MEXICO Law and Practice Contributed by: Eduardo Triulzi, Eric Silberstein and Ana Jáuregui, Ritch Mueller
3.6 Corporate Governance Venture capital investors typically have the right to appoint a board member and the right to call shareholders’ meetings. They do not generally have veto rights, unless they hold approximate - ly 15% or more of the voting shares. Venture capital investors typically do not have drag- along or similar liquidity rights, unless they hold approximately 50% or more of the voting shares. Redemption rights (or similar put rights against the company) are not typically granted to ven - ture capital investors. 3.7 Contractual Protection Customary representations and warranties include fundamental representations (ownership of shares, due organisation, capacity, and legal authority), operational representations related to the company’s business, tax representa - tions, and AML, anti-corruption and data privacy laws. Covenants are related to interim operating provisions that affect or restrict how the com - pany operates from the date of the agreement and until closing – ie, operating in the ordinary course of business. Post-closing, founders are also bound by non-compete provisions, and investors have access to financial information, among other things. Indemnity provisions are limited to fraud or wilful misconduct.
4.2 Tax Treatment Mexican Tax Treatment
There are no particular tax incentives geared towards investment in growth/start-up/venture capital fund portfolio companies, so all these Mexican entities receive the same tax treatment as any other Mexican resident entity. They are required to determine their Mexican income tax on an annual basis, applying a flat 30% corpo - rate income tax rate to their “taxable result” , which is determined by subtracting the following from their annual gross taxable income: • authorised deductions; • the employees’ profit-sharing amount paid in the corresponding fiscal year; and • the net operating losses (NOLs) from previous years. Implications for Non-Mexican Investors Investing in Growth/Start-Ups/Venture Capital Funds in Mexico Pursuant to Mexican tax provisions, Mexican- source income earned by non-Mexican residents is generally subject to Mexican withholding tax. Capital gains derived from the transfer of shares are considered to be from a Mexican source if the issuer of the shares is a Mexican resident entity or if more than 50% of the accounting val - ue of the shares is represented, directly or indi - rectly, by immovable property located in Mexico. As a general rule, transfers of Mexican shares by non-Mexican residents are subject to tax at a rate of 25% on the gross proceeds of the trans - action (ie, sale price, fair market value), without any deduction. Alternatively, upon election by the seller, the transfer of shares may be subject to tax on the net gain. Under this election, the gain (if any) realised upon the transfer of Mexi - can shares should be subject to a 35% tax rate, before consideration of applicable treaty rates,
4. Government Inducements 4.1 Subsidy Programmes
There are no government/quasi-government programmes to incentivise (equity) financings in growth companies in Mexico.
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