOA )) and came into effect on 9 November, thus completing the new legal framework related to the immigration reform in Mexico. Companies should expect delays in the processing of visas in Mexico given the fact that the new immigration rules are still being assimilated by the Mexican Immigration Institute ( INM ) and its several regional offices in Mexico. Delays are also anticipated due to the the fact that consulates/embassies will be playing an extended new role associated with the processing of certain visas, but they are not yet familiar with the intricacies of their new role and the processes they will be required to follow. Finally, a new president came into office in December and, as was the case with previous administrations, substantial changes of personnel are expected in most government departments, including the INM, particularly in light of the fact that the new president is from the opposition party. Following is a summary of the major highlights most relevant to companies with employees traveling/working in Mexico. Employer registration file Individuals or companies who have foreigners performing activities remunerated in Mexico under their responsibility, will be required to file an employer registration (constancia de inscripción de empleador) with the INM. This registration, previously known as the basic registration file before (expediente básico), used to be optional, but now became mandatory. Absent an employer registration file, work permit applications will not be accepted for processing. Accordingly, it is imperative that all companies intending to process work permits related to Mexico, immediately open an employer registration file with the INM. Consult your immigration advisor for further details on how to fulfill the INM s Employer Registration requirements. Employer registration update requirements All employers registered with the INM are required to formally notify the INM regarding any changes in its articles of incorporation, among other changes, including address, business purpose, assignment or revocation of powers of attorneys. Companies now have 30 calendar days to notify the INM regarding any reportable change. Annually, all companies are also required to provide updated information to renew the Employer Registration at the INM, together with the company s annual Mexican corporate income tax return.

2 New immigration status conditions for foreigners in Mexico The (i) Non Immigrant (FM3, FMM Tourist/Business), (ii) the Immigrant (FM2), (iii) the Immigrated (Inmigrado) were phased out and replaced by three new broad immigration categories: (i) visitor, (ii) temporary resident, (iii) permanent resident. The following compares the immigration status conditions under the new and the old system. Before immigration reform phased out Non Immigrant: Tourists and business visitors Maximum stay up to 180 days (FMM) Non Immigrant (FM3) Annual renewal required Immigrant (FM2) Annual renewal required Immigrated (Inmigrado) No annual renewal required After the immigration reform NOW in effect Visitor: Tourists and business visitors Maximum stay up to 180 days (FMM) Temporary resident (residency card) From 1 to 4 years* Permanent Resident** No annual renewal required * The temporary residency period will depend on the duration of the assignment to Mexico. Consult your advisor for further information regarding mitigation of possible labor and tax contingencies that may be triggered depending on the length of assignment. ** Children under 3 years old must renew annually. Individuals over 3 years old should renew every four years until reaching the age of 18. Consulate versus in country (Mexico) INM visa processing As a general rule, the Mexican consulates and embassies abroad will have autonomy to issue certain types of visas, although upon entry into Mexico the foreigners will still be required to present themselves before the INM to obtain their corresponding immigration identification card. This initiative is being perceived as an attempt to reduce the administrative burden of the INM due to increased number of visa applications filed in Mexico. Consulates/embassies abroad will be able to issue visitor (up to 180 days) as well as temporary resident visas (1 to 4 years), but only in those cases where the visa petitioner will not receive any remuneration from a Mexican company during his/ her stay in the country. Visitors, temporary and permanent residents who will receive remuneration from a local Mexican company must have their work permits processed exclusively through the INM in Mexico. Authority to question foreigners upon entry into Mexico Immigration agents now have the formal authority to carry out an inspection review and request supporting information from foreigners entering Mexico supporting the actual purpose of their visit. The regulations further credit the authority of the immigration agents to carry out a second inspection review should they consider, at their own discretion, that the foreigner did not provide satisfactory evidence regarding the purpose of the trip. Accordingly, the immigration agents will have the power to ask questions and request documentation (hotel reservations, transportation tickets. etc.) as they may deem necessary to confirm the purpose of the foreigner s trip to Mexico. In the case of business travelers, the immigration services will reserve the right to request to see an invitation letter from a Mexican company, stating the length and purpose of the trip. Accordingly, on a going forward basis all business travelers coming to Mexico are advised to bring an invitation letter meeting those requirements upon each entry into the country. Changes of immigration status It will no longer be possible for a foreigner to request a change from Visitor (business or tourist) to temporary or permanent resident within Mexico, unless the foreigner has family ties to a Mexican citizen or to a temporary or permanent Mexican resident. Under this new criterion, a foreigner will no longer be able to enter Mexico as a tourist or business visitor and, once in Mexico, request a change of status to obtain a work permit. This was a common way foreigners used to come to Mexico, but the new regulations will now require them to initiate their work permit process prior to entering the country. Accordingly, companies are advised to carry out more advanced planning when sending employees to work in Mexico, taking into account the fact that the individuals will now be required to initiate the work visa process before arriving in Mexico. Moreover, upon approval of the work permit process, foreigners will be required to report to a Mexican consulate/embassy to obtain the visa stamp to enter Mexico and, once in Mexico, report to the INM to obtain the applicable immigration card. Visa quota system The INM will take into account guidance from the Labor Department (Secretaría del Trabajo y Previsión Social ( STPS )) regarding the maximum number of foreigners that should be allowed to enter Mexico under a job offer letter issued by a Mexican company. The regulations indicate that the STPS may establish visa quotas by industry sector and that the INM will have to observe the quotas published when issuing Temporary visas. Within the near future, it seems unlikely that the STPS will formalize the framework of the visa quota system. Accordingly, until further notice from the STPS, the INM will continue to issue work visas based solely on the job offer letter issued by the employer, without taking into consideration any visa quota restrictions. 2 HR tax alert

3 Visa agreements Mexico will continue to honor the visa agreements (Convenios de Supresión de Visas) which are currently in place. Accordingly, citizens of non restricted nationalities, as well as those of restricted nationalities who have a valid US visa, will continue to be allowed to enter Mexico without a visa by completing an FMM (Forma Migratoria Múltiple) form at their port of entry into the country. This procedure was also available under the previous immigration system prior to the recent reform. As a result of the recently signed Multilateral Agreement for Tourism Cooperation, within the framework of the Pacific Alliance agreement (Alianza del Pacifico), to which Mexico is a signatory, as of 9 November 2012, citizens of Colombia and Peru will also be allowed to enter Mexico without a visa by completing an FMM form. All qualifying foreigners allowed to enter Mexico without a visa, will be required to fill out the FMM form with their required personal information at their port of entry into Mexico. Foreigners are advised to ensure that the immigration agent checks on the FMM form either tourism or business as the purpose for the trip and must surrender their FMM departure registration slip upon final departure from Mexico. FMM forms allow single entries into Mexico, with each entry valid up to 180 days, as decided on a discretionary basis by each immigration agent. Immigration status renewal and status regularization Foreigners who are working/living in Mexico are advised to be extremely mindful regarding the date of expiration of their immigration status. As a general rule, renewal requests must be submitted 30 days before their expiration date. If the immigration status expires while the foreigner is abroad, a renewal can be processed upon arrival into Mexico, provided that the foreigner re-enters Mexico within 55 days after the immigration status expiration date and submits the renewal request within 5 days after the date of entry into the country. Foreigners who are in Mexico with an expired immigration status, will have up to 60 calendar days from the date their immigration status expired to request a reinstatement of status. The regularization request must be submitted within that 60 calendar days time frame and the foreigner must be physically present before the INM to justify his/her irregular immigration status, in addition to being sanctioned with an administrative fine. If these time frames for immigration status renewals and regularizations are not observed, unless the foreigner has ties to a Mexican citizen or to a temporary or permanent resident, the INM may deny the renewal/regularization request and order the foreigner (as well as the accompanying family, assuming they are also out of status) to leave Mexico. In such cases, the foreigner may be required to wait a minimum of 6 months in order to be allowed to re-enter the country. Exceptions may be granted by Mexican consulates/embassies considering the facts and circumstances applicable of each individual case. HR tax alert 3

4 Immigration status renewal and status regularization Multiple immigrationform (Forma Migratoria Múltiple (FMM)). Applicable to vistors. 4 HR tax alert

5 Temporary and permanent resident immigration card Ernst & Young Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit About Ernst & Young s Human Capital services Our global mobility team advises many of the world s largest global employers as well as those just venturing into their first foreign country. Our performance and reward professionals help you design compensation programs and equity incentives that really engage your key people. We help you meet your executive tax compliance obligations, stay on top of regulatory change, manage your global talent effectively and improve your function s strategic alignment. It s how Ernst & Young makes a difference EYGM Limited. All Rights Reserved. EYG no. DN0567 Paulo Espindula Tel: paulo.espindula@ey.com German Vega Tel: german.vega@mx.ey.com Marcela Lozano Tel: marcela.lozano@mx.ey.com Oscar Santos Tel: oscar.santos@mx.ey.com This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. ED None HR tax alert