As a result of this difficult period in Mexico’s history, a significant number of our clients and their families are relocating to the U.S. under E-1/E-2 Visas, EB-5 Visas or other visas.  Mexican nationals have several options for entering the U.S., either on a temporary or permanent basis.  This article provides a general overview of the main categories of U.S. visas available to Mexican nationals and certain of their requirements and implications.

U.S. immigration status may create additional obligations, such as U.S. income tax on an individual’s worldwide income and U.S. tax on gifts and inheritances.  It is critical to understand, assess and plan for these additional obligations before deciding which U.S. immigration option to pursue.  Although this article contains a general description of the potential U.S. tax effect of each visa option, the specific tax implications for each individual entering the U.S. will vary depending on his or her personal circumstances.  You should not make any immigration decision based solely on this article; please consult an attorney.

1. B-1 Business Visitor (non-immigrant).
   • Authorized Periof of Entry: up to 180 days.
   • Authorized Activities: may engage in “business” but cannot work in the U.S.; cannot receive wages or salary from a U.S. source; may enter U.S. to plan prospective U.S. investments, attend business meetings, serve on the board of directors of a U.S. corporation and negotiate contracts.
   • SpecialRequirements: none.
   • U.S. Tax Effect: you will not become a U.S. resident for tax purposes.
2. E-2 Treaty Investor (non-immigrant).
   • Authorized Periof of Entry: 1-year visa, which authorizes entry for 2-year periods, with unlimited renewals.
   • Authorized Activities: enables entry to “direct and develop” a U.S. business and enterprise that is at least 50% owned and controlled by Mexican nationals; spouse and dependent children under age 21 can accompany you to the U.S. (spouse may apply for work authorization); Mexican employees of the U.S. business may also obtain E-2 Visas if they are executives, supervisors or skilled workers.
   • Special Requirements: requires substantial and committed cash investment in a U.S. business; U.S. business must be at least 50% owned and controlled by Mexican nationals.
   • U.S. Tax Effect: you may become a U.S. resident for tax purposes depending on the duration of your entry period.
3. E-1 Treaty Trader (non-immigrant).
   • Authorized Periof of Entry: same as E-2.
   • Authorized Activities: same as E-2.
   • Special Requirements: requires the U.S. business to be primarily engaged (i.e., more than 50% of its activities) in continuous and substantial trade in goods, services or technology between Mexico and the U.S.; the U.S. business must be at least 50% owned and controlled by Mexican nationals; the U.S. business should have revenue or be immediately capable of generating revenue.
   • U.S. Tax Effect: same as E-2.
4. L-1 Intracompany Transferee (non-immigrant).
   • Authorized Period of Entry: authorizes entry for an initial 1-year period (for U.S. companies in existence for less than 1 year) or 3-year period (for U.S. companies in existence for more than 1 year); visa is renewable for a total of 7 years (for executives or managers) or 5 years (for employees with essential skills).
   • Authorized Activities: authorizes work in the U.S.; spouses and dependent children under age 21 can accompany you to the U.S. (spouse may apply for work authorization if the L-1 transferee is an executive- or manager-level employee; spouse cannot work in the U.S. if the L-1 transferee is an employee with an essential skill).
   • Special Requirements: requires employment outside the U.S. for 1 full year during the last 3 years with a Mexican company that has a U.S. parent, subsidiary, affiliate or branch office.
   • U.S. Tax Effect: you may become a U.S. resident for tax purposes depending on the duration of your entry period.
5. H1-B Specialty Occupation (non-immigrant).
   • Authorized Periof of Entry: authorizes entry for 3 years, renewable for 1 additional 3-year period.
   • Authorized Activities: authorizes work in the U.S.; spouse and dependent children under age 21 can accompany you to the U.S. (spouse cannot work in the U.S.).
   • Special Requirements: requires a U.S. job offer in a specialty occupation, meaning a job that requires a Bachelor’s degree (or equivalent) in a specific field, such as engineering, accounting, etc. and the applicant must possess such degree.
   • U.S. Tax Effect: you may become a U.S. resident for tax purposes depending on the duration of your entry period.
6. TN NAFTA Visa (non-immigrant).
   • Authorized Period of Entry: authorizes entry for an initial periof of 1-3 years, renewable for 1 additional 3-year period.
   • Authorized Activities: authorizes work in the U.S.; spouse and dependent children under age 21 can accompany you to the U.S. (spouse cannot work in the U.S.).
   • Special Requirements: requires a U.S. job offer in one of the 63 occupations listed in Appendix 1603.D.1 of the NAFTA; applicant must have the university degree or other credentials required by the NAFTA for the listed occupation.
   • U.S. Tax Effect: you may become a U.S. resident for tax purposes depending on the duration of your entry period.
7. F-1 Student Visa (non-immigrant).
   • Authorized Period of Entry: authorizes entry for the period of enrollment in a full-time academic program (including college, university, conservatory, private academic high school, etc.) plus any periods of authorized practical training and a 60-day grace period.
   • Authorized Activities: full-time study; on-campus work only (limited to 20 hours per week) that does not displace U.S. residents, which should be part of a fellowship, scholarship or postdoctoral research appointment.
   • Special Requirements: requires enrollment in a full-time academic program.
   • U.S. Tax Effect: you are unlikely to become a U.S. resident for tax purposes, but you may depending on the duration of your entry period.
8. EB-5 (permanent resident).
   • Authorized Period of Entry: 2-year period of Conditional Permanent Resident (CPR) status, after which you may apply for Lawful Permanent Resident (LPR) status.
   • Authorized Activities: spouse and dependent children (under 21) can obtain the same status to live and work in the U.S. permanently; spouse and dependent children (under 21) receive all rights and privileges of Lawful Permanent Residents of the U.S.
   • Special Requirements: requires an investment of at least $1,000,000 (or $500,000 in certain rural or high unemployment areas) in a U.S. business creating at least 10 full-time jobs for U.S. workers; investor MUST “actively manage” the U.S. business on a daily basis; within 90 days of expiration of CPR status, investor must apply for LPR status and prove that the investment has created 10 full-time jobs for U.S. workers.
   • U.S. Tax Effect: you will become a U.S. resident for tax purposes.
9. EB-5 Regional Center Program (permanent resident).
   • Authorized Period of Entry: same as EB-5.
   • Authorized Activities: same as EB-5.
   • Special Requirements: same as EB-5 except, importantly, the investor is NOT required to “actively manage” the U.S. business; the investor is required to attend shareholders’ meetings but the investor may reside anywhere in the U.S., whether or not near the U.S. business in which the investor has invested.
   • U.S. Tax Effect: same as EB-5.
10. O-1 Extraordinary Ability (permanent resident).
    • Authorized Period of Entry: immediate Lawful Permanent Resident Status (no period of Conditional Permanent Resident status required).
    • Authorized Activities: spouse and dependent children (under 21) can obtain same status to live and work in the U.S. permanently; spouse and dependent children (under 21) receive all rights and privileges of Lawful Permanent Residents of the U.S.
    • Special Requirements: requires proof of extraordinary ability in business, science, education, athletics or the arts, as demonstrated by sustained national or international acclaim; must prove intent to continue working in the area of extraordinary ability; no U.S. employer or investment required.
    • U.S. Tax Effect: you will become a U.S. resident for tax purposes.

I thank my partners Brian Graham (immigration), Julian Nihill (international tax) and David Cibrian (corporate) for their contributions to this article.

International tax aficionados should plan to attend the 2011 University of San Diego Law School/Procopio International Tax Institute on October 24-25, 2011, at the University’s Joan B. Kroc Institute for Peace & Justice in San Diego.  This year’s topics include:

• FATCA (Foreign Account Tax Compliance Act) – Foreign Financial Institutions Duties in Identifying “U.S. Persons”
• EB-5 Visas and the Myriad of U.S. and International Tax Consequences
• Proposed Regulations for Spontaneous Information to Foreign Tax Authorities for Nonresident Alien U.S. Bank Deposit Accounts
• Conflicts of Law Issues of Foreign Law and FATCA Requirements
• Tax and Legal Issues of Doing Business in China
• Mergers & Acquisitions of Hotels and Shopping Malls in the U.S.

The conference agenda includes both U.S. and Mexican speakers from private practice, government and academia.

There are some great topics this year, including a segment on the U.S. and international tax consequences of EB-5 Visas, which are of keen interest to many of our high net worth clients seeking to permanently relocate the U.S.  It can be a shock for a foreign client to hear that his or her worldwide income will become taxable in the U.S. upon becoming a U.S. resident for tax purposes, whether under an EB-5, an E-1/E-2 or a different category of visa.  Of course, no immigration plan should be undertaken without a full understanding of the tax consequences and proper tax planning before immigration is essential.

I also expect that the segment on tax and legal issues of doing business in China will be very interesting to U.S. businesses with China operations or seeking to enter the Chinese market.  In this regard, I would like to mention my friend Dan Harris of China Law Blog, which has years of excellent blog posts on this subject.

Mexico Law Blog is a sponsor of the Procopio International Tax Institute.

The Mexican promissory note (pagaré) is a useful device not only to memorialize a loan of money to a Mexican person or entity, but also as a type of guaranty of payment obligations under a contract for the sale of goods or services.  

In the guaranty context, for example, a U.S. company selling goods to a Mexican company that refuses to make advance payment or provide a standby letter of credit or other robust payment insurance may require that the Mexican company issue a promissory note to the U.S. seller concurrent with each purchase order.  Since the promissory note must be enforced in order to be a useful guaranty and the maker must have sufficient assets following enforcement to support the obligation,  is not the best payment insurance, but it is an additional tool for U.S. companies to consider when other more preferable payment guaranties are unavailable.  As discussed below, the expedited enforcement proceeding available to the payee under a Mexican promissory is an additional benefit of this instrument. 

Elements of a Mexican Promissory Note (Pagaré)

Article 170 of Mexico’s General Law of Negotiable Instruments (Ley General de Títulos y Operaciones de Crédito) sets forth the elements that must be included in a promissory note under Mexican law, which are generally summarized as follows:

1. A statement that it is a promissory note;  
2. The unconditional promise by the maker to pay an amount certain; 
3. The name of the person/entity to which payment must be made;  
4. The date(s) and place that payment(s) are due (or if the date of payment is not stated, the promissory note will deemed to be payable on demand by the payee and/or the payee may indicate in the note that it is payable on demand); 
5. The date on which and place at which the promissory note is signed; and 
6. The signature of the maker or the signature of the person who signs the note on the maker’s behalf.

If the maker is a natural person, the payee should require that the maker (rather than a third party representative of the maker) sign the promissory note and the payee should retain a copy of the maker’s official identification for signature comparison.  If the maker is an entity, the payee should require that the natural person acting on behalf of the entity deliver to the payee an original or certified copy of a valid power of attorney evidencing such person’s authority to execute the promissory note.  The payee should not accept the promissory note until the power of attorney has been reviewed and approved by Mexican legal counsel.

The note may include interest and other terms permitted by the General Law of Negotiable Instruments.  The payee should not modify the promissory note following execution or leave any terms of the note blank for insertion by the payee following execution because such actions may make the note unenforceable and/or give rise to defenses to enforcement by the maker.

Enforcement Benefits of a Mexican Promissory Note (Pagaré)

A lawsuit for collection of a promissory note may be commenced by a summary debt collection proceeding (juicio ejecutivo mercantil), which is an expedited legal proceeding and is considerably faster than an ordinary legal proceeding in Mexico. In a summary proceeding, a court generally issues final judgment within 6-12 months of the date the lawsuit is filed, assuming that the maker contests the amount the payee alleges to be owed under the note in the first stage of the lawsuit.  (Judgment may be issued within 6 months of the date the lawsuit is filed if the maker does not contest the amount alleged by the payee to be owed under the note.)

An additional and important benefit of a summary proceeding is that the court permits pre-judgment attachment of the maker’s assets upon the payee’s giving of notice of the lawsuit to the maker. An ordinary proceeding, in contrast, can take between 10 and 16 months for final judgment to be issued by the court and attachment of the maker’s assets does not occur until the conclusion of the proceeding following the issuance of judgment.

Clickwrap agreements and other web-based and non-web-based agreements that incorporate external terms by reference into the body of a contract are routinely enforceable in the U.S.  In Mexico, however, restrictions on freedom of contracting contained in the Federal Civil Code may make certain provisions of these contracts unenforceable when they are governed by Mexican law. 

The following is a summary of the permitted and non-permitted uses of incorporation by reference under Mexican law based on my discussions with Mexican attorneys.  Also included is a translation of the relevant Mexican statutes on which the summary is based.

1.    What Types of Incorporation by Reference Are Permitted Under Mexican Law?

Under Mexican law, the parties to a contract may agree to incorporate terms into the body of the contract by reference to:

     (a)     an existing external document (such as an “Exhibit A” to the contract that is attached to the contract in full); and/or

     (b)     a non-existing external document that will come into existence upon the execution by both parties to the contract of a future agreement.

2.    What Types of Incorporation by Reference Are Not Permitted Under Mexican Law?

Under Mexican law, a provision of a contract that incorporates an external document by reference and allows one party to unilaterally modify a material term of the external document may not be enforceable.  Mexican law does not specify which terms are material terms that are not permitted to be modified unilaterally by a party and which terms are non-material terms that are permitted to be modified unilaterally by a party.  However, the more likely it is that a term could be viewed as material to the transaction, the more likely that unilateral modification would not be permitted and that the resulting modification would be unenforceable under Mexican law. 

In a sale of goods transaction, these material terms might include warranties, delivery terms, price terms, and other similar terms.  For example, a contractual provision that allows a party to unilaterally modify its terms and conditions of sale by update to such party’s website may not be enforceable. 

Given that there is no bright line rule on this subject under Mexican law, when a contract is governed by Mexican law, it is probably prudent to include all contractual provisions within the body of the contract and its exhibits (notwithstanding the inconvenience of doing so) and to avoid any incorporation by reference in the style described in this section 2.  When feasible, the preferred approach is to have the contract governed by the laws of a U.S. state where there is less or no doubt as to the contract’s enforceability.

3.    What Mexican Laws Govern the Principle of Incorporation by Reference?

 The discussion in sections 1 and 2 above is based on the following provisions of Mexican codified laws:

     (a)    Freedom of Contract Principles:

              (i)    Article 78 of the Mexican Commerce Code: “In commercial contracts each party is bound in the manner and to the terms terms that it is evident that such person wished to be bound to.  The validity of the commercial act idoes not require the observance of any formalities or requirements.”

              (ii)    Article 1832 of the Mexican Federal Civil Code: “In civil contracts each party is bound by the terms and conditions with which it has agreed, and the validity of the contract does not require any formality other than those expressly required by law.”

     (b)    Limits on Freedom of Contract Principles:

             (i)    Article 1797 of the Mexican Federal Civil Code: “The validity and performance of contracts cannot be vested in one of the contracting parties.”

Strasburger & Price, LLP’s Logistics Blog reports that Mexico will impose retaliatory tariffs on additional U.S. goods for the failure of the U.S. to abide by its obligations under the NAFTA. 

The full story is available here.

International tax aficionados should plan to attend the 2010 University of San Diego Law School/Procopio International Tax Institute on October 4-5, 2010, at the law school’s lovely campus in San Diego.

This year’s topics include:

• FATCA – The Foreign Account Tax Compliance Act
• Codification of the Economic Substance Doctrine
• Art. 33 Maquiladoras
• Mexico’s IETU – Final Resolution by IRS/Treasury?
• Professional Responsibility Issues in Representing Cross-Border Clients
• International Joint Ventures – Tax Problems, Structuring the Deal with Cross Border Partners
• Detecting Tax Fraud – Utilizing Exchange of Information Provisions in Income Tax Treaties
• Transfer Pricing: Recent Developments

The conference agenda includes both U.S. and Mexican speakers from private practice, government and academia.

Mexico Law Blog is a sponsor of this conference.

The FCPA Professor reports that a group of non-governmental organizations (NGOs) has requested that Blackfire Exploration, a Canadian mining and exploration company, be investigated for possible violations of Canada’s Corruption of Foreign Officials Act (CFPOA) for alleged improper payments to the Mayor of Chicomuselo, Chiapas. 

The NGOs claim that Blackfire provided the mayor with benefits, including airline tickets for himself, his family and his associates, but acknowledge that Blackfire stopped honoring the “ridiculous propositions” after the the mayor asked it to arrange a sexual affair with a Playboy model.

John Rogers of Strasburger & Price, LLP and Ramiro Rangel of Forastieri Abogados, S.C. have published an article entitled Liquidation of Multinational Companies: Implications for Mexican Subsidiaries.  Copies are available here and on the website of the National Association of Bankruptcy Trustees.

Mike Koehler, author of the FCPA Professor blog, reported today that the U.S. Department of Justice (DOJ) has announced the arrest of John Joseph O’Shea for his alleged role in the bribery of Mexican government officials to secure contracts with Mexico’s Comision Federal de Electricidad (CFE) in violation of the U.S. Foreign Corrupt Practices Act (FCPA).

O’Shea was the General Manager of a Sugar Land, Texas-based subsidiary of Swiss electrical engineering company ABB Ltd. (NYSE: ABB).  According to the indictment, the Texas subsidiary, which provides products and services to electrical utilities, allegedly paid money to a Mexican company that served as a sales representative for ABB on two CFE contracts worth approximately $81 million.  The Mexican company was run by Fernando Maya Basurto, a Mexican citizen who pleaded guilty last week to conspiracy to violate the FCPA and U.S. money laundering laws.

O’Shea and Basurto allegedly arranged for CFE officials to receive payments totaling as much as 10% of the revenue that ABB received from CFE.  The indictment seeks O’Shea’s forfeiture of approximately $3 million.

According to the FCPA Professor, “the improper payments were concealed through a series of financial transactions, first to U.S. bank accounts in the name of Basurto and certain of his family members, then through false invoices received from Basurto in the names of the intermediary companies, and then to the ‘foreign officials’”. 

The FCPA Professor notes that a Mexican company and a Panamian company may, in addition to ABB and its U.S. subsidiaries, be subject to DOJ enforcement action as “agents of domestic concerns” under U.S. Code §§ 78dd-2(a) and 78dd-2(h)(1).

In the U.S., there are various federal and state laws that, subject to certain limited exceptions, prohibit the granting of value (for example, money, gifts, etc.) in exchange for the opportunity to provide goods or services to healthcare recipients or healthcare providers.  These laws include the federal Anti-Kickback Statute, the self-referral prohibition (i.e., Stark Law), the Civil Monetary Penalty (CMP) laws, and any state law equivalents (in Texas, we have the Texas Patient Solicitation Act).  To avoid violations of this complex web of laws, Mexican and other foreign businesses seeking to sell medical-related goods and services in the U.S. should review their marketing plans and proposed contractual arrangements with a U.S.-licensed attorney with healthcare expertise before embarking on any such plans or arrangements.

Mexico also has certain laws prohibiting the granting of value in exchange for the opportunity to provide goods and services to healthcare recipients or healthcare providers.  The Mexican laws are less complex than their U.S. counterparts and are limited to the government sector. 

In general, these Mexican laws prohibit the granting of any payment, gift, or other consideration by bidders or prospective contracting parties on projects involving the supply of equipment or services to public-health related government (or other governmental) entities in Mexico, whether at the federal or state level.  Such entities include, without limitation, Mexico’s Social Security Institute (IMSS) and Institute for Social Security and Services for State Workers (ISSSTE).  There are also Mexican laws that prohibit government officials from receiving such payments, gifts, or other consideration.  Note that even if a payment is permitted under Mexican law, the payment may be prohibited under the U.S. Foreign Corrupt Practices Act (for more on the FCPA, check out The FCPA Blog).

For private bids and contracts in Mexico, including private bid contests organized by private hospitals or doctor groups that are not affiliated with government entities, there are generallyno prohibitions or restrictions on payments, gifts, or other consideration given to such hospitals or doctors.  However, the officers of the hospitals or the doctors may be subject to ethical rules that prohibit or restrict the receipt or acceptance of these benefits.