This is a brief analysis of the investment panorama of the for-profit higher education sector in Mexico. I also address the tax regulations for this sector.

1. INVESTING IN HIGHER EDUCATION IN MEXICO Raul R. Legaspi March 2010

13. PUBLIC / PRIVATE HIGHER EDUCATION ENROLLMENT

14. Foreigninvestment* La Jornada México City saturday 10 july 2004 More than US$34 million related to the sale of 80 % of the Valle de Mexico University added up to 40 MD foreign investment in higher education from 1994 to 2003. UNAM researcher urges authorities to discuss about the meaning and scope of a normative renewal that updates concerning legislation to the University cycle.

15. KEY PLAYERS IN MEXICO’S HIGHER EDUCATION SECTOR

16. THE 10 BEST UNIVERSITIES IN MEXICO ACCORDING TO «GUÍA UNIVERSITARIA 2009, DE SELECCIONES DEL READER'S DIGEST» 1) Universidad Nacional Autónoma de México (UNAM) 2) Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM) 3) Instituto Politécnico Nacional (IPN) 4) Universidad Iberoamericana (UIA) 5) Instituto Tecnológico Autónomo de México (ITAM) 6) Universidad de Anáhuac 7) Universidad del Valle de México (UVM) 8) Universidad Autónoma Metropolitana (UAM) 9) Universidad de Guadalajara (UdeG) 10)Universidad Autónoma de Nuevo León (UANL)

17. «ENCUESTA LAS MEJORES UNIVERSIDADES 2009», REFORMA NEWSPAPER THE BEST UNDERGRADUATE PROGRAMS IN MEXICO ACCORDING TO

19. THE 10 BEST HIGHER EDUCATION INSTITUTIONS IN MEXICO ACCORDING TO «UNIVERSIDADES 09», EL UNIVERSAL NEWSPAPER Universidad Nacional Autónoma de México (UNAM) Universidad Autónoma Metropolitana (UAM) Instituto Tecnológico Autónomo de México (ITAM) Universidad Autónoma del Estado de México (UAEMEX) Universidad Autónoma de Nuevo León (UANL) Universidad e Guadalajara (UdeG) Instituto Tecnológico de Estudios Superiores de Occidente (ITESO) Instituto Politécnico Nacional (IPN) Universidad Anáhuac México Norte Instituto Tecnológico de Toluca

20. Tuition comparisonS

21. HIGHEST TUITIONS - 4 YEAR UNDERGRADUATE PROGRAMS IN MEXICO

22. HIGHEST TUITIONS IN AMERICAN UNIVERSITIES

23. A BUSINESS PERSPECTIVE ON THE PRIVATE TERTIARY EDUCATION SECTOREMBARGOED UNTIL 9.00 AM WEDNESDAY 16 SEPTEMBER 1998 NEW ZEALAND ASSOCIATION OF PRIVATE EDUCATION PROVIDERS

24. POLICIES REQUIRED TO ENCOURAGE APPROPRIATE INVESTMENT IN TERTIARY EDUCATION A stable macroeconomic environment which fosters certainty and facilitates investment, including long-term investment;

25. POLICIES REQUIRED TO ENCOURAGE APPROPRIATE INVESTMENT IN TERTIARY EDUCATION An efficient labor market which provides strong incentives for people to develop desirable work habits and to acquire education and training; An open immigration policy which facilitates the introduction of new skills and promotes innovation;

26. POLICIES REQUIRED TO ENCOURAGE APPROPRIATE INVESTMENT IN TERTIARY EDUCATION A low level of government expenditure and taxes, the avoidance of excessive regulation and a carefully designed welfare system. These are necessary to limit perverse incentives which impair work habits and discourage investment in human capital;

27. POLICIES REQUIRED TO ENCOURAGE APPROPRIATE INVESTMENT IN TERTIARY EDUCATION A reduction in the level of subsidies for tertiary education and a review of the type of activities which are assisted so that any subsidies that are provided are justified on valid public policy grounds.

28. POLICIES REQUIRED TO ENCOURAGE APPROPRIATE INVESTMENT IN TERTIARY EDUCATION This would eliminate the bias toward off-job education and training, improve the effectiveness of spending on formal education and training and reduce the tax burden;

29. POLICIES REQUIRED TO ENCOURAGE APPROPRIATE INVESTMENT IN TERTIARY EDUCATION A reduction in barriers to entry into, and exit from, the education industry which would improve the efficiency of the provision of education; The adoption of private ownership arrangements; and

30. POLICIES REQUIRED TO ENCOURAGE APPROPRIATE INVESTMENT IN TERTIARY EDUCATION The removal of preferential treatment for any state entities that are retained and the introduction of governance arrangements which would facilitate more effective decision making and improve their performance substantially.

31. HIGHER EDUCATION IN MEXICO Higher Education has four different categories: (1) universities, consisting of four-year college and university programs called the licenciatura (Mexico: a country study, 1996);

32. HIGHER EDUCATION IN MEXICO (2) technical institutes, offering a three-year program in engineering and management fields; (3) teacher-training colleges, offering bachelor degrees in the areas of pre-school, primary school, secondary, and special and physical education; and (4) technological universities, offering two-year programs that prepare students to be Higher University Technicians (SEP, 1999).

33. HIGHER EDUCATION IN MEXICO Total higher education enrollment reached 6 percent of total student enrollment in Mexico during the 1998-99 cycle. Institutions of higher education in Mexico may be either public or private. However, there are many more public institutions than there are private ones, and the former also tend to have much larger enrollments.

34. HIGHER EDUCATION IN MEXICO Each state has at least one public university, and the larger universities have campuses in different cities (Husén and Postlethwaite, 1994).

35. HIGHER EDUCATION IN MEXICO The National Autonomous University in Mexico (Universidad NacionalAutónoma de México, UNAM) is located in Mexico City and is the largest public university, with over 100,000 students. Institutions of higher education also offer graduate studies and doctoral programs.

36. HIGHER EDUCATION IN MEXICO In the 1998-99 school year, approximately 122,000 students enrolled in graduate studies in Mexico. However, it is more common for students to pursue their graduate studies outside Mexico (Husén and Postlethwaite, 1994).

37. School Governance and Finance Governance Under the General Education Law, the federal government, through the Ministry of Education (SEP) is responsible for all normative and policy-making functions in education, including: Formulating study plans and curricula for primary, lower-secondary, and teacher-training education; Authorizing teaching materials for basic education and teacher-training; Implementing the free textbook program for primary education;

38. School Governance and Finance Establishing general evaluation guidelines for the national education system; Maintaining programs such as teacher in-service training, literacy programs, and programs to reduce inequalities among the regions in Mexico; and Determining the school calendar for primary, lower secondary, and teacher education.

39. School Governance and Finance SEP also is responsible for all education matter within the Federal District.

40. School Governance and Finance Finance. The Federal Expenditure Budget (PEF) allocates national resources to education through SEP. Since the highest volume of students is concentrated in the basic education system, the majority of monetary resources are allocated to basic education.

41. School Governance and Finance In 1999, it was estimated that approximately 65 percent of the national education budget would be allotted to basic education, about 10 percent to upper-secondary education, and about 15 percent to higher education (SEP, 1999). Disparities in resources for basic education are evident between urban and rural areas.

42. Regulatorysystemforprivatefor-profithighereducation

43. LABOR LAW Labor law is highly regulated in Mexico. The Mexican Federal Labor Law (FLL) regulates employment standards for all employees in Mexico. Employees must be paid the minimum wage set by the National Wage Commission.

44. LABOR LAW The minimum wage differs, depending on which economic region an employee works in. As well, hours worked over 48 hours per week are considered overtime and must be paid for by stipulated overtime pay. Employee dismissal is also governed by the FLL and the amount of severance pay required is legislated.

45. LABOR LAW Mandatory employee benefits include: Profit sharing Year end bonus Nine days of paid holidays Vacation days premiums Training and maternity leave Retirement Savings System Federal Workers Housing Fund (INFONAVIT) contribution

46. LABOR LAW Employers must register with the Mexican Social Security Institute and must make social security contributions, along with an employee contribution withheld from salary. Finally, Mexican law allows any firm of more than 20 employees the right to unionize.

47. TAXES The majority of taxes paid by businesses operating in Mexico are federal taxes, income taxes, value added taxes and payroll taxes. The federal corporate tax rate is currently 34% and is paid on worldwide net income. There is no withholding tax on dividends. Mexico has a Value Added Tax (IVA) on all purchases and services in Mexico of 16%.

48. REGULATION OF BUSINESS ACTIVITIES The sectors in which foreigners can do business are regulated by the Foreign Investment Law of Mexico.

49. REGULATION OF BUSINESS ACTIVITIES The Investment Law divides the Mexican economy into "classified" and "unclassified" economic activities.

50. REGULATION OF BUSINESS ACTIVITIES "Unclassified activities" are economic sectors of the Mexican economy which do not prohibit or limit the amount of foreign ownership in individual businesses operating in those sectors. Approximately two-thirds of the Mexican economy is unclassified.

51. REGULATIONS ON FOREIGN INVESTMENT Article 4th Foreign investment may participate in any proportion in the capital of Mexican societies, acquire fixed assets, enter new fields of economic activity, manufacture new product lines, open and operate establishments, and expand or relocate existing ones except by the provisions of this law. Article 5 Are reserved exclusively to the State functions to determine the laws in the following strategic areas: does not include education.

52. REGULATIONS ON FOREIGN INVESTMENT Article 6 The economic activities and companies listed below, are reserved exclusively to Mexicans or Mexican societies with opt-out of foreigners: does not include education. Article 7th. in economic activities and societies listed below foreign investment may participate in the following percentages: does not include education.

53. Taxes in Mexico by«MexicoData On-Line»

54. MAIN TAXES The Mexican tax system has been subjected to comprehensive tax reform legislation, enacted principally in 1986 and 1988. The dramatic changes are an attempt to make it compatible with the tax systems of Mexico's most important trading and investment partners and with those of countries competing with Mexico for foreign investment. The maintaxes payable by individuals and by corporations operating in Mexico and, in certain cases, by foreign companies, are those levied by the federal government. State and municipal governments have more limited tax powers and are not authorized to levy general corporate income taxes; some states tax employers on salaries and professional fees paid by them.

55. The main taxes Federal Taxes Taxes on income, including a minimum tax based on assets held; Value-added tax;

56. The main taxes Import and export taxes; and Payroll taxes, principally the 1% percent tax on salaries, social security and contributions to the National Workers Housing Fund. There are a number of special federal taxes, such as excise taxes on the mining industry and on a few specific products and services, such as alcoholic beverages, cigarettes, gasoline, telephone service, automobiles, etc.

57. Local Taxes On real property; On salaries (payable by the employer); and On acquisition of real property.

58. CLASSES OF TAXPAYERS Tax payers are divided into four main groups, for which, in addition to the rules of general application, separate sets of rules are provided as follows:

59. CLASSES OF TAXPAYERS Resident Corporations and Other Associations Taxable as Corporations. Resident corporations, Permanent establishments and

60. CLASSES OF TAXPAYERS “Fixed Bases" of operations of non-commercial activities of foreign corporations and All entities other than those associations specifically designated as non-profit organizations, Will be taxed in the same manner and under the same rules applicable to resident corporations discussed below in greater detail.

61. CLASSES OF TAXPAYERS Resident Individuals Residents of Mexico, irrespective of nationality, are subject to Mexican taxation on their worldwide income of all types which must be included in an annual personal income tax return. Special treatment is given to capital gains, domestic interest and dividend income, at a graduated scale of rates reaching 35%.

62. CLASSES OF TAXPAYERS Non-Resident Corporations and Individuals Non-residents are taxed only on their Mexican source income,

63. CLASSES OF TAXPAYERS Usually at flat rates applied separately to different types of gross income without deductions. However, under special rules they may elect to be taxed at higher rates on net taxable profits from sales of real property or shares or on short-term construction, installation, erection and similar work. No overall annual return is required of non-residents.

64. CLASSES OF TAXPAYERS Non-residents may be considered to have a permanent establishment or a fixed base of operations for income tax purposes in Mexico under certain circumstances.

65. CLASSES OF TAXPAYERS In these cases, the permanent establishments, or fixed bases, are taxed in the same way as duly registered branches of foreign corporations, basically following the rules for resident corporations.

66. CLASSES OF TAXPAYERS Non-Profit Organizations Under the law, a limited number of civil societies and associations that are specifically designated as non-profit organizations, as well as certain cooperatives, are considered as non-taxpayers,

67. CLASSES OF TAXPAYERS Although they are required to file annual information returns to determine their net excess of income over expenses. Consequently, there are no "exempt" organizations.

68. TAXES ON CORPORATE INCOME

69. Federal Income Tax The federal corporate income tax rate is 35%. Provisions designed to recognize the effects of inflation for tax purposes in the areas of monetary assets and liabilities (monetary correction), inventories and depreciable assets have been incorporated in the law as a consequence of high inflation rates in the past.

70. Federal Income Tax Once a corporation has paid its income tax, after-tax earnings may be distributed to the shareholders without any further tax. However, if the corporation makes a distribution out of earnings that for any reason have not been subject to corporate income tax, e.g., book earnings not yet recognized for tax purposes, it will have to pay a corporate tax of 35% out of these distributed earnings.

71. Minimum Tax An asset tax is payable at the rate of 2% of the value of the assets of corporations, unincorporated businesses, organizations of a civil nature not specifically excepted, and branches or other permanent establishments of foreign persons. It supplements the federal income tax, i.e., it will only be payable and increase the overall tax burden if it exceeds the regular income tax due.

72. Minimum Tax In other words, an amount equal to the taxpayer's regular income tax is credited against his minimum 2% assets tax due for the current year and the five preceding years. Any unused carry back will be indexed for inflation during the carry back period. Thus, the taxpayer's combined tax burden will only be affected if the taxpayer pays little or no federal income tax over an extended period.

73. State Taxes There are no state taxes on corporate net income.

74. OTHER TAXES

75. Value-Added Tax A value-added tax (VAT) at the general rate of 10% is payable on sales of goods and rendering of services, rents, and imports of goods and services. Certain medicines and basic foods have been temporarily zero-rated for 1992.

76. Value-Added Tax The principal transactions exempt from the tax include sales of land, books, credit instruments (including equity shares), residential construction and materials therefore, financial and medical services (except for interest charged by issuers of credit cards), education and rentals of residential property. Taxes paid by business enterprises on their purchases may usually be credited against their tax due on their own sales; the latter tax must be charged to all customers. Excess credits can be refunded.

77. Value-Added Tax The 0% rate of tax is applicable to a substantial number of transactions, which in general terms means that no VAT is payable thereon, while amounts paid on purchases of materials, supplies and services can be recovered through a credit against the entity's VAT due or by direct refund. Included in this treatment are the export of goods and services; sales to maquiladoras (in-bond assembly plants) or to companies solely engaged in exporting goods, which are treated as indirect exports; the sale of certain basic foodstuffs, agricultural goods, services and rentals; and other minor transactions.

78. Compulsory Profit-Sharing Every business concern having employees is required to distribute a portion of its annual profits among all employees, regardless of its form of organization. The amount distributable to the employees in most cases amounts to 10% of taxable income, adjusted to eliminate inflation-related income or deductions and increased by dividend income, which is not included in taxable income. Special rules apply to a limited number of specific businesses.

79. CORPORATE INCOME TAX Tax Year Taxpayers are required to use the calendar year for income tax purposes. Newly formed corporations will have a short taxable year from the date of incorporation to December 31 of that year. Similarly, existing corporations will have a short taxable year in the year in which liquidation procedures commence.

80. CORPORATE INCOME TAX Corporations and Shareholders The income tax system seeks to tax corporate earnings only once, at the corporate level. However, a 35% tax is imposed on the corporation on distributions which for any reason represent income that has not been subject to the corporate income tax. It is important to note that not taxing dividend distributions eliminates double taxation at the shareholder level and thus significantly reduces the overall tax burden of domestic or foreign investors' return on investment.

81. REGULATION OF BUSINESS ACTIVITIES: "Classified activities" are sectors of the Mexican economy in which the Investment Law prohibits the amount of foreign ownership permitted in a business operating in those activities.

82. REGULATION OF BUSINESS ACTIVITIES Non-Mexicans who wish to be involved in the classified activities, where permitted, may have to obtain government approval. For further information please contact the Secretariat of Economy office in your area or in Mexico.