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Mexico Enters Into New Tax Treaties




by:
Rodrigo Gómez
Luis Rodrigo Salinas
Jones Day - Mexico, D.F. Office

 
December 27, 2012

Previously published on December 2012

On January 1, 2013, Mexico will enter into new income tax treaties with Lithuania and Ukraine. Once these treaties come into force, Mexico will have a tax treaty network with 51 countries.

In negotiating and executing the tax treaties, Mexico has been using the OECD Model Tax Convention on Income and on Capital, incorporating some features from the UN Model Tax Convention (Article 5—period for converting a construction site into a permanent establishment; Article 15—independent personal services; and Article 21—other income taxed in the source country). The tax treaties executed by Mexico with Ukraine and Lithuania follow the same approach.

The Mexico-Ukraine Treaty

For the Mexico-Ukraine treaty, the withholding rates are the following:

Dividends. A five percent rate is allowed when the beneficial owner of the dividends is a company (other than a partnership) and has direct ownership of at least 25 percent of the corporation distributing the dividends. A 15 percent rate applies in every other scenario. However, Mexican tax law does not impose a withholding tax on dividends.

Interest. No withholding tax is imposed when the beneficial owner is the government, a political subdivision, a governmental bank, or export bank, or if those entities pay interest. The rate is reduced to 10 percent when the interest is paid to governmental banks. A 10 percent rate applies in every other scenario. In addition, Mexican tax law has a 4.9 percent withholding tax rate for interest payments made from Mexico to registered foreign banks and financial institutions.

Royalties. 10 percent rate.

The Mexico-Lithuania Treaty

For the Mexico-Lithuania treaty, the withholding rates are the following:

Dividends. No withholding tax is imposed when the beneficial owner of the dividends is a company (other than a partnership) and has direct ownership of at least 10 percent of the corporation distributing the dividends. A 15 percent rate applies in every other scenario. However, as mentioned above, the Mexican tax law does not impose a withholding tax on dividends.

Interest. No withholding is imposed when the beneficial owner is the government, a political subdivision, or a governmental bank. A 10 percent rate applies in every other scenario. In addition, Mexican tax law has a 4.9 percent withholding tax rate for interest payments made from Mexico to registered foreign banks and financial institutions.

Royalties. 10 percent rate.

There is a special rule for capital gains on the sale of shares. A 20 percent tax rate on capital gains will apply if, during a 12-month period prior to the sale of shares, a seller owns at least 25 percent of the capital of the legal entity whose shares are being sold.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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