1. Procopio International Tax Institute “Overview of Mexican Tax Considerations of Real Estate for US Investors” -ABC’S of SRL’S, SA etc February 2006

2. Key issues How does Mexico tax entities versus individuals (generally)? Why is there not double taxation like the U.S. has with "c" corporations? Does Mexico have a preferential tax rate for real estate investments(ala the U.S. capital gains tax regime)? How does Mexico generally allow for depreciation of real property (buildings versus land, etc.)? Is there accelerated depreciation methods that can be used? How does Mexico impose taxation on cash basis versus accrual basis regarding real estate transactions? When do foreign investors generally have to recognize income from installment sales of Mexican real estate (when received or upon transfer of title to real estate)? Are there any Mexican tax or regulatory restrictions regarding transfers of proceeds to and from Mexico?

3. General Mexico Income tax Issues Corporations and Permanent Establishments are taxed by the determination of the net taxable income, which is determined by the income less the deductible expenses for the year. One Federal Corporate Income Tax rate –2006 – 29% –2007 – 28% –No state income tax Previous year losses may be reduced.

4. Mexican Subsidiary S.A. de C.V.S.R.L. Partners Minimum 2, unlimited maximum Minimum 2, maximum of 50 EquityMinimum $50,000 Pesos Minimum $3,000 Pesos US Tax benefit NoneUS preferential tax treatment as “flow thru structures” Type of corporate structure Tax treatment is the same for Mexican purposes

5. How does Mexico tax entities versus individuals (generally)? Why is there not double taxation like the U.S. has with "c" corporations? All corporations in Mexico are subject to a corporate tax rate of 29% (2006). For 2007 28% In Mexico we do not have “pass thru entities”, all corporations are taxed the same, on the net taxable income. No tax for the individual on distribution of profits. Individuals are taxed at a progressive rate, from 0% to 29%.

6. Does Mexico have a preferential tax rate for real estate investments(ala the U.S. capital gains tax regime)? No capital gains tax in Mexico, tax is paid on the net income. Net income is determined by the following elements: Original adjusted investment. Inflation adjustment (Purchase date to sell date) Plus additional value of investments. Minus adjusted accumulated depreciation. Tax incentive to deduct at time of purchase, the value of land investment.

7. How does Mexico generally allow for depreciation of real property (buildings versus land, etc.)? Is there accelerated depreciation methods that can be used? Land is not depreciatable. Buildings are depreciated at 5%. Tax incentive, buildings depreciated at 74% One time. On new constructions only. Can be applied on: Year of investment, first year of usage, or Following year. Remaining 26% written off at time of sale.

8. How does Mexico impose taxation on cash basis versus accrual basis regarding real estate transactions? Inviduals on business activities are taxed on cash collections. Corporations are taxed on accrual basis. Corporations have the possibility to consider sales on installments based on the following guidelines. Transactions with individuals Defer more than 35% after the sixth month. Credit term larger than 12 months. For purchase of land or buildings, these are deductible at time of purchase, not payment.

9. When do foreign investors generally have to recognize income from installment sales of Mexican real estate (when received or upon transfer of title to real estate)? On the installment sale, provided it meets the preceeding mentioned criteria. If it does not meet the criteria, it has to recognize the sale on the time of the signed contract. In the case of construction services, income could be recognized based on construction advancements, or the cash advances received.

10. Are there any Mexican tax or regulatory restrictions regarding transfers of proceeds to and from Mexico?

11. Under Mexican income tax law, profit distributions are only taxed once at the corporate level. Profits distributions include not only dividend payments but also reimbursement of shares due to corporate capital reductions or a company’s liquidation. Profit Distribution

12. If Dividend comes from NAPTA no Income Tax is paid. If payment exceeds NAPTA or there is no balance in this account, corporation pays the Income tax for such distribution in accordance with these factors: Year Factor Rate 2006 1.4085 29% 2007 1.3889 28%

13. Net taxable Income (-) Income tax paid (-) Non deductible expenses (-) Non deductible profit sharing (=)Net After Profit Account Net After Tax Profit Account (“NATPA”)

14. Net After Profit Account (+) Received Dividends (-) Distributed Dividends fron NATPA account (=) Accumulative Net After Profit Account Accumulative Net After Tax Profit Account (“NATPA”)

15. If Income Tax is paid for profit distribution, the amount paid is fully creditable versus the corporate Income Tax of the corporation. This credit is allowed in the year of the profit distribution or the following two years. No inflation adjustment is allowed. Profit Distribution

16. Example: Company Corona-Tequila,S.A. de C.V. distributed dividends on january 30th 2006, for the amount of $ 650,000.00, at that date NAPTA account had an adjusted balance of $500,000. Total dividend distribution on January 2006:$ 650,000.00 -Adjusted balance of the NAPTA account at the Date of distribution:$ 500,000.00 Distributed Dividends that exceed the NAPTA account:$ 150,000.00 NAPTA balance after distribution:$ 0.00 Profit Distribution-Example

17. Determination of Income Tax due for the distributed dividends that exceed the NAPTA balance: Dividendss that exceed the balance of NAPTA:$ 150,000.00 (X) Gross up factor: 1.4085 =Result:$ 211,275.00 (X) Income Tax corporate rate: 29% =Income tax payable for profit distribution (*) :$ 61,270.50 Profit Distribution-Example (*) This tax is fully creditable for the Income Tax of the corporation for 2005, 2006 or 2007