On February 27, 2013, the Tax Treaty signed between Mexico and
Latvia and its Protocol were published in the Mexican Official
Gazette. According to its Article 27, the Treaty will enter in
force on January 1, 2014. With this new tax treaty, Mexico will
have a tax treaty network with 52 countries.
This new Treaty follows the Mexican common practice in negotiating
tax treaties, i.e., using the OECD Model Tax Convention on Income
and on Capital but incorporating some features from the UN Model
Tax Convention. These include, for example, Article 5 (six-month
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).
In addition, Article IX of the Protocol of this new Tax Treaty
provides that published commentaries of the OECD Model Tax
Convention on Income and on Capital will apply only to those
provisions of the Treaty that correspond to the above-mentioned
provisions of the UN Model Tax Convention.
The withholding rates and special source taxation features of this
new Treaty are as follows:
Dividends. A 5 percent rate 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
legal entity distributing the dividends. A 10 percent rate is
imposed in every other scenario; however, this rate will be
applicable only for dividends paid from Latvia to Mexico, since
Mexican income 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 banks, or if those entities pay the
interest. A 5 percent tax is imposed, paid by or to banks, when
said banks are the beneficial owners of the interest payments. A 10
percent rate applies in every other scenario. In addition, Mexican
tax law has in force a 4.9 percent withholding tax rate for
interest payments made from Mexico to registered foreign banks and
financial institutions.
Royalties. A 10 percent rate.
Capital Gains on the Sale of Shares. The
withholding tax in the source country should not be greater than a
20 percent tax on the capital gains. No taxation in the source
country is imposed if a restructuring between entities of the same
group takes place and some requirements are met.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.