An executive order has been published in the Official Gazette introducing new tax incentives. They are intended to further develop the corporate debt instruments market in Mexico as well as the private capital market for SMEs.

1. 1
FINANZAS-FISCAL-LEGAL CORPORATIVO
New tax incentives. Development of the Mexican corporate debt instruments
market and IPOs for SMEs.
Background
On January 8th, 2019, an executive order (the “Order”) was published in the Official Gazette. Such Order
introduces certain tax incentives. According to the declaration of purpose of the Order, on the one hand,
the corporate debt market (bonds) in Mexico is currently at a low-developed phase. Therefore, Mexican
resident companies find quite high funding costs in order to finance their production projects (mainly due
to the fact of an asymmetrical tax treatment depending on the tax residency of the investor or the bonds’
issuer, e.g. domestic tax law exempts non-residents investing in government paper while interest income
derived from private bond issue are taxed when acquired by foreign investors). One of the tax incentives
included in the Order intends to encourage the interest of such foreign investors in the acquisition of debt
instruments issued by Mexican companies. Thus, this tax incentive aims at providing for an increasingly
neutrality to the relevant tax regime.
On the other hand, the private capital market for small and medium-sized enterprises (SMEs) in Mexico is
also at a low-developed phase, and it is assumed that the stock market represents an important source of
funding for SMEs related to their development and growth. Another tax incentive included in the Order
intends to harmonise the tax treatment of stocks in Mexico which starts trading within the stock market,
and consequently, foster the private capital instruments exchange issued by Mexican entities.
Additionally, it is intended to encourage companies to perform initial public offerings (IPOs) of stocks
within the stock market, hence going public.
It is expected that local tax authorities would issue in the short-term additional administrative guidance
and general rules related to the operational phase of the Order.
Provisions of the Order
Tax incentives
1. Withholding tax (WHT) on interest payments to non-residents
1.1. General comments
A tax incentive is granted to Mexican residents (the Order refers only to “persons resident in Mexico”, and
not to non-residents with a permanent establishment in Mexico) who shall levy a WHT related to interest
payments derived from bonds issued by entities resident in Mexico, which are placed amongst the
investing public (investors) through stock markets duly recognised according to the provisions of the
Securities Market Law.

2. 2
FINANZAS-FISCAL-LEGAL CORPORATIVO
The incentive consists in a tax credit equivalent to a 100% of the income tax levied (WHT), which can be
only credited against the income tax which shall be paid for the equivalent amount of the WHT computed
according to the current provisions of the income tax law. This will be applicable as long as the persons
resident in Mexico do not levy the relevant WHT in respect to the non-residents.
1.2. Requisites
The tax incentive above referred will only be effective in respect to interest payments performed by
persons resident in Mexico to a resident in a country or jurisdiction with which Mexico has in force and
effect a tax treaty or an agreement for the exchange of information.
1.3. Other comments
The incentive will not be assessed as taxable income for any residents and non-residents. The persons
resident in Mexico who may apply the incentive would consider that they fulfill relevant requisites
provided for by law for purposes of tax deductibility of payments, and the application of the incentive will
not grant any rights for refunds or set-off. Carry-forwards of tax credits under this incentive are not
allowed.
2. Income tax rate on gains derived from the disposal of shares through stock markets
2.1. General comments
A tax incentive is granted to taxpayers - Mexican resident individuals as well as non-resident individuals
and legal entities - related to a harmonised income tax rate of 10% levied on gains obtained by those
taxpayers, and derived from the sale/disposal of shares issued by (Mexican) entities resident in Mexico
through stock markets duly authorised according to the Securities Market Law.
2.2. Requisites
According to the Order, the following conditions shall be met in order to have access to the incentive:
(i) The disposal of the shares through the relevant stock market (assessed as placed within the
investing public) must involve an IPO of the Mexican entity which did not previously
participate in stock markets duly authorised according to the Securities Market Law or in
recognised markets or exchanges covered by domestic tax law;
(ii) The equity value of the Mexican entity whose shares are sold is $1,000,000.00 pesos;
(iii) Do not fall into the limitations provided by domestic tax law (e.g. sale of 10% or more of the
paid-up capital (fully-paid shares) of the relevant entity within a 24-month period, and
through one or more simultaneous or subsequent transactions; disposal of the “control” of
the issuer through one or more simultaneous or subsequent transactions within a 24-month
period; sale of the shares performed outside stock markets above referred; in cases of a
merger or spin-off if certain circumstances may arise, etc.).
2.3. Other comments
This tax incentive would be in force and effect for tax years 2019, 2020, and 2021. Additionally, even
though there could exist limitations to access this incentive (e.g. see above 2.2. (iii)), the Order mandates
that such incentive will be granted as long as at least 20% of the shares of the Mexican company were
acquired by a venture capital investment trust as regulated by local domestic tax law, and whose

3. 3
FINANZAS-FISCAL-LEGAL CORPORATIVO
certificates are placed within the investing public thorough a stock market duly authorised according to
the Securities Market Law, or in recognized markets referred by domestic tax law. The sale/disposal shall
be linked to a transitional divestment process by the trust, and in order for the target entity (investment
target company) to directly going public.
This particular tax incentive may also be accessed in cases in which another investment vehicle (similar to
venture capital investment trusts) has acquired the shares of the investment target entity. Such
investment vehicle shall also comply with the following requisites:
(i) The acquisition of the shares of the investment target entity shall be maintained for at least
two (2) years prior to their disposal through an IPO already referred;
(ii) The investment vehicle shall be incorporated in Mexico according to domestic law, and in
case of trusts, the trustee must be a Mexican resident financial institution or a brokerage
firm;
(iii) The investment shall be equivalent to at least 80% of its net worth in shares of Mexican
entities resident in Mexico, which are not previously participating in stock exchanges;
(iv) All other requisites as instructed by local tax authorities through general rules.
***