1. Doing Business in Mexico (Tax Regime). June, 2010

2. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Choose of business entity) The stock company (“Sociedad Anónima” - SA) –Capital requirement (as minimum 50,000 MXN) –Shares The limited-liability company (“Sociedad de Responsabilidad Limitada” - SRL) –Capital requirement (as minimum 3,000 MXN) –Quotas Both can be variable capital (CV) and must have 2 shareholders at least Incorporation can take four weeks or longer, depending on the complexity of the project. A permit must be secured from the Ministry of Foreign Affairs

3. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Investment’s incentives & restrictions) The most significant tax incentive is the accelerated depreciation –The scheme allows same-year deductions for up to 92% of an investment’s value, which may vary by industry or type of assets –Applies only to new assets. Furniture and cars are not included –Not applicable in Mexico City, Guadalajara and Monterrey Many state governments attract foreign investment through state tax incentives

4. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) Federal: Income tax vs. Flat tax, Value added tax and Cash deposits tax Local: Payroll and property tax Social security and housing fund contributions Mandatory profit sharing (10%) Taxpayers will be obligated to file a tax report if during the previous year: –Obtain taxable income higher than MXN$34,803,950 –The value of the assets is higher than MXN$60,607,920 –During each month had had more than 300 employees

5. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) (2) Income Tax : Corporate rate 30% on the tax profit (2010, 2011 and 2012) »29% for 2013 »28% for 2014 and subsequent Residents taxation on worldwide basis Non-residents only for Mexican source of income The revenue and expense recognition is on an accrual basis Restrictions and requirements on deductions are imposed Monthly tax pre-payments are required

6. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) (3) Income Tax (Deductions): Must be properly recorded and supported Should be strictly necessary for the business purposes Depreciation: straight line basis & maximum rates imposed by government Interest: Thin cap rules (3 to 1) Inventories: Cost of goods sold Documentation requirements

7. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) (4) Transfer pricing: Transactions between related parties must be at arm’s length or they may be adjusted by the tax authorities Mexico’s transfer pricing rules generally follow the OECD Transfer Pricing Guidelines APAs are possible and documentation must be maintained

8. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) (5) Non-residents (Withholdings): No withholding on Dividends Interest: –Foreign banks resident in tax treaty countries 4.9% –If no tax treaty from 10% to 30% depending on who receive the payment –Financial leases are taxed at 21% Royalties: –Technical assistance, know-how, use of models, plans, formulas and similar technology transfer 25% –Patents, trademarks and trade names 30% Tax Treaties applicable 40% on payments made to “tax havens”

9. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) (6) Mexico-China Treaty to Avoid Double Taxation: Signed in 2005. Effective as of January 1, 2007 Benefits similar to other treaties to avoid double taxation Tax exemptions (i.e. technical assistance) and reduced withholding rates (i.e. interest and royalties) Allows “maquiladora” operations to enjoy Mexican special tax regime that provides tax administrative conveniences Tax exemption on interest paid to People’s Bank of China, State Development Bank, Import and Export Bank of China, Agriculture Development Bank of China, China Export & Credit Insurance Corp.

10. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Foreign Income &Tax Treaties) Foreign tax credit for tax paid on income earned from abroad up to certain limits Treaty network with over 35 countries (Treaties for the avoidance of double taxation) Over 10 International Free Trade Agreements

11. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) Flat Tax : In force since January 1st, 2008 Corporate rate 17.5% Residents & Non-residents with a PE are liable for sales, services rendered and lease activities The revenue and expense recognition is on a cash flow basis (including Inventories & Fixed Assets) Restrictions and requirements on deductions are imposed Interest, payroll, royalties are not deductible, but a credit is granted for payroll only Monthly tax prepayments are required

12. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) (2) Value Added Tax: Indirect tax General rate 16%, 11% in the border Individuals & Corporations that sale, render services, imports and lease activities within Mexico are liable The revenue and expense recognition is on a cash flow basis Requirements & limitations on VAT creditable Monthly tax payments

13. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) (3) Cash Deposits Tax Law : The objective of the tax is to avoid the informal commerce in Mexico Effective as of July 2008 Taxpayers: Individuals and Companies that received cash deposits in their bank accounts. –Mexican Pesos or foreign currency –Considering all cash deposits made in the same bank, regardless if there are different accounts

14. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) (4) Cash Deposits Tax Law : Basis and rate: 3% rate on the cash deposits which exceed MX$15,000, and only the amount in excess of the latter –This tax do not apply to transfers between accounts of the taxpayers, wire transfers or check deposits. Taxpayers are able to credit the cash deposits tax against other taxes in the next order: –Annual Income Tax and monthly advanced tax payments –Income tax withheld to third parties –Other Federal taxes –Tax refund through the filing of an opinion of a Certify Public Accountant

15. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) (5) Tax compliance: Monthly advanced tax payments (IT & FT) must be filed no later than the 17th day of the following month, except for IT during the first year. Annual Tax return within the next 3 months after the closing of the FY (calendar year) No later than February 15th of the following year informative tax returns must be filed Social Security and Housing Fund should be paid no later than 15 th day of the following month Withholding taxes should be paid no later than 17 th day of the following month

16. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Business taxation) (6) Customs: Taxpayers should obtain an import register for the importation of goods The importer could be a different entity or individual than the real owner of the goods IMMEX (“Maquiladora”) –To have assets in Mexico without create a permanent establishment in the country –The goods would be under temporary importation –The entities should obtain small profits (Maquiladora activity)

17. ©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved Doing Business in Mexico (Personal taxation) Mexican residents taxed on a worldwide basis Non-residents when Mexican source, rates vary depending on the type of revenue 30% Maximum income tax rate (2010, 2011 and 2012), certain deductions are allowed »29% for 2013 »28% for 2014 and subsequent

18. © 2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved. Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/mx/aboutus for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its Member Firms.