ARTHUR ANDERSEN & CO. PASEO DE LA REFORMA 76 MEXICO 6, D. F. TEL. 46-26-90 MEMORANDUM ON MEXICAN TAXES 65-1 January 4, 1965 MEMORANDUM FOR CLIENTS NEW INCOME TAX LAW (All amounts in this memorandum are stated in U. S. dollars, translated at the rate of 12.50 Mexican pesos to one U. S. dollar) A new Income Tax Law, which became effective January 1, 1965, was published in the Official Daily of December 31, 1964. The previous law is repealed, although many of the provisions of that law are contained in the new one. Also repealed are the pre-vious general resolutions; however those individual resolutions that do not contravene provisions of the new law continue in effect. The Regulations also continue in effect, to the extent that they do not contravene provisions of the new law, until new regulations are issued. The new law establishes two classes of taxpayers: business enterprises and individuals. Business enterprises are now subject to an overall tax on combined income, as opposed to the previous system which was based on schedules applicable to various types of income. Under certain circumstances individuals are also subject to a tax on combined income, although the income of individuals continues to be taxed according to the source and type of income. PRINCIPAL CHANGES. Business enterprises: Tax rates. 1. The new law replaces the former income tax under Schedules I, II and III and the Excess Profits Tax with a "Tax on Combined Income of Enterprises". The new tax rates are also progressive and reach a rate on annual taxable income in excess of US$80,000. The previous tax reached a maximum of 39% on annual taxable income in excess of US $160,000, excluding the excess profits tax. Under the new law, those business enterprises which previously did not pay excess profits tax will pay a higher income tax, whereas a lower income tax will be paid by those which paid the maximum excess profits tax (see page ll).