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.
Jones Day has a highly experienced International Taxation Practice
that can assist in any matter that may arise on the subject.
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.