On April 22nd, the Tax Administration Service (“SAT”) published on its webpage the rules for the application of the tax incentives for corporate bonds and initial public offerings, granted through the Decree published in the Federal Gazette (“DOF”) on January 8, 2019 (the “Rules”). The Rules are the result of an open dialogue among the […]
On April 22nd, the Tax Administration Service (“SAT”) published on its webpage the rules for the application of the tax incentives for corporate bonds and initial public offerings, granted through the Decree published in the Federal Gazette (“DOF”) on January 8, 2019 (the “Rules”).
The Rules are the result of an open dialogue among the Ministry of Finance and Public Credit, various financial industry associations and the licensed securities exchanges in Mexico, dialogue in which our Firm has actively participated.
The tax incentive for corporate bonds eliminates the withholding tax applicable to interest payments made to residents in countries with which Mexico has a tax treaty in force, derived from bonds issued by Mexican-resident corporations, and placed among the investing public through licensed securities exchanges in Mexico.
The Rules clarify that the tax incentive is applicable to interest derived from debentures or debt securities, that are susceptible of trading on the Bolsa Mexicana de Valores or the Bolsa Institucional de Valores, when placed and registered with such exchanges.
The Rules include a procedure, which is similar to that applicable for non-residents to be exempt on the sale of shares on licensed securities exchanges in Mexico, so that the payor of the interest can identify the residence of whomever receives such payments, whether as securities holders or financial intermediaries.
The tax incentive for initial public offerings, in summary, allows for Mexican-resident individuals and for non-residents, to apply a rate of 10% to capital gains derived from the sale of shares issued by Mexican-resident corporations in licensed securities exchanges in Mexico, provided that certain requirements are complied with, in each case, during 2019, 2020 and 2021.
In such regard, the Rules clarify that:
- The total equity value of the issuer shall not be greater than MXN 25 billion and shall be computed prior to the initial public offering (“IPO”).
- The tax incentive is also applicable when the sale is done through the exercise of over-allocation options (greenshoe) or follow-ons.
- The tax incentive will also be applicable to whomever sells shares to a special purpose acquisition company (“SPAC”) or sells shares issued by a SPAC obtained as a result of an initial business combination.
- With respect to the exception provided for the divestment process of a private equity investment trust (“FICAP”):
- The exception shall also be applicable to non-residents.
- The 20% minimum participation of the FICAP shall be computed prior to the IPO.
- The participation of a FICAP shall be computed taking into account not only the shares acquired by the FICAP, but also those acquired by certain foreign legal arrangements that are related to the FICAP or its manager.
Since SAT may modify or clarify the Rules, such Rules shall not be deemed as definitive, until they are published in the DOF and become effective.