In March 2013, two new income tax treaties signed by
Mexico—with Hong Kong and with Qatar—were
published in the Mexican Official Gazette. With these new tax
treaties, Mexico will have a tax treaty network comprising 54
countries. Both tax treaties will become effective as of January 1,
2014.
While negotiating and executing both tax treaties, Mexico took
advantage of 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
14—independent personal services, and Article
22—other income taxed in the source country). The tax
treaties Mexico signed with Hong Kong and Qatar follow the same
approach.
The withholding rates and special source taxation features of
these new tax treaties are the following:
Tax Treaty Between Mexico and Hong Kong
Dividends. No withholding tax is imposed, since
the treaty sets forth that income derived from dividends paid by a
resident of a contracting state in favor of a resident of the other
shall be taxed only in that other state. Accordingly, considering
that Mexico does not impose any income tax on dividends paid to
foreign residents, such dividends shall not be subject to any
withholding in that country.
Interest. No withholding tax is imposed when the
beneficial owner is the government, a political subdivision, a
governmental bank or export banks, or where those entities pay the
interest. A 4.9 percent rate applies where the beneficial owner is
a banking institution; otherwise, the 10 percent general rate shall
apply. Notwithstanding the foregoing, Mexican tax law has in force
a 4.9 percent withholding tax rate for interest payments carried
out to registered foreign banks and financial institutions.
Royalties. 10 percent rate.
Capital Gains. Capital gains obtained by a
resident of a contracting state derived from the alienation of
shares of an entity residing within the other contracting state may
be taxed by the latter only 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.
If the seller owns less than 25 percent of the capital of the legal
entity, the capital gains are taxed only in the residence country
of the seller.
Tax Treaty Between Mexico and Qatar
Dividends. No withholding tax is imposed, since
the treaty sets forth that income derived from dividends paid by a
resident of a contracting state in favor of a resident of the other
shall be taxed only in that other state. In addition, and as
mentioned above, Mexican tax law does not impose a withholding tax
on dividends paid to foreign residents.
Interest. No withholding tax is imposed when the
beneficial owner is the government, a political subdivision, a
governmental bank or export banks, or where those entities pay the
interest. A 5 percent rate applies where the beneficial owner is a
banking institution; otherwise, the 10 percent general rate shall
apply. Notwithstanding the foregoing, as mentioned above, Mexican
tax law has in force a 4.9 percent withholding tax rate for
interest payments carried out to registered foreign banks and
financial institutions.
Royalties. 10 percent rate.
Capital Gains. Capital gains obtained by a
resident of a contracting state derived from the alienation of
shares of an entity residing within the other contracting state,
and whose asset value derives in more than 50 percent from
immovable property located in such other state. However, no tax
shall be imposed over such a transaction where carried out between
related parties under specific conditions.
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.
