Lockton Mexico Country Profile Mexico May 2014

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Political

Mexico’s new PRI government, led by President Enrique PEÑA NIETO, has

emphasized economic reforms during its first year in office, passing education,

energy, financial, fiscal and telecommunications reform legislation. Nevertheless, administration estimates

show GDP growth slowed in 2013 to just over 1%.

Economical

Mexico has a free market economy in the trillion dollar class. It contains a mixture of

modern and outmoded industry and agriculture, increasingly dominated by the private sector. Recent administrations have

expanded competition in seaports, railroads, telecommunications, electricity generation, natural gas distribution, and

airports.

Social

Rising crime levels have led to social protests and public dissatisfaction. Low

expectations that current government will be able to bring violence down to more

manageable levels.

Key indicators

2012 2013 (e)

GDP (US $bn) 1.823 1.845

Real GDP growth

3.6 1.2

Population (m) 115 120.2

GDP per capita (US$ at PPP)

15,600 15,600

International reserves (US)

149.2 167.1

GDP = Gross Domestic Product PPP = Purchasing Power Parity

Larger trade volume than Argentina & Brazil combined, and more per person than China – nearly $400 billion alone with the U.S.

Easiest place to do business in Latin America & 35th worldwide: 9 days to register a business.

Cost of financing lower than BRIC’s, above all vs. Russia and Brazil.

Competitive labor unit cost (reduced prior differences vs. BRIC), and skilled human capital.

BRIC = Brazil, Russia, India and China

Source: https://www.cia.gov/library/publications/the-world-factbook/geos/mx.html

Mexico’s overview Macroeconomics Highlights

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Mexico Tax Reforms: Upcoming Legislative Implications for your Benefits

FOR COMPANIES

1 The Income Tax Rate has increased 2% to a total of 30%. Companies now should apply a 30% rate to the fiscal year results.

Prior to Fiscal Reform Law

The prior Income Tax Rate was 28%.

Deductions for pension and retirement fund contributions, as well as for the seniority premium, are limited to 47%. This deduction limit will be increased to 53% if the Employer does not decrease the benefits that are tax-free to the employee from one fiscal year to the next.

Contributions for pension, retirement funds and seniority premium were 100% deductible under the Income Tax Law

Social Security contributions paid by employers for employees will not be deductible.

These contributions were deductible.

Businesses can deduct 8.5% of restaurant expenses as long as payment is made through a credit card, debit card or service card.

12.5% of restaurant expenses were deductible.

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Up to 47% of payments (disbursements qualifying as exempt income for the employee) will be deductible for the company. The deduction limit will be extended to 53% when these benefits granted by the company do not decrease in comparison with the previous fiscal year.

Examples of partially or totally tax-free payments are: food/grocery coupons, savings fund, Christmas bonus, vacation premium, overtime, termination indemnity, seniority premium, etc.

These payments were deductible under the Income Tax Law. Alternatively, under IETU (former flat corporate tax) there was a fiscal credit of 17.5% of the compensation.

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Mexico Tax Reforms: Upcoming Legislative Implications for your Benefits

FOR COMPANIES

6 Food/grocery coupons granted to workers must be offered via electronic debit cards to be deductible.

Prior to Fiscal Reform Law

Not required in the past.

Automobiles purchased for business purposes will only be deductible up to an amount of MXN 130,000.

The limit was MXN 175,000.

Deductions for leased automobiles have been reduced to a MXN 200 daily limit per vehicle.

The limit was MXN 165 per day per automobile, although a decree set it at MXN 250.

A fiscal incentive of 25% of actual salary will be granted for employing citizens over the age of 65.

There was no incentive to hire senior citizens.

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Mexico Tax Reforms: Upcoming Legislative Implications for your Benefits

1 Profits resulting from investments made in the Stock Exchange are subject to a 10% tax rate

Prior to Fiscal Reform Law

Investment gains were not taxed.

An individual taxpayer can deduct up to the lesser of 10% of his or her income, or 4 times the annual general minimum wage in the worker’s geographic area (approximately MXN 94,500 for Mexico City in 2013). a. Note that doctor fees, dental and hospital expenses made

by the taxpayer should be paid with a check from the taxpayer, an electronic transfer or with a credit, debit, or service card in order to be deductible.

There was no annual total deduction limit to the entire group of deductions; each potential deduction had its own limit. Note that the decree granting an incentive for tuition (preschool through senior high school) remains in force.

Three additional tax brackets will be applied to annual earnings in excess of MXN 750,000: 32% for earnings above MXN 750,000; 34%for earnings above MXN 1 million, and 35% for earnings surpassing MXN 3 million.

The maximum tax rate was 30%.

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FOR INDIVIDUAL TAXPAYERS

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Size Sector Number of employees

Annual Sales (MXP)

Number of Companies

% of Companies

Micro All Up to 10 Up to $4 3,472,155 95.7%

Small

Commerce From 11 to 30 From $4.01 to $100

125,376 3.5%

Industry and services From 11 to 50 From $4.01 to $100

Medium

Commerce From 31 to 100 From $100.1 to $250

22,999 0.6% Services From 51 to 100 From $100.1 to $250

Industry From 51 to 250 From $100.1 to $250

Large All 251 and more $250.1 and more 6,529 0.2%

Published in “Diario Oficial de la Federación”, Jun/30/2009.

Formal Industry Classification

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Regarding the pensions and health matters, the Mexican Social Security System is facing a problematical situation:

Less than 50% of population is covered because of informal economy.

System divided in several Social Security Institutions. The biggest ones are IMSS, ISSSTE and Seguro Popular. Causing lack of homogeneity in the basic principles as:

• Requirements and types of the benefits. • Coverage levels. • Quality and oportunity in services. • Contribution levels and funding characteristics.

Nonfunctional funding mechanism.

Social Security Systems

All these problems result in: Lower coverage, limited access to services, high costs of management, increase of the informal economy, lack of viability for these

systems in a medium and long term, among others.

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Compulsory Benefits in Mexico

Compensation Element

Mexican Labor Law Market Practice

Christmas Bonus 15 days 30 days

Vacation Days Depending on the type of business

of the company

Vacation Premium 25% of compulsory vacation days 50% of compulsory vacation days

Profit Sharing 10% of the company profits 30 days

Severance Indemnity

3 months + 20 days times years of service

3 months + 20 days times years of

service

Seniority Premium Payment(1)

12 days times years of service2) 12 days times years of service (2)

Seniority Vacation Days

0 6 5 14

10 16 15 18 20 20(3)

Monthly Minimum Wage 2014 of Economic Zone: “A”= $2,019; "B" = $1,913 MXP.

(1) Salary capped at 2 minimum wage. (2) This payment only applies in case of, death, disability, lay off and voluntary resignation with at least 15 years of service. (3) There is no cap, each 5 years it will increase 2 vacation days.

All figures in Mexican Pesos

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Common Benefits in Mexico

Monthly Minimum Wage 2014 of Economic Zone: “A”= $2,019; "B" = $1,913 MXP.

Monthly Saving Fund's Limit for Economic Zone: “A”= $2,019; "B" = $1,913 MXP..

Compensation Element

Mexican Labor Law Market Practice

Saving Fund maximum 13% of the salary capped

to 1.3 minimum wages 13% of the salary capped

to 1.3 minimum wages

Food Coupons maximum 10% of the salary capped

to 1 minimum wage 10% of the salary capped

to 1 minimum wage

Performance Bonus - Depending on the position

of each employee

Automobile - Depending on the position

of each employee

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Benefits Commonly Offered in Mexico

Major Medical

Expenses (Trend from traditional to

flexible)

Retirement Plans

(Need to improve culture)

Health at Retirement (Big issue,

challenge for companies)

Life Insurance (Trend from traditional to

flexible) Wellness (recently creation)

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Life Insurance

The Sum Insured Rule commonly is: 36 months of salary for Directors, 24 months of salary for Managers and 18 months of salary for employees.

Most of companies in Mexico offer to their employees the benefit of death, and offer another benefits as:

Benefit Frequency

Union Non Union

Double Indemnity in case of accidental death 100% 98%

Dismemberment 82% 82%

Triple Indemnity in case of collective accident 2% 6%

Total and permanent disability lump sum payment 67% 84%

Waiver of premiums 51% 61%

Funeral expenses 8% 16%

Other 6% 7%

Additional benefits

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Major Medical Expenses

The companies in Mexico offered the Major Medical Expenses Coverage commonly for non-union employees, the average coverage is:

Coverage Director Employee

Insured Sum Maximum of the Insurance Company 1,500 SMGM (US$224,169)

Deductible 2 SMGM (US$299) 1.5 SMGM (US$224)

Coinsurance 10%

Maximum Coinsurance 30 SMGM (US$4,483)

Coverage Abroad Covered Not covered

Emergency abroad Covered with deductible of 50 US DLLS and Insured Sum of 50,000 US DLLS, not apply coinsurance.

Normal Childbirth Covered with Insured Sum, deductible and coinsurance

of the policy. Not apply waiting period.

Covered with Insured Sum of 30 SMGM (US$4,483), without deductible or coinsurance,

and not apply waiting period. Caesarean

Abortion

Complications from pregnancy Covered all the complications from pregnancy.

Accident In Accident don´t apply deductible or coinsurance, it´s neccesary to report before 90 days later the accident. This apply for the full expense doesn´t matter if the expense is over than the deductible.

Preexisting Diseases

Covered without limit, don´t apply waiting period. Covered the illness that was diagnosed before the

policy was in force and the illness that caused expense, before the policy was in force.

Covered with the conditions of the policy, apply waiting period of 2 years. Does not apply if the illness was diagnosed before the policy was in force and when this illness causes expense,

before the policy was in force.

SMGM = Monthly Minimum Wage 2014 ($2,019MXN), we are considering exchange rate of $13 MXN per USD $1.

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Be Well - Lockton

We offer a methodology based on scientific evidence, which focuses on encouraging a change in business health culture motivating employees to adopt healthy lifestyles

through specific tools and strategies designed for each company. We also provides indicators to measure the impact of these strategies on job

performance and reduction of claims in your company.

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Our Mission

To be the worldwide value and service leader in insurance brokerage, employee benefits, and risk management

Our Goal

To be the best place to do business and to work

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