A double tax treaty between Japan and Mexico was signed on 9 April 1996. The treaty entered into force on 6 November 1996 and will be generally effective as of 1 January 1997. Highlights are as follows:
- The maximum tax in the country of source on dividends paid to a resident of the other country is 5% if the recipient is a company owning at least 25% of the voting shares in the paying company, and an exemption is granted if the shareholdings of the recipient company either satisfy requirements relating to quotation on a stock exchange or are more than 50% owned by individual residents of Japan or Mexico. In other cases, the maximum source-country taxation of dividends is 15%. Mexico does not, however, impose any withholding tax on dividends paid out of fully taxed profits.
- The maximum tax in the country of source on interest paid to a resident of the other country is 10% if the interest is paid to a bank or insurance company, by a bank, on quoted securities and with respect to credit sales of equipment or machinery. The maximum tax is 15% in other cases. However, certain types of interest paid to the government, government organizations, and government institutions are exempt from tax in the source country.
- The maximum tax in the country of source on royalties paid to a resident of the other country is 10%.
- Japan grants tax-sparing relief for the first nine years of application of the treaty with respect to tax that would otherwise be paid but for certain Mexican investment incentives. A matching credit is also available for withholding tax on royalties; for the purposes of credit relief, Mexican royalties will be deemed to have been taxed at a rate of 15% even though a 10% tax is actually suffered.
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