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Multi-purpose financial companies

Mexico

On July 18, 2006, in the Mexican Official Gazette, President Vicente Fox published a decree of amendments to several laws which liberalize the legal and fiscal regime applicable to credit activities, by means of which a new form of financial entity, the Multiple Purpose Financial Company ("Sociedad Financiera de Objeto M?ltiple" or "SOFOM"), is regulated.

A SOFOM is an unregulated entity which generally does not require governmental approval and may provide financial services such as lending, factoring and financial leasing, even if they have no economic relation with a regulated financial group ("Regulated SOFOM").

In general terms, the tax advantages for a SOFOM will be similar to those granted to regulated financial entities provided that their accounts receivable deriving from their loan activities represent at least 70% of their total assets or income derived from such accounts represent at least 70% of their total revenue. The main tax advantages of a SOFOM are the following:

- It does not require prior authorization by the Ministry of Finance and Public Credit to operate credit, factoring and financial leasing activities.
- Thin capitalization rules for purposes of the deduction of interest payments derived from loans granted shall not be applicable to it.
- Asset tax of the SOFOM shall only be paid with respect to assets not linked to its financial activities.
- Interest or financial charges paid by the SOFOM for lending, financial leasing or factoring shall be exempt from value added tax.

The incorporation of such form of entities will be subject to certain information rules by the Mexican tax authorities to prevent money laundering and know-your-client rules.

Finally, it is important to mention that the aforementioned amendments provide the entities which currently provide the financial services of lending, factoring and financial leasing with a transitory period of seven years to convert into the form of SOFOM.

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