1. Doing Business in Mexico Crisanto Sánchez Gaitán CPA

2. Scope: This is a brief description of the most important factors any foreign entity or individual has to consider when interested in setting up a company in Mexico.

3. Table of contents  Country Overview  Forms of business  Legal, Accounting and Auditing requirements  Taxation  Incentives  Human Resources and labor law  Final Remarks  Sources  Country Overview  Forms of business  Legal, Accounting and Auditing requirements  Taxation  Incentives  Human Resources and labor law  Final Remarks  Sources

4. Country Overview  Full name: United Mexican States  Capital City: Mexico City  Area: 1,964,375 sq. km  Population: 112 million in Mexico  Language: Spanish  Currency: Peso  International dialing code: 52  Major Stock Exchange: Bolsa Mexicana de Valores (BMV).  Political structure: Democratic republican government based on a congressional system.  President: Enrique Peña Nieto (6 years term, no re-election). Country Overview  Full name: United Mexican States  Capital City: Mexico City  Area: 1,964,375 sq. km  Population: 112 million in Mexico  Language: Spanish  Currency: Peso  International dialing code: 52  Major Stock Exchange: Bolsa Mexicana de Valores (BMV).  Political structure: Democratic republican government based on a congressional system.  President: Enrique Peña Nieto (6 years term, no re-election). (2012-2018)

5.  Economic statistics: Gross Domestic Product  US$1,177 billion. Foreign Direct Investment  US$ 4.9 billion.  Expected growth rate for 2013: 2%  Expected inflation rate for 2013: 3.79%  Main Exports: Petroleum, machinery, transport equipment, silver and other commodities.  Religion: Mainly catholic (78%)  Life expectancy: 75 years (men), 80 years (women).  Economic statistics: Gross Domestic Product  US$1,177 billion. Foreign Direct Investment  US$ 4.9 billion.  Expected growth rate for 2013: 2%  Expected inflation rate for 2013: 3.79%  Main Exports: Petroleum, machinery, transport equipment, silver and other commodities.  Religion: Mainly catholic (78%)  Life expectancy: 75 years (men), 80 years (women).

6. Mexico’s most important trading partners are the US, China and Japan.

8. Forms of business  Corporation Two shareholders minimum; No specific capital needed; Shareholders only are liable for an amount up to the value of their shares; Shares are freely transferable and tradable.  Limited Liability Company Limited personal liability; No minimum capital; At least two individuals or entities; Forms of business  Corporation Two shareholders minimum; No specific capital needed; Shareholders only are liable for an amount up to the value of their shares; Shares are freely transferable and tradable.  Limited Liability Company Limited personal liability; No minimum capital; At least two individuals or entities;

9.  Civil Enterprise (S.C.) Used by investors offering professional services; Joint liability.  Branch Instead of incorporating an entity in Mexico, some companies choose to register their existing foreign company as a branch in Mexico.  Subsidiary Separate legal entity from the parent company; Protects the parent company from liability.  Civil Enterprise (S.C.) Used by investors offering professional services; Joint liability.  Branch Instead of incorporating an entity in Mexico, some companies choose to register their existing foreign company as a branch in Mexico.  Subsidiary Separate legal entity from the parent company; Protects the parent company from liability.

10. Annual general shareholders/partners meetings are required; Both can be forms of variable capital; 5% of profits must be placed in a legal reserve; Sole Administrator or a board of directors. Annual general shareholders/partners meetings are required; Both can be forms of variable capital; 5% of profits must be placed in a legal reserve; Sole Administrator or a board of directors.  Requirements for Corporations and LLC’s

11. Legal, accounting and auditing requirements Shareholders minute’s book of meetings held; Shareholders, capital and purchases’ registries; Accounting registries, financial statements and books in Spanish; With gross revenue exceeding 2.9 million USD a special fiscal report must be filed. Legal, accounting and auditing requirements Shareholders minute’s book of meetings held; Shareholders, capital and purchases’ registries; Accounting registries, financial statements and books in Spanish; With gross revenue exceeding 2.9 million USD a special fiscal report must be filed.

12. Taxation  Income Tax 30% on taxable income  cash, services or credit.  Value Added Tax 16% on the sale of goods and services (reduced to 11% in border regions or specific states).  Flat Rate Tax 17.5% on a cash flow basis. Taxation  Income Tax 30% on taxable income  cash, services or credit.  Value Added Tax 16% on the sale of goods and services (reduced to 11% in border regions or specific states).  Flat Rate Tax 17.5% on a cash flow basis.

13.  Withholding General withholding tax rate on interest is 30%; Royalties are subject to a 30% withholding tax. No withholding tax on dividends;  Social security/Payroll tax Payroll tax 2.5%; Social security contributions 25% on salaries.  Expats/Foreign business personnel Personnel present for more than 183 days a year, have a special tax schedule. Foreign citizens permanently residing in Mexico enjoy the same rights as Mexicans.  Withholding General withholding tax rate on interest is 30%; Royalties are subject to a 30% withholding tax. No withholding tax on dividends;  Social security/Payroll tax Payroll tax 2.5%; Social security contributions 25% on salaries.  Expats/Foreign business personnel Personnel present for more than 183 days a year, have a special tax schedule. Foreign citizens permanently residing in Mexico enjoy the same rights as Mexicans.

14. Incentives Accelerated depreciation allowance; up to 92% deductible. Treaties with 44 countries to avoid double taxation. Exemption of the Tax on imports of natural gas. Maquiladoras regime. Incentives Accelerated depreciation allowance; up to 92% deductible. Treaties with 44 countries to avoid double taxation. Exemption of the Tax on imports of natural gas. Maquiladoras regime.

15. Mexico Tax Treaty Network AustraliaFinlandJapanRussia AustriaFranceKoreaSingapore BarbadosGermanyLuxembourgSlovakia BelgiumGreeceNetherlandsSouth Africa BrazilHungaryNew ZealandSpain CanadaIcelandNorwaySweden ChileIndiaPanamaSwitzerland ChinaIndonesiaPolandUnited Kingdom Czech RepublicIrelandPortugalUnited States DenmarkIsraelRomaniaUruguay EcuadorItaly

16. Human Resources and Labor law 48 hrs. a week maximum; At least one day off per week; Overtime is paid two and three times the normal salary. 25% vacation premium; Year-end bonus of 15 salary days; Sharing 10% of taxable income among workers. Human Resources and Labor law 48 hrs. a week maximum; At least one day off per week; Overtime is paid two and three times the normal salary. 25% vacation premium; Year-end bonus of 15 salary days; Sharing 10% of taxable income among workers.

17. Final Remarks Preferential access to more than a billion potential consumers; Member of the Organization for Economic Co-operation and Development (OECD); Large installed base of manufacturing in a wide range of sectors; Eight largest producer of oil in the world; Strategic location; A bill that will allow private investment in the petroleum sector is being studied at the congress, also a fiscal reform is coming soon. Final Remarks Preferential access to more than a billion potential consumers; Member of the Organization for Economic Co-operation and Development (OECD); Large installed base of manufacturing in a wide range of sectors; Eight largest producer of oil in the world; Strategic location; A bill that will allow private investment in the petroleum sector is being studied at the congress, also a fiscal reform is coming soon.

18. Sources  http:// www.inegi.com  http://www.eia.gov/countries/country-data.cfm?fips=MX  Income Tax Law  Value Added Tax Law  Flat Rate Tax Law  Mexico: What Everyone Needs to Know Roderic Ai Camp Oxford University Press, 2011  Side Effects: Mexican Governance Under NAFTA’s Labor and Environmental Agreements Mark Aspinwall Stanford University Press, 2013

19. If you’re interested in investing in Mexico, contact us for assistance at:

20. Thank you for your attention!