1. How to do Business in Mexico GUILLERMO PÉREZ DIONISIO, CPA October 2012 1

2. OVERVIEW This is a general description of the main aspects a company or an individual might face when planning to initiate a business in Mexico. It is intended to provide the reader a background on the country as well as accounting and tax requirements. 2

3. Contents 1. 1. Country Profile 2. 2. Business Entities 3. 3. Accounting and auditing requirements 4. 4. Taxation 5. 5. Investment incentives 6. 6. Labor 7. 7. Highlights 8. 8. Conclusion 9. 9. Sources 1. 1. Country Profile 2. 2. Business Entities 3. 3. Accounting and auditing requirements 4. 4. Taxation 5. 5. Investment incentives 6. 6. Labor 7. 7. Highlights 8. 8. Conclusion 9. 9. Sources 3

4. 1. Country Profile 1.1 Location Mexico is located in the American continent and belongs to North America. 1.2 Population 108 million 1.3 Language Spanish. English is also widely understood. 1. Country Profile 1.1 Location Mexico is located in the American continent and belongs to North America. 1.2 Population 108 million 1.3 Language Spanish. English is also widely understood. 4

5. 1.4 Geography 1,970,000 sq. km. (1,224,000 sq. miles) 1.5 Economy Gross domestic product was estimated at US $1,750,000 billion in 2012. Industrial production growth rate: 1.6% Real growth rate: 4.1%. 1.4 Geography 1,970,000 sq. km. (1,224,000 sq. miles) 1.5 Economy Gross domestic product was estimated at US $1,750,000 billion in 2012. Industrial production growth rate: 1.6% Real growth rate: 4.1%. 5

6. 1.6 Main Industries Petroleum, mining. Tourism. Food and beverages, tobacco. Chemicals, iron and steel. Textiles, clothing, motor vehicles; consumer durables. 1.7 Principal Trading Partners 1.6 Main Industries Petroleum, mining. Tourism. Food and beverages, tobacco. Chemicals, iron and steel. Textiles, clothing, motor vehicles; consumer durables. 1.7 Principal Trading Partners

7. 1.8 Political system Federal democratic republic. 31 States, one Federal District. 1.9 Currency and exchange control. The currency is Mexican peso. Peso is freely converted in to any currency 1.10 Religion Mainly Catholics 77%. 1.8 Political system Federal democratic republic. 31 States, one Federal District. 1.9 Currency and exchange control. The currency is Mexican peso. Peso is freely converted in to any currency 1.10 Religion Mainly Catholics 77%. 7

8. 2. Business Entities 2.1 Stock Corporation (S.A.) Most common type of business entity used in Mexico. Shareholders only are liable for an amount up to the value of their shares. Must have at least two shareholders. No minimum capital is required 2. Business Entities 2.1 Stock Corporation (S.A.) Most common type of business entity used in Mexico. Shareholders only are liable for an amount up to the value of their shares. Must have at least two shareholders. No minimum capital is required 8

9. 2.2 Limited Liability Company (LLP) Same limited liability as the stock corporation. No minimum capital required. At least two partners. 2.3 Civil Enterprise (S.C.) Professional service providers, use this form of corporation. It has no minimum capital requirements. There are no limits on the number of partners. 2.2 Limited Liability Company (LLP) Same limited liability as the stock corporation. No minimum capital required. At least two partners. 2.3 Civil Enterprise (S.C.) Professional service providers, use this form of corporation. It has no minimum capital requirements. There are no limits on the number of partners. 9

10. 2.4 Branch Instead of incorporating an entity in Mexico, some companies choose to register their existing foreign company as a branch in Mexico. 2.4 Branch Instead of incorporating an entity in Mexico, some companies choose to register their existing foreign company as a branch in Mexico. 10

11. However, the most common types of mercantile entities used by foreign and national investors in Mexico are the following: Limited Liability Company: A partnership with limited liability for all its members, in which social interests represent the capital. Stock Corporation: Entity similar to the US Corporation, its capital is represented by common shares. Both Mexican legal entities provide limited liability to Shareholders and are subject to the same tax treatment under Mexican law. However, the most common types of mercantile entities used by foreign and national investors in Mexico are the following: Limited Liability Company: A partnership with limited liability for all its members, in which social interests represent the capital. Stock Corporation: Entity similar to the US Corporation, its capital is represented by common shares. Both Mexican legal entities provide limited liability to Shareholders and are subject to the same tax treatment under Mexican law. 11

12. 2.5 Requirements for Stock Corporation and Limited Liability Company Minimum of two shareholders. Transfer of an LLP social parts or any new admission of new partners will require a partners meeting approval. Legal representatives. Sole director or a board of directors. Annual financial statements. Variable capital can be established. 2.5 Requirements for Stock Corporation and Limited Liability Company Minimum of two shareholders. Transfer of an LLP social parts or any new admission of new partners will require a partners meeting approval. Legal representatives. Sole director or a board of directors. Annual financial statements. Variable capital can be established. 12

13. 3. Accounting and Auditing Requirements. Shareholder and capital registry. Books must be recorded in Spanish. Shareholders minute’s book of meetings held. With gross revenue exceeding 2,700,000 USD a special fiscal report must be filed. 3. Accounting and Auditing Requirements. Shareholder and capital registry. Books must be recorded in Spanish. Shareholders minute’s book of meetings held. With gross revenue exceeding 2,700,000 USD a special fiscal report must be filed. 13

14. 4. Taxation 4.1 Income Tax (ISR) Individuals Mexico's individual income tax rates for 012 are progressive, from 1.92% to 30%. Personal annual tax rates 2012 4. Taxation 4.1 Income Tax (ISR) Individuals Mexico's individual income tax rates for 012 are progressive, from 1.92% to 30%. Personal annual tax rates 2012 Income (USD)% 0.00076-457.91.92 457.9-3,886.536.4 3,886.5-6,830.2310.88 6,830.23-7,939.8416 7,939.84-9,506.1617.92 9,506.17-19,172.5721.36 19,172.57615-30,218.623.52 30,218.6 and over30 14

15. Corporate Tax Mexico's corporate tax rate for 2012 is 30%. The corporate rate will be reduced to 29% in 2013 and 28% in 2014. Corporate Tax Mexico's corporate tax rate for 2012 is 30%. The corporate rate will be reduced to 29% in 2013 and 28% in 2014. 15

16. 4.2 Flat Rate Corporate Tax 17.5% rate to income determined based on cash flows. Co-exists with Income Tax. 4.3 Value added Tax (VAT) VAT consists of a 16% tax (reduced to 11% in the borders and certain States) applied to each transaction. 4.4 Capital Gains/ Losses The concept of capital gains in Mexico does not exist. 4.2 Flat Rate Corporate Tax 17.5% rate to income determined based on cash flows. Co-exists with Income Tax. 4.3 Value added Tax (VAT) VAT consists of a 16% tax (reduced to 11% in the borders and certain States) applied to each transaction. 4.4 Capital Gains/ Losses The concept of capital gains in Mexico does not exist. 16

17. 4.5 State level Taxation Transfer and acquisition of real estate, salaries, wages and payroll. 4.6 Social Security Medical attention, disability pension, retirement pension and housing. Rate of approximately 25% over the amount of the salaries. These contributions are Income Tax deductible. 4.5 State level Taxation Transfer and acquisition of real estate, salaries, wages and payroll. 4.6 Social Security Medical attention, disability pension, retirement pension and housing. Rate of approximately 25% over the amount of the salaries. These contributions are Income Tax deductible. 17

18. 4.7 Treaties to avoid Double Taxation Mexico has different treaties to avoid double taxation with its main trading partners. 4.7 Treaties to avoid Double Taxation Mexico has different treaties to avoid double taxation with its main trading partners. 1.Argentina 2.Australia 3.Austria 4.Belgium 5.Belize 6.Brasil 7.Canada 8.Chile 9.China 10. Colombia 11.Costa Rica 12.Czech Republic 13.Denmark 14.Ecuador 13.Finland 14.France 15.Germany 16.Greece 17.Indonesia 18.Hong Kong 19.Hungary 20.India 21.Ireland 22.Israel 23.Italy 24.Japan 25.Korea 26.Luxembourg 27.Norway 28.New Zealand 29.Netherlands 25.Panama 26.Peru 27.Portugal 28.Poland 29.Romania 30.Russia 31.United Kingdom 32.United States 33.Slovakia 34.Spain 35.Singapore 36.South Africa 37.Sweden 38.Switzerland 18

19. 4.8 Withholding Mexico’s treaties generally apply different withholding rates, to interest 4.9-30%, royalties 10- 30%, technical services fees 0-30% and none for dividends. 4.8 Withholding Mexico’s treaties generally apply different withholding rates, to interest 4.9-30%, royalties 10- 30%, technical services fees 0-30% and none for dividends. 19

20. 5. Investment Incentives 5.1 Subsidies Negotiated directly with the State or municipality where the investment will be made. These may include, among others: Discount on the land purchase price. Reduction of State taxes 5. Investment Incentives 5.1 Subsidies Negotiated directly with the State or municipality where the investment will be made. These may include, among others: Discount on the land purchase price. Reduction of State taxes 20

21. 5.2 Tax incentives Entities dealing exclusively in agricultural, livestock breeding, forestry or fishing activities are exempt from income tax when their gross revenues do not exceed the limit established in the law. 5.2 Tax incentives Entities dealing exclusively in agricultural, livestock breeding, forestry or fishing activities are exempt from income tax when their gross revenues do not exceed the limit established in the law. 21

22. 6. Labor 90% Mexican Workers required. Sharing 10% of taxable income among workers. Christmas Bonus Mandatory holidays are: January 1, the first Monday of February, the third Monday of March, May 1, September 16, the third Monday of November December 25, any elections day as determined by electoral authorities and December 1 of every 6 years. 6. Labor 90% Mexican Workers required. Sharing 10% of taxable income among workers. Christmas Bonus Mandatory holidays are: January 1, the first Monday of February, the third Monday of March, May 1, September 16, the third Monday of November December 25, any elections day as determined by electoral authorities and December 1 of every 6 years. 22

23. 7. Highlights México is the world’s eighth-biggest trading country and the largest in Latin America. It has a free market economy. Cheap production and manufacturing costs. Cheaper labor. (Comparable to China). 7. Highlights México is the world’s eighth-biggest trading country and the largest in Latin America. It has a free market economy. Cheap production and manufacturing costs. Cheaper labor. (Comparable to China). 23

24. 8. Conclusion With a growing consumer market fuelled by macroeconomic stability, a strategic geographic location, renowned high-quality labor force, open trade and investment policies there’s no denying that investing in Mexico is a smart choice for financial growth. If you’re interested in investing in Mexico, contact us for assistance at. 8. Conclusion With a growing consumer market fuelled by macroeconomic stability, a strategic geographic location, renowned high-quality labor force, open trade and investment policies there’s no denying that investing in Mexico is a smart choice for financial growth. If you’re interested in investing in Mexico, contact us for assistance at. 24

25. 9. Sources http://espanol.doingbussiness.org/data/exploree conomies/mexico/ Taxation and Investment in Mexico 2012: Reach, relevance and reliability. UK. Deloitte Touche Tohmatsu Limited. Meyer, Michael C.; William H. Beezley, editors (2000). The Oxford History of Mexico. Oxford University Press. p. 736. Krauze, Enrique (1998). Mexico: Biography of Power: A history of Modern Mexico 1810–1996. New York, New York: Harper Perennial. p. 896. www.pwc.com/mx/db2011 25