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Starting a business in Mexico?
Mexico
General Information
Population: 106.5 million (UN, 2007)
Capital: Mexico City
Area: 1.96 million sq km (758,449 sq miles)
Major language: Spanish
Life expectancy: 74 years (men), 79 years (women) (UN)
Currency: Peso- 1 peso = 100 centavos
Main exports: Machinery and transport equipment, mineral fuels and lubricants, food and live animals
GNI per capita: US $7,310 (World Bank, 2006)
International dialling code: +52
Mexico is situated in North America. After Brazil, Mexico has the second largest export market to the UK in Latin America. Mexico is also a tourist destination popular with American citizens. It has 31 states and one Federal District, Mexico City. It has a Federal Republic system; therefore every state has a separate state government which retains political jurisdiction.
Mexico is reliant upon the U.S. in terms of its economy as it provides more than 25 percent of Mexico’s GDP (Gross Domestic Product). It has a free market economy system, and is regarded as the twelfth largest economy worldwide. The tourist industry in Mexico is crucial to the country’s economy, as it receives more than twenty million visitors annually. Mexico was voted seventh of the world’s most popular tourist destinations in 2005. The country also boasts some of one of the best beaches in the world, attracting many visitors to Mexico as a result.
The biggest challenge you face when moving to Mexico and setting up a business there is adapting to the cultural differences and the government regulations. The disparity in the ways in which the 31 states govern may also be problematic as each one is run differently. It is important to learn Spanish as well, in order to fully engage with those you are dealing with.
First point of contact
It is advisable to contact a Notario Publico, who is a first licensed lawyer in Mexico. A Notario Publico is appointed by the state, but is a reliable point of contact if you are considering setting up a business and moving permanently, as part of their role is to ensure the legality of the contract they are undertaking. It is now easier for those looking to start a business in Mexico to do so since the North American Free Trade Agreement was implemented in 1994. The Mexican governments have come to realise the importance of foreign investment, and in 1993, Mexico passed the Foreign Investment Law (FIL), which aimed to make it easier for foreign investors to become land owners.
The lawyer will generally look over the terms and conditions in both Spanish and English. It is wise however to consult a Mexican attorney and obtain title insurance as a precaution.
Buying property
Direct ownership of real estate by foreigners is prohibited in the “Restricted Zone” in Mexico. The Restricted Zone includes all land located within 100 kilometres (about 62 miles) of any Mexican border, and within 50 kilometres (about 31 miles) of any Mexican coastline. However, the government in Mexico is aware of the importance of capitalising on foreign investment so they created the "fideicomiso," which means in simple terms, a real estate trust agreement. A Mexican bank is established as the trustee, and official owner of the property. The fideicomiso was created so that foreign investors would be able to benefit from usage of unrestricted land without breaking the law. The agreement occurs between a Mexican bank and the seller of the property, when dealing with a property situated in the aforementioned restricted zone. The bank, as trustee for the foreign investor, buys the property for them. This works in the favour of the foreign investor, as they retain and benefit from all the rights of ownership while the bank holds title to the property. The foreigner is even permitted to sell the property at its market value, even though it is held in title officially by the bank. The FIL states that by creating a bank trust (a fideicomiso), foreigners can obtain the rights of ownership within the Restricted Zone. These rights of ownership means that foreigners can use, improve upon, rent or even sell their property as if they directly owned the property.
Foreign investors looking to buy property in Mexico must initially apply for and gain a permit from the Ministry of Foreign Affairs, or the SRE (The Secretaría de Relaciones Exteriores). It is essential to gain permission from the Ministry of Foreign Affairs before you enter into a contract. For commercial property, another way to invest is to buy the property through a Mexican corporation. A foreigner is able to own 100% of the corporation as long as they agree to be subject exclusively to Mexican Law, depending on the type of business.
Mexican Foreign Investment Law
On 24 December 1996 the Diario Oficial, the official publication of the Mexican Government, published the new amendments to the Mexican Foreign Investment Law, which became effective on 25 December 1996. It was created in order to:
1. Reduce delays in the processing of many government business requirements;
2. Promote foreign investment;
3. Provide added security to foreign investors investing in Mexico; and
4. Simplify procedures for investment in Mexico.
There are certain industries in Mexico which are limited to ownership by Mexican corporations or citizens only. These include activities involving the production and sale of petroleum and other hydrocarbon products, basic petrochemicals, electricity (including the generation of nuclear energy), telegraph communications, mail processing and delivery, and similar public services. These are all services which the Mexican government have a monopoly on.
Economic activities reserved for Mexicans include the operation of credit unions, retail trade in gasoline and liquid petroleum gas, national surface transportation of passengers, tourism and transportation of freight.
Foreign investment in cooperative companies or production is limited to 10%. Investment in domestic air transportation, air taxi transportation and specialized air transportation generally is limited to 25%. Since the changes made to the Foreign Investment Law, foreign ownership interest is not taken into account if the foreign investment is made in a Mexican corporation and if 51% of the capital of such corporation is held by Mexicans.
Foreign investors may now hold up to 49% in companies in almost all aspects of the Mexican financial system, including commercial banks, credit institutions and securities market specialists.
Opening a bank account in Mexico:
There are five main banks in Mexico: Bancomer (owned by BBVA in Spain), Banamex (owned by CitiBank and Group of USA), Banco Santander (partially owned by Bank of America, HSBC, and Banorte.
You can open a bank account both in Mexican pesos or dollars. To open a bank account in Mexico you will need the following:
A valid passport
Visa- FM2 or FM3
Two bank and/or credit references (Mexican or foreign)
Proof of address (a bill with your address on it)
When you open a bank account in Mexico, you are able to get a credit card with the same bank. The requirements are the same as above, in addition to proof of income. Some banks will require you to have your account with them for at least 6 months and a balance of $50,000 pesos before issuing you with a credit card if you cannot provide credit references.
Business hours are normally 9 am to 4 pm.
The following website provides an overview of the Mexican immigration system and summarises the options available for those looking to visit Mexico for leisure, or those looking to work there, as well as those seeking permanent residence in Mexico or those looking to obtain Mexican Citizenship.
http://www.mexperience.com/liveandwork/immigration.htm#5
Useful information
Although English is widely spoken in tourist areas and resorts in Mexico, it is essential to learn Spanish in order to survive day-to-day living in Mexico because the locals won’t necessarily speak English.
In Mexico, there is a slower pace of life and there are many cultural differences to adapt to, it has a very different lifestyle to that of Britain. Family also play an important part in the life of Mexicans, as does religion.
The cost of living
The cost of living is generally cheaper in Mexico and now low-cost airlines are starting to have a significant effect on air-travel prices in Mexico, which have previously been relatively expensive. However, utilities are more expensive in Mexico due to the lack of competition, so electricity and telephone usage have fairly high prices in comparison with Europe and America.
Many Mexicans tend to buy bottled water because of the poor water system that does not always guarantee drinkable water. Bottled water is comparatively expensive so be aware of this.
Gasoline and diesel is currently subsidized by the Mexican government, because of the oil trade in the country but it is unknown how long this will last. Prices of gasoline and diesel don’t vary as much as the U.S. and Europe as a result.
The majority of economic activity occurs in Mexico city, so compared with the rest of Mexico, living in the capital is relatively expensive. It is clear that many successful examples of people having moved to Mexico have achieved that success and happiness by embracing the culture and lifestyle of Mexico so it advisable that you integrate yourself fully in Mexican community and life in order to achieve the same.
Healthcare
When you move to Mexico, it is important to immediately familiarise yourself with local health and medical facilities, and obtain the contact numbers of your nearest hospital, doctor, dentist and optician so you are well prepared in the case of an emergency.
The British Embassy and Consulate in Mexico is an essential place of contact in case you need advice or support. Its address in Mexico is:
Mexico City
Rio Lerma 71
Colonia Cuauhtemoc
06500 Mexico DF
Telephone: +52 55 5242 8500.
Visit The Mexican Consulate in the United Kingdom, which is in London if you have any queries or problems before you plan to move permanently to Mexico. It is located on:
16A St. George Street
London
W1S 1FD
Telephone: +44 (0)20 7235 6393
Checklist of things to do
Your passport should be valid for at least a year before applying for a Mexican visa.
Contact the Mexican Consulate in London about applying for a visa as they will provide assistance and issue you with the necessary forms. It is also advisable to contact an Immigration Lawyer in case of any queries you may have.
You are able to use your British driving licence in Mexico, but you can apply for a Mexican driving licence if you want to. However the process differs from state to state.
In terms of electrical appliances, all low-voltage ones, such as mobile telephones and laptops will all be easily adaptable but larger electrical items will have to be bought in Mexico as existing ones will generally not work there, unless you live in the Americas.
You are allowed to bring pets into the country, as long as you have ensured they have received all necessary jabs and that you have obtained permission. In order to do this, contact the Mexican consulate at the above address.
If you are either looking to rent, or purchase a property when you get to Mexico, you will need to look into this as soon as your visa is finalised. If you are waiting on the sale of a house in Mexico, then be sure to make frequent contact with your vendor or the agent you are dealing with.
It may be worthwhile to consider hiring a relocation consultant to assist you with your move to Mexico, as they will be able to guarantee a safe move, providing you with all the necessary information and help if you are anxious about the process.
This is a great site with plenty of information about moving to Mexico and what you will need to do beforehand and once you arrive - http://www.mexperience.com/liveandwork/movingtomexico.php
Visas
The FM3 is the Long-Term Non-Immigrant Visa. It is a renewable visa which gives foreigners non-immigrant temporary residency status. Therefore it gives individuals the right to live in Mexico, according to the terms specified in the visa, but it does not lead to permanent residency. The terms of the FM3 limit your activities in Mexico. The applicant must demonstrate that they have a steady income, and proof of fund or income is usually required by means of bank account statements, credit cards etc. The FM3 may be renewed for a further four years, and for a total of five years. A new FM3 can be applied for after this, and if approved, will be valid for another maximum five year period. It is renewable annually. Any information can be provided by the Mexican Consulate in England.
An FM2 must be applied for separately, but you do not need an FM3 visa to apply for an FM2. The FM2 is for those seeking permanent residency in Mexico. It is required for you to hold an FM2 for a consecutive five-year period before you can apply for Mexican Citizenship. If however, you have an FM3, and you are seeking long-term residency in Mexico, or want to become a Mexican Citizen, you should apply for FM2 status immediately so that your time starts counting towards the qualification period as soon as possible.
You may apply for a FM2 visa while you are in Mexico and in possession of an FMT (a Tourist/Business Visitors Visa) or an FM3. Mexican Consulates abroad do not process requests for FM2 visas.
Taxes
An individual is regarded as being a Mexican resident, and therefore subject to paying tax on their worldwide income, when they establish a permanent place of abode in Mexico. Also, corporations that have set up businesses according to Mexican laws, with the administration of the business being primarily carried out in Mexico are considered residents. You are a non-resident in terms of income tax purposes if you:
Are physically present in a foreign country for more than 183 days a year;
Commute regularly to Mexico;
Are able to prove that you are a tax resident of another country.
Non-residents are therefore only taxed on their Mexican income.
As of 2005, the Mexican non-resident tax rate starts at 15 percent, above USD 11,366 (MEP 125,900 – with MEP 11,077/USD 1) and rises to 30 percent for earnings above USD 90,277 (MEP 1,000,000.01 – with MEP 11.077/USD 1).
(http://www.us.kpmg.com/microsite/tax/ies/tea/summer2005/article3.asp)
Earned income includes salaries, commissions and allowances, including those for housing, living expenses, education, tax reimbursements, and amounts received as employee profit sharing.
As a Resident, you must include (1) income from investment in your annual returns, apart from interest gained from the Mexican bank system and government duties, which is either subject to a final withholding tax of 20 percent on gross interest or is exempt; (2) or the dividend income from Mexican companies or investment funds; and (3) capital gains on business deals carried out through the Mexican stock exchange, which are exempt.
Taxation
The corporate tax rate was reduced from 33% to 30% in 2005 and to 28% in 2007. Alternatively, companies can pay a flat rate of 16.5% introduced in 2008. The top rate of personal income tax is 28%. The value-added tax (VAT) rate is 15%; food products and medicines are exempt from VAT.
(The Economist)
When looking to move to Mexico to work or start up a business, you will be required to assure the Mexican authorities that you have an income from a foreign country or otherwise that a Mexican company is acting as a sponsor for you.
Some areas which previously had been reserved to government ownership, especially in the infrastructure sectors, are now being opened to private investment. Also, certain areas such as financial services which had been reserved for Mexican investors are now available to foreign investors as well.
Common Types of Companies in Mexico
Limited Liability Stock Corporation (Sociedad Anónima, S.A.)
A sociedad anónima must have at least two share holders. A fixed capital of $50,000.00 pesos is required to set up an S.A. For the option of variable capital, an S.A. de C.V. (capital variable) can be established with both fixed and variable portions of capital, as long as the total is never less than $50,000.00 pesos.
Limited Liability Company (Sociedad de Responsabilidad Limitada, S.R.L.)
A sociedad de responsabilidad limitada is similar to a closed corporation in the United States. The minimum capital is only $3,000.00 pesos, but the company can only have up to a maximum of 50 partners.
Civil Enterprise (Sociedad Civil, S.C.)
Lawyers and accountants tend to use this company structure, which has no minimum capital requirements. There are no limits on the number of partners in a sociedad civil, but each person remains jointly personally liable for any debts incurred.
Branch (Sucursal)
A U.S. company may open a branch in Mexico with the approval of the National Commission of Foreign Investment (Comisión Nacional de Inversiones Extranjeras, CNIE) and the Secretariat of Foreign Affairs (Secretaría de Relaciones Exteriores, SRE). It must also be registered with the Public Registry of Commerce (Registro Público de Comercio).
Subsidiary (Subsidiario)
Unlike a branch, a subsidiario is a separate legal body from its parent company. By setting up a Mexican subsidiary, the parent company is protected from liability.
The S.A is the most common form used by foreign investors. It is established under the authority of the law, and it has particular rights and responsibilities. It has a capital stock and this is divided into shares. The stockholders are only legally responsible for their own contributions. An S.A is made up of stockholders, (shareholders), whose only legal obligation is the payment of their stocks, (shares). Every partner in an S.A should buy one share of stock.
However, some foreign investors prefer the S.A de C.V. Unlike the S.A, the maximum capital amount is not fixed, and while any increase or decrease in capital must be noted down in the official public document (incorporation) in the case of the S.A, the S.A de C.V has an unlimited variable capital and it is not required to amend the public document or by-laws of the company with increases or decreases in capital.
Procedures for establishing a business
Any commercial corporation has to be registered in the Public Registry of Commerce, (Registro Pùblico de Comercio). Through public documents and the use of a notary public, the lawyer will inform the associates of the requirements and fulfill the necessary procedures, offering total legal assurance to the associates of the corporation.
The corporation will be registered, and thus a “record” will be established which will log any actions or activities of the company.
It is advisable for companies to keep the following accounting books and records:
Daily Book
Ledger
Book of Assembly Minutes of Shareholders
Shareholders Record of the Corporation
Book of Capital Increases and Decreases, (in the case of a Variable Capital)
An annual financial report must be produced, which should contain the following:
Financial Statement at the End of the Period;
Balance Sheet;
Statement of Income;
Statement of Changes in Financial Position;
Statement of Changes in Stockholders Equity;
Notes of the Financial Statements.
The tax closing date in Mexico is the 31st of December.
Tax payers are issued with a federal tax I.D. number when they register with the Ministry of Finance and Public Credit (SHCP).
There are four main types of taxpayer in Mexico, as outlined below:
·Corporations involved in commercial, industrial, agricultural, cattle, fishing and wildlife activities. Also included are branches and permanent establishments of foreign businesses or entities, and some nonprofit organizations and firms offering professional services.
·Nonprofit entities including certain corporations or civil associations.
·Mexican and/or foreign individuals living in Mexico, with respect to their income, regardless of the location of the source of revenue.
·Corporations and individuals residing outside of Mexico with a source of income located within the Mexican territory.
The simplest way to work legally in Mexico is to get sponsored by a Mexican company or foreign company with offices in Mexico. They will normally be able to assist you in obtaining the correct permits before you come to Mexico. If a Mexican would be able to do the job you are applying for as well as you can, it is unlikely that you will get the job. Some foreigners end up in real estate or selling time shares, but salaries are generally less in Mexico than they are in the U.K.
Mexico City has a large British community, so it is advisable to contact the British consulate to ask for their personal recommendations of people who can assist you once you’re there.
Business Practices in Mexico
Business Hours
In Mexico City, most offices are open from 9:00am to 5:00pm, but sometimes will be open until 7:00pm from Monday to Friday. Lunch is generally taken at 2:00pm and lasts 1-2 hours. The federal branch of the Mexican government has attempted to change this to 9:00am-6:00p, but they tend to stay later. The local government is going by the old rules of being in by 10:00am and leaving very late at night after a long lunch break.
Mexican business people tend to wear suits. Dress code in Mexico is generally smart.
Negotiations
In Mexico it is impolite to turn people down. It is essential that you learn to distinguish between cases where your business partner may need a bit more motivation and those cases where there is no chance of proceeding with the deal. Always have realistic expectations.
Closing a deal
Mexican firms are often underfunded and can run into serious supply problems. If a Mexican company is going to need a little money up-front to get the raw materials to produce what you want, then you should ensure that they will dedicate their company to working on your order.
Always record your transactions. The exchange of money and merchandise should happen at once. Payment should be by certified check, approved credit card transaction or with a transfer of funds in a bank. If you're supplying a Mexican company, the perennial letter of credit is the best idea.
Business Breakfasts and Business Lunches
Business in Mexico is commonly carried out at breakfast and/or lunch. Breakfasts are also the preferred choice to meet and exchange information about potential business deals.
In Mexico, it is considered impolite to split the bill. The person who is making the sale is traditionally expected to pay, or alternatively, the person who suggested or "invited'' other parties to join him/her for a meal is understood to be offering to pay for that meal. Tips, which are not included in the bill, are generally around 10%.
Status
Mexicans are very status conscious. Professional titles are also very important. It is customary to address your business partner as licenciado, which is the equivalent of a bachelors' degree. Do this even if you know that your business partner is not a licenciado. Ingeniero (engineer) and doctor (either medical doctor or PhD) are also quite common.
Bureaucracy is big in Mexico. Always take copies of the most relevant files and legal documents that may be required to meetings. It is also necessary to take your original passport or photocopies as proof of identification when you're closing a deal.
Using the Telephone
The telephone is considered an informal means of communication. It is also the method used to make sure you are not stood up: confirm all meetings the day of the meeting, or the afternoon before if it is a breakfast meeting.
It is important to remember that a spoken commitment in Mexican business culture is not necessarily binding.
The Diario Oficial is a government newspaper which is edited daily. It contains updated information about new federal laws. It is important to keep abreast of the latest legislation. It is possible to buy specialized selections of it according to your line of business, and it can be purchased and subscribed to online.
It is generally considered that a foreign person creates a permanent establishment base in Mexico when
1) A place of business is established
2) A subordinate agent with powers to enter into contracts in order to develop its entrepreneurial activities is employed.
As a result of the different regulatory requirements of the many states in Mexico, in addition to differences in the operation of national-level regulations, this plays a part in the quality of local business activity. However local governments have been motivated to reform as a result of all the awareness being raised about the ease of doing business.
British Chamber of Commerce Mexico
“The British Chamber of commerce of Mexico is an organization that represents, promotes and develops British business interests in Mexico, serving the business community in trade and investment between the UK and Mexico.
Founded in 1921, BritCham/Mexico is part of a network of quality-accredited European Chambers of Commerce, all uniquely positioned at the heart of every business community in the UK and Mexico. Their main office is in Mexico City.”
http://www.solutionsabroad.com/en/business-in-mexico/business-category/british-chamber-of-commerce.html
British Chamber of Commerce (BritCham)
Rio de la Plata 30, Colonia Cuauhtemoc
06500 Mexico D.F.
Tel: 5286-2526/2705, 5533-2453
Minimum wage
The country's daily minimum wage has increased slightly in 2008, with urban wages having risen by 4 percent to 52.59 pesos, or about US$4.85 (€3.37) a day, roughly the same as the current rate of inflation.
Workers in the Mexican countryside have seen minimum wages rise by about the same rate, to between 49.50 and 50.96 pesos, or US$4.57 to US$4.70 (€3.18 to €3.27), a day.
Healthcare in Mexico
There are three principal healthcare options available in Mexico. The first being several social security associations which offer health insurance for the formally employed and their families, totalling almost fifty million beneficiaries. They are funded by certain allocated employer/employee payroll taxes and legal government contributions. The second are government services led by the Ministry of Health and restricted services from nongovernmental organizations (NGO’s) for those who are uninsured, a surprisingly large number at around approximately forty-eight million. The last is the private sector, and as the private insurance market accounts for less than two million enrolees, the private sector is predominantly financed out of pocket.
The Mexican Social Security Institute (IMSS) is the largest institution in the social security sector. Social security has expanded as a result of economic growth and this is reflected in the different needs of the Mexican people.
The Ministry of Health became a significant source for those living in poor rural areas, or the unemployed; essentially those who did not qualify for social security benefits nor had the facilities to buy private insurance. The IMSS and the Ministry of Health were both established in 1943.
Private medical care is extremely varied in Mexico. There are both superb facilities with highly-trained medical staff and then there are also unregulated and unsupervised physicians.
Since 1943, and the establishment of these medical institutions, there has been little change in the structure of the health care system in Mexico. This has led to a continuing divide between those who qualify for social security benefits and those who are uninsured.
Rights for foreigners in Mexico
As well as restrictions in terms of foreigners purchasing real estate, which has already been explained, foreigners are forbidden to take part in political activities, including voting. In terms of public education and healthcare, foreigners basically have the same rights as Mexican citizens.
The Public Health Ministry and the Mexican Social Security Institute both provide healthcare services to foreigners. The system of hospitals and clinics is governmental-run. Foreigners, like Mexican citizens have the right to free emergency medical attention, but it is important to know that even though many medical facilities are excellent in Mexico, the overall health system is certainly not as comprehensive as that of the U.S. for instance.
Public holidays
The following are the official public holidays of México: (2008)
January 1st New Years Day
February 4th Constitution Day
March 21st Birthday of Benito Juárez
March 23rd Good Friday
March 24th Easter Monday
May 1st Labour Day
May 26th Late May Bank Holiday
May 27th HM the Queen’s Birthday
September 16th Independence Day
November 3rd All Souls Day
November 17h Revolution Day
December 24th Christmas Eve
December 25th Christmas Day
December 26th Boxing Day
Banks of Mexico
Banca Afirme
Hidalgo, 234
Poniente Centro
Monterrey
Tel: +52 81 8318 3900
Fax: +52 81 8318 3995
Email soluciones@afirme.com.mx
www.afirme.com.mx
Banca Amigo
Tel: +34 81 81 50 68 00
Email: quejasysugerencias@bancoamigo.com.mx
www.bancoamigo.com.mx
Banamex
Reforma 390
Piso 18
Col. Juarez
Mexico
D.F. 06695
Tel: +52 55 22 26 81 67
Fax: +52 55 22 26 82 11
www.banamex.com
Banco de Mexico (Central Bank)
www.banxico.org.mx/sitioingles/index.html
Banco Industrial
Tel: +52 2420-3200
Fax: +52 2430-3155
www.bi.com.gt
Banco Monex
Varsovia 36 Col. Juárez
C.P. 06600 México, D.F.
Ph. (55) 5230-0200
(55) 5230-0282
Email: monex@monexcom.mx
www.monex.com.mx/portalmonex/ingles/index.jsp
Banco Regional de Monterrey, S.A.
Tel: +52 2267.3446
www.banregio.com
Banco Santander Mexicano
Prol. Paseo de la Reforma
No. 500 2 Piso
Lomas de Santa Fe
01219 México, D.F.
Tel. +52-55-5257-8000
Fax +52-55-5261-5525
www.santander.com.mx
Bancomer
Av. Universidad 1200
Col. Xoco
03339 México, D.F.
Tel: +52-55-5621-3434
Fax: +52-55-5621-6161-15721
www.bancomer.com
Banorte
Av. Revolucion 3000
3er Piso, Col. Primavera
64830 Monterray
Tel+ 54 55 5140 5600
www.banorte.com
HSBC Bank Mexico
Tel: +54 1 800 560 79 66
www.hsbc.com.mx/aptrix/InternetIngPub.nsf/Content/Home
Ixe Grupo Financiero
Periférico Sur, 314
San Angel Mexico City,
D.F. 01090
Tel: +52 5 174 2000
www.ixe.com.mx
Prudential Bank
Tel: +54 5268 0808
Fax: +54 5268 0811
Email: reporte@prudentialbank.com.mx
www.apolo.com.mx
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