Fiscal Mexico

Taxation and Investment in Mexico 2012

Reach, relevance and reliability

Mexico Taxation and Investment 2012

Contents

1.0 Investment climate

1.1 Business environment

1.2 Currency

1.3 Banking and financing

1.4 Foreign investment

1.5 Tax incentives

1.6 Exchange controls

2.0 Setting up a business

2.1 Principal forms of business entity

2.2 Regulation of business

2.3 Accounting, filing and auditing requirements

3.0 Business taxation

3.1 Overview

3.2 Residence

3.3 Taxable income and rates

3.4 Capital gains taxation

3.5 Flat tax

3.6 Double taxation relief

3.7 Anti-avoidance rules

3.8 Administration

4.0 Withholding taxes

4.1 Dividends

4.2 Interest

4.3 Royalties

4.4 Branch remittance tax

4.5 Wage tax/social security contributions

5.0 Indirect taxes

5.1 Value added tax

5.2 Capital tax

5.3 Real estate tax

5.4 Transfer tax

5.5 Stamp duty

5.6 Customs and excise duties

5.7 Environmental taxes

5.8 Other taxes

6.0 Taxes on individuals

6.1 Residence

6.2 Taxable income and rates

6.3 Inheritance and gift tax

6.4 Net wealth tax

6.5 Real property tax

6.6 Social security contributions

6.7 Other taxes

6.8 Compliance

7.0 Labor environment

7.1 Employees' rights and remuneration

7.2 Wages and benefits

7.3 Termination of employment

7.4 Labor-management relations

7.5 Employment of foreigners

Mexico Taxation and Investment 2012

1.0 Investment climate

1.1 Business environment

Mexico is a federal republic comprised of 31 States and a Federal District. The political system is comprised of federal, state and municipal governments. The President is the head of state and there is a bicameral legislature (Senate and Chamber of Deputies).

Mexico's economy is driven by external trade. Export earnings are fueled by manufacturing, although petroleum, tourism, agriculture and mining also contribute to revenue.

The US is Mexico's largest trading partner, due to its geographical proximity and the benefits of the North American Free Trade Agreement (NAFTA). Despite increasing competition from China and India, many foreign firms still choose Mexico for their assembly plants and other operations. Other major export markets include Canada, Spain and Japan. Major importers include Germany, Japan and Korea.

As a member of the World Trade Organization (WTO), Mexico has eliminated most export permits and substantially reduced export taxes and direct export subsidies. A variety of export incentive programs, including special temporary import programs, are in place to encourage export sales.

The legislation promoting in-bond facilities in Mexico (maquiladoras) makes the country an attractive place to manufacture goods for export to the US Mexico is also a member of the OECD.

Economic activity is concentrated in Mexico City. The six northern border states are home to much of the country's manufacturing, particularly maquiladoras (in-bond assembly for re- export factories) producing goods that are then sold in the US

Price controls

Mexico generally does not have price controls.

Intellectual property

Under the Federal Copyright Law, the National Copyright Institute (INDA), an independent agency of the Ministry of Education, is responsible for the administrative enforcement of copyright laws. The INDA is authorized to conduct investigations, request inspections, enjoin copyright violations and impose sanctions.

The law grants an author both “moral” and “patrimonial” rights (moral rights recognize the author as the first and sole perpetual owner of the rights of his/her works and patrimonial rights allow the author to “exploit the work exclusively or authorize others to exploit the work”). Penalties apply for violations of the copyright law.

The Industrial Property Law protects the exclusive right to use trademarks throughout the registration period. Trademark protection covers the goods and services registered under Nice Classification standards.

Patents are granted for up to 20 years and allow the owner the exclusive right to exploit an invention.

1.2 Currency

The currency in Mexico is the peso (MXN).

1.3 Banking and financing

Large foreign financial groups dominate Mexico's financial system. Their affiliates compete with independent financial firms operating as public development banks, public credit institutions, private commercial banks, private investment banks, savings and loan associations and mortgage banks. Other components of the financial system include securities market institutions, development trust funds, insurance companies, credit unions, factoring companies, mutual funds and bonded warehouses. The banking sector remains highly concentrated, with a handful of large banks controlling a significant market share, and the remainder comprised of regional players and niche banks.

The financial profile of the banking sector has improved due to the reduction in “problem assets.” These improvements, combined with more stringent capital requirements, have contributed to an improvement in the level and composition of capital across the banking system, particularly among the larger institutions.

Mexico City is the country's main financial center, although Guadalajara and Monterrey (the country's second- and third-ranked cities, respectively) are important financial, industrial and commercial centers.

1.4 Foreign investment

Foreign investment is permitted in all areas except those specifically limited to the Mexican government. Foreign investors may hold up to 100% of the capital stock of any Mexican corporation or partnership, except in areas reserved exclusively for the state (ie petroleum and other hydrocarbons, basic petrochemicals, electricity, radioactive minerals, etc.) or reserved exclusively for Mexicans and Mexican corporations (eg retail trade in gasoline and liquefied petroleum gas, radio broadcasting and other radio and television services other than cable television, etc.). Investment in a classified or regulated sector such as banking, railways or telecommunications must be approved by the Foreign Investment

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