22 December 2017 EM Currency Handbook 2018: Still Fuel in the Tank Regulatory framework and approach • According to Article 21 of the Bank of Mexico Law, FX policy is designed by the Exchange Commission, which is composed of officials from the central bank (including the Governor) and the ministry of finance. Policy implementation relies on the central bank (www.banxico.org.mx). The Bank of Mexico also designs and implements monetary policy to ensure price stability. • Foreign investors are exempt from withholding tax in government securities (Article 196 of the Income Tax Law). However, interest income generated from investing in any other instrument placed among investors is subject to 4.9% tax (Article 195 of the Income Tax Law). • Regarding investors from countries with which Mexico has a double taxation treaty, there is no withholding tax on TIIE swaps or derivative transactions involving sovereign debt instruments in markets recognized by Mexder (Mexico's derivative exchange). A 4.9% withholding tax must be paid by foreign banks and foreign investors obtaining interest income from credit instruments. There is no withholding tax for foreigners when dealing in derivatives linked to FX. • Regarding investors from countries with which Mexico does not have a double taxation treaty, there is a 10% withholding tax for financing entities, pension/retirement funds and foreign investment funds registered with the Ministry of Finance. This rate is also applied to foreign individuals and corporations. Additionally, the tax rate for credit investments is 10% instead of 4.9%. • Regarding tax havens, the withholding tax for registered foreign pension/investment funds changes to a minimum of 10%, while that for individuals and companies rises to 40%. Also, there is no withholding tax on TIIE swaps or derivative transactions involving sovereign debt instruments in markets recognized by Mexder. • MXN transactions can be settled in CLS. MXN products