Distribution of Wine in Mexico

While wine consumption per capita may seem minor if compared with other markets, wine sales have an average 8% annual growth according to the ICEX Spain: Export and Investments. This fresh expanding market offers a big potential to wine traders. In 2018, domestic wine represented 29% of the Mexican consumption, while the remaining 71% corresponds to imported product.

The average consumer has low awareness and tends to trust wine from countries with a strong wine making tradition, such as Italy, France and Spain or emerging wine producers from US, Chile and Argentina.

Mexican regulation has been revised in order to protect domestic winemakers and consumers, e.g. the General Law to Promote Winemaking Industry was issued (2018), and the use of the indication of “Mexican wine” has been limited to those produced with 100% Mexican grapes, with fermented total content and bottled within the territory (NOM-199-SCFI-2017).

Regarding IP protection, it is also advisable to register your designation (e.g. "Vida Amora") and the combination of designation and logo (if applicable) when entering the Mexican market. To register a trademark in Mexico you may follow two alternative procedures: (1) file the application directly to the Mexican trademark office (IMPI); or (2) file an international application in terms of the Madrid Protocol. Applying directly with the IMPI could be more time effective.

The domestic procedure can be completed within about 4 to 6 months, provided there are no requirements from the IMPI (vs. 12/18 months in case of an international registration). Precedence on the trademark is acquired once the application is filed. Official writs by the IMPI are published in the Industrial Property Gazette. Registration lasts 10 years and is renewable. In some cases, statements of use must be filed to maintain the validity of such registrations. Amendments to the IP Law during 2018, broadened the scope of the protection in Mexico to include sound and smell marks, holographic signs, certification marks and trade dress protection, and these elements were incorporated in the new Federal Law for the Protection of Industrial Property, which will become effective on November 5, 2020.

In addition to trademark registration, to allow consumers to verify the product’s authenticity, compliance with tax and health requirements and prevent counterfeiting, bottled alcoholic beverages must bear the tag and seal issued by the Ministry of Finance.

The legislation and secondary regulation are constantly amended. The Mexican official standard NOM-142-SSA1-SCFI-2014 sets forth this label information in Spanish as compulsory:

• type of product and its trademark;
• name/corporate name and tax domicile of the product responsible;
• country of origin, lot data;
• alcoholic content;
• health information (e.g. cautionary captions);
• commercial information (such as content), among others.

The aforementioned official standard provides specific requisites of writing, positioning and symbols for each of this information. Mexican official standards are available online in the Official Catalogue provided by the Ministry of Economy.

It is necessary to subject the labels to a regulatory verification, by the Commission for the Prevention of Sanitary Risks (COFEPRIS) and it is also advisable to obtain the approval from the Consumer Protection Agency (PROFECO). Such activities can be carried out by a local proxyholder on behalf of the producer. Subject to compliance of requirements, the Ministry of Finance grants the tags and seals that must be affixed to bottles, whether of domestic or foreign wine, to attest its lawful manufacturing and tax payments.

For the importation of wine to Mexico, it is necessary to be enrolled in the Importers Registry of the Tax Administration Service (SAT) of the Ministry of Finance. This registration requires the applicant to have a Taxpayer ID number (RFC), electronic signature for tax purposes, be in compliance with its tax obligations (as applicable), have its RCF’s domicile verified or in process to be verified, have a valid Tax Mailbox Account, among other requisites. Designating a local representative to obtain the aforementioned authorizations could be helpful.

Generally speaking, in order to obtain the health authorization to import, the importer must be registered with COFEPRIS, e.g. by obtaining an Operation Notice. The Operation Notice indicates the type of activity and/or products to be commercialized. Once having an Operation Notice, importer may apply for the health import permit. Since Mexico has a Federal System, in addition to other authorizations and documents required for the import process (see section 5 below), there may be local (State) laws establishing specific requirements to sale and distribute alcoholic beverages. The publicity of alcoholic beverages must be first revised by COFEPRIS.

Before the goods arrive at customs, the importer must have already prepared and filed an application for customs clearance. Some relevant documents/authorizations required in the import process include: the importation declaration, the commercial invoice, the bill of landing, the Certificate of Origin, among others. The product must also comply with the requirements of the applicable Mexican Official Standards (NOM’s), e.g. labelling requirements.

Tax legislation is complex and dynamic, but, in a nutshell, the total taxation of wine products in Mexico amounts to approx. 40-50% of the goods value and is divided into the following items:

General Import Tax (Variable%): According to the General Law of Imports and Exports, the general import tax for wines of fresh grapes is 20%. There are multiple exceptions to this rule, e.g. sparkling wine. Governmental fees for custom proceedings are also applicable (e.g. 8 per 1K). Free Trade agreements may give rise to preferential duty rates.

Value Added Tax (VAT) (16%): The general 16% rate applies to the wine importation and its commercialization. Northern border transactions may qualify for VAT reduction.

Special Tax on Production and Services (IEPS) (Variable%): The IEPS Law considers different rates according to the alcohol content of the product to be commercialized: i) up to 14°GL, 26.5%, more than 14° GL and up to 20° GL, 30%, iii) more than 20°GL, 53%.

Below our main tips for negotiating a distribution contract:

• with whom will you be negotiating? Before engaging in a business relationship with a Mexican legal entity, it is crucial to verify its organization and good standing, along with the authority of the signatory. For such purposes, the following documents are relevant: incorporation deed recorded with the Public Registry of Commerce, powers of attorney, ID of its legal representative, recent proof of residence, proof of registration as a taxpayer (RFC), proof of registration in the Mexican Institute of Social Security (IMSS) and certificate of compliance with its obligations issued by the Tax Administration Service and the IMSS. In case of individuals, it is suggested to review the last 4 documents. IMSS documents are not relevant if the distributor does not require employees to perform its activities.
  
  
• define the terms and conditions of the agreements. It is advisable to set forth in the agreement the essential terms of the distribution, which will rely on the business scheme and the negotiated terms and conditions, e.g. purchase and delivery processes, prices and payment dates, minimum purchasing volume, term of the agreement, exchange and refund policies, sales channels, promotional activities, etc.
  In addition to these merely commercial terms, there are other issues that are suggested to be included in the agreement to prevent future disputes among the parties, for example: forms of termination and their consequences, confidentiality obligations, intellectual property protection, liability with the final consumer, treatment of personal data, exclusivity and non-compete, etc.
  
  
• law and jurisdiction. The parties can freely agree on the law applicable to the agreement and on the courts or the arbitration to whom they submit to. If the distribution will take place in Mexico, it is advisable to elect Mexican law and courts, to be able to enforce compliance of the agreement without the need for international proceedings which are demanding in time and resources.
  In case a different law is elected to rule the agreement, it is necessary to review if the provisions do not contradict Mexican Law, to prevent possible conflict of laws, e.g. from an antitrust perspective, it is suggested to verify if exclusivity and non-competition clauses are valid in terms of Mexican law.
  The Arbitration Center of Mexico (CAM) is a renowned institution specialized in administering commercial arbitral proceedings. The CAM has arbitration rules, model arbitration clauses and can appoint arbitrators, experts and advice regarding arbitration proceedings.
  
  
• the agreement can be executed in the language elected by the parties. However, in case Mexican courts are elected to settle disputes, an official Spanish translation of the agreement and/or other relevant evidence must be provided. Hence, it is suggested that, notwithstanding the agreement is signed in different languages, to also include the Spanish version, setting forth that in case of dispute the latter shall prevail.