On January 8 2019, a Decree granting tax incentives to certain taxpayers was published in the Official Gazette (the “Decree”), which entered into force the day after its publication. The purpose of the aforementioned Decree is to: (i) establish mechanisms to encourage a greater number of investors to acquire corporate debt bonds (specifically, foreign investors), and (ii) standardize the tax treatment for shares in Mexico that are going to be publicly traded in the stock market, so that the investors’ decisions are not distorted, thus, promoting the trade of private equity issued by Mexican companies. The following is an executive summary of the contents of the Decree.

 

Withholding for certain interest paid to foreign residents

Firstly, the Decree establishes that a tax incentive is granted to Mexican residents for tax purposes that are obliged to carry out the withholding indicated in article 166 of the Mexican Income Tax Law (“MITL”) for interest payments derived from securities issued by companies residing in Mexico and placed in recognized markets, consisting of a tax credit equivalent to 100% of the income tax (“IT”) that shall be withheld by Mexican payers (4.9% or 10%, as the case may be). It should be noted that the Decree does not mention a termination date for the incentive mentioned in this paragraph.

 

This incentive will only be applicable to interest payments made by Mexican residents for tax purposes to a resident in a country or jurisdiction with which Mexico has a treaty to avoid double taxation or a broad agreement for the exchange of information in force.