By M.D.F. Rosendo Rosas Goiz.

1. Subjects and purpose of the tax

Individuals and legal entities residing in national territory, as well as foreign residents with a permanent establishment in the country are obligated to pay, regardless of where the income is generated, single rate business tax on revenues obtained from engaging in the following activities:

I. Transfer of goods.

II. Rendering of independent services.

III. Granting of temporary use or enjoyment of goods.

Foreign residents with a permanent establishment in the country are obligated to pay, due to the aforementioned activities, single rate business tax on the revenues attributable to said establishment.

The single rate business tax is calculated by applying a rate of 17.5% (¹) to the amount resulting by decreasing from the total income derived from the activities referred to in this article the deductions authorized in this Law.

(¹).- During the 2008 fiscal year a rate of 16.5% was applicable and for the 2009 fiscal year a rate of 17%. SRBT (LIETU) Transitional Article 2008-FOURTH

2. Definition of concepts.

I. As transfer of goods, rendering of independent services and granting of temporary use or enjoyment of goods, the activities defined as such in the Value Added Tax Law.

II. MOMENT IN WHICH THE INCOME IS OBTAINED.

As income obtained, whenever the consideration corresponding to activities referred to in article of this Law is effectively collected, in conformity to the rules established for said purpose by the Value Added Tax Law.

3. Authorized deductions.

Taxpayers may only take the following deductions:

EXPENSES FOR THE PURCHASE OF GOODS, INDEPENDENT SERVICES OR TEMPORARY USE OR ENJOYMENT OF GOODS

I. Expenses corresponding to the purchase of goods, independent services or the temporary use or enjoyment of goods used in the activities referred to in article 1   of this Law, or in the administration of the mentioned activities or in the production, marketing and distribution of goods and services, resulting in income on which single rate business tax must be paid.

Expenses paid by taxpayers which are income to the recipient on the terms of article 110 of the Income Tax Law are not deductible on the terms of this section.

TAXES PAYABLE BY THE TAXPAYER

II. Taxes paid by the taxpayer in Mexico, excepting single rate business tax, income tax, and cash deposits tax, contributions to social security and those taxes charged in conformity with legal provisions.

VAT OR STPS (IESPYS)

Value added tax and/or the special tax on production and services are also deductible, if the taxpayer is not entitled to credit the aforementioned taxes charged to them or had paid the taxes due to importation of goods or services, corresponding to deductible expenses on the terms of this Law, as well as payment in Mexico of taxes payable by third parties if the taxes are part of the consideration, with the exception of withheld income tax or social security contributions.

EXPENSES FOR FEES

Also deductible are expenses under the concept of fees payable by the taxpayer for exploitation of publicly owned assets, for rendering a public service under the corresponding concession or permit, as applicable, provided that the expense is also deductible on the terms of the Income Tax Law.

REFUNDS, DISCOUNTS OR REBATES, RETURNED DEPOSITSOR ADVANCE PAYMENTS

III. The amount of returned goods received, discounts or rebates made, as well as returned deposits or advance payments, provided that the income derived from those operations was subject to the tax established in this Law.

INDEMNIFICATIONS AND CONTRACTUAL PENALTIES

IV. Indemnifications derived from actual and consequential damages, as well as from contractual penalties, provided the law imposes a payment obligation derived from hazardous risks, strict liability, acts of God, force majuere, or acts of third parties, unless the actual and consequential damages or the grounds for the contractual penalty are derived were caused by negligence attributable to the taxpayer.

PAYMENT OF INSURANCE AND BOND INSTITUTIONS

VI. Amounts paid by insurance institutions to the insured or their beneficiaries when the risk covered by the contracted policies occurs, as well as amounts paid by bonding institutions to cover payment of claims.

LOSS FOR UNCOLLECTIBLE CREDITS

IX. Losses for non- collectible credits incurred by taxpayers referred to in article 3 (I), fourth paragraph   of this Law, with respect to services for which they receive interest in their favor, provided that that the requirements set forth by article 31 (XVI)   of the Income Tax Law are met, even if for the purposes of the latter tax the taxpayer opted to take the deduction referred to by article 53   of the aforecited Law.

CANCELLATION, FORGIVENESS, REDUCTIONS AND DISCOUNTS ON CREDIT PORTFOLIO

Also deductible for the taxpayers referred to by the foregoing paragraph are the amounts of cancellation, forgiveness, reductions and discounts on the credit portfolio that represents services for which they receive interest, as well as the losses incurred in the sale of said portfolio and those incurred from payments in kind.

LOSSES FOR UNCOLLECTIBLE CREDTS AND ACTSOF GOD OR FORCE MAJEURE

X. Losses for uncollectible credits and for Acts of God or force majeure which are deductible for Income Tax purposes and that correspond to income subject to single rate business tax in accordance with the presumption established in the second and third paragraphs of article 3 (IV) of this Law, up to the amount of income subject to single rate business tax.

If the taxpayers recover amounts deducted on the terms of the present section, the amount so recovered is considered as income subject to tax for the purposes of this Law.

(¹).- These are the initials in English for the Special Tax on Production and Services

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4. Authorized deductions requirements.

The deductions authorized in this Law must meet the following requirements:

EXPENSES FOR TAXABLE ACTIVITIES

I. That the expenses correspond to purchase of goods, independent services or acquisition of temporary use or enjoyment of goods for which the transferor, independent service provider or grantor of temporary use or enjoyment, as applicable, must pay single rate business tax. If expenses are incurred abroad or are paid to foreign residents lacking a permanent establishment in the country, the expenses should correspond to expenses that if incurred in the country would be deductible on the terms of this Law.

STRICTLY NECESSARY

II. That they are strictly necessary to carry out the activities on which the single rate business tax must be paid as referred to in article 1   of this Law.

EFFECTIVELY PAID

III. That they were effectively paid, including the case of estimated payments, at the time of their deduction. Check payments are considered effectively expensed on the day on which the check is cashed. Likewise, it is considered effective payment if the taxpayer delivers negotiable instruments signed by another person. Effectively paid is also understood if the obligation is extinguished by way of a set- off or payment in kind.

ISSUANCE OF NEGOTIABLE INSTRUMENTS

It is presumed that the taxpayer's issuance of negotiable instruments, other than a check, constitutes a payment guarantee for the price or the contractual consideration. In these cases, the payment is understood as made when the payment is effectively made or if the obligation was extinguished in any manner.

INSTALLMENT PAYMENTS

If payment is made in instalments, the deduction is applicable in the amount of the partial payments effectively paid in the month or in the corresponding fiscal year.

ITL DEDUCTIBILITY REQUIREMENTS

IV. That the expenses incurred by the taxpayer meet the deductibility requirements established in the Income Tax Law. Those expenses supported by receipts issued by whoever incurred the expense or those which deduction is equivalent to a certain percentage of the expending taxpayer's total income or expenses or those set in fixed amounts based on measurement units, authorized by administrative rules or resolutions are considered to not meet said deductibility requirements.

PARTIALLY DEDUCTIBLE EXPENSES

If the Income Tax Law makes expenses partially deductible, these are deductible for the purpose of the single rate business tax in the same proportion or up to the limit established by the aforecited Law, as applicable.

IMPORTATION OF GOODS

V. That in the case of foreign goods introduced into national territory, proof that the requirements for their legal entry into the country have been fulfilled in conformity with the applicable customs provisions.

5. Monthly estimated payments

Taxpayers will make monthly estimated payments on account of the single rate business tax for the fiscal year by filing a tax return before authorized offices in the same time period established for presenting the estimated income tax payment statement.

The estimated payment amount is determined by subtracting from total income received, as referred to in this Law, from the beginning of the fiscal year to the last day of the month to which the payment corresponds, the authorized deductions corresponding to the same period.

The rate established 16.5% of this Law is applied to the result obtained in conformity with the foregoing paragraph.

6. Tax credit for deductions greater than income

If the amount of deductions authorized by this Law is greater than the income received in the fiscal year which is taxed by the same Law, taxpayers have the right to a tax credit in the amount resulting from applying the rate established in article 1   to the difference between the deductions authorized by this Law and the income received in the fiscal year.

CREDITING OF TAX CREDIT AGAINST ANNUAL IT (ISR)

The tax credit amount referred to in this article may be taken by the taxpayer against the income tax incurred during the period which generated the credit. The amount of the tax credit which may have been credited against income tax on the terms of this paragraph may no longer be credited against single rate business tax and its application will not entitle any refund.

7. Other taxpayer obligations.

In addition to the obligations established in other articles of this Law, taxpayers obligated to pay single rate business tax have the following obligations:

KEEP ACCOUNTING

I. To keep accounting records in conformity with the Federal Fiscal Code and its Regulation and make entries in the same.

ISSUE INVOICES

II. To issue invoices for the activities in which they engage and maintain a copy of the invoices available to the tax authorities, in accordance to the provisions of article 86 (II)   of the Income Tax Law.

TAXPAYERS OPERATING WITH RELATED PARTIES

III. To determine their income and authorized deductions taking into consideration, if transacting operations with related parties, taking into account the prices and amounts of consideration that they would have utilized in comparable operations with or between independent parties, For these purposes, the methods established in article 216   , in the order established in the aforecited article, of the Income Tax Law are applied.

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