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Dividends paid by Mexican companies are not subject to withholding
tax, regardless the place of residency of the recipient.
Interest is subject to a 4.9% withholding tax if paid on negotiable
instruments to foreign recipients of a treaty country or 10% for
non-treaty countries. Payments to tax havens are usually subject
to a 40% withholding tax.
Royalties paid to foreign licenser are subject to a 30% withholding
tax (25% for know-how and technical assistance). Like interest,
payments made to tax havens are subject to a 40% withholding tax.
No debt-to-equity ratio is applied in Mexico. Loan granted by related
parties are deductible without limitation.
Mexico has very interesting double tax treaties with the Netherlands,
Luxembourg, Sweden and Spain which allow use of these jurisdictions
as a tax platform for foreign investments.
Tax Treaties
Mexico has concluded double tax treaties with the following countries:-
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Belgium |
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5/15
(a) |
10/15
(s) |
10 |
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Canada |
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10/15
(a) |
10/15
(b) |
10/15
(b) (g) |
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Chile |
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5/10
(t) |
15
(b) |
15
(b) |
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Denmark |
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0/15
(a) |
5/15
(m) |
10 |
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Ecuador |
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5 |
10/15
(l) |
10 |
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Finland |
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0 |
10/15
(h) |
10 |
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France |
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0/5
(c) |
5/10/15
(b) (h) |
10/15
(b) |
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Germany |
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5/15
(d) |
10/15
(e) |
10 |
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Ireland |
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5/10
(d) |
5/10
(m) |
10 |
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Israel |
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5/10
(f) |
10 |
10 |
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Italy |
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15 |
10/15
(b) |
10 |
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Japan |
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0/5/15
(n) |
10/15
(e) |
10 |
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Korea |
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0/15
(j) |
5/15
(m) |
10 |
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Luxembourg |
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5/15 |
10 |
10 |
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Netherlands |
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0/5/15
(d) (r) |
5/10/15
(0) |
10 |
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Norway |
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0/15
(a) |
10/15
(s) |
10 |
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Poland |
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5/15
(a) |
10/15
(e) |
10 |
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Portugal |
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10 |
10 |
10 |
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Romania |
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10
(d) |
15 |
10 |
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Singapore |
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0 |
5/15
(m) |
10 |
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Spain |
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5/15
(a) |
5/10/15
(b) (h) (s) |
10
(b) (g) |
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Sweden |
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5/15
(d) |
10/15
(p) |
10 |
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Switzerland |
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5/15
(a) |
10/15
(s) |
10 |
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UK |
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0 |
5/10/15
(i) |
10 |
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US |
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5/10
(d) |
4,9/10/15
(r) |
10 |
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Non
Treaty Countries |
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0 |
4,9/10/21/33 |
25/33 |
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(a) The lower rate applies if the recipient is a corporation owning
at least 25% of the shares of the payer.
(b) These treaties have a most favourable nation
(MFN) clause with respect to interest and/or royalties. Under the
MFN clause in the Canada treaty, the 15% rate for interest or royalties
may be reduced to as low as 10% if Mexico enters into a tax treaty
with a member of the Organization for Economic Cooperation (OECD)
that provides for a withholding tax rate of less than 15% for interest
or royalties. Under the MFN clause in the Chile treaty, the withholding
tax rate for interest may be reduced to 5% for banks or 10% for
other recipients and the withholding tax rate for royalties may
be reduced to 10%, if Chile enters into a tax treaty with another
country that provides fro a lower withholding tax rate than 15%
for such payments. Under the MFN clause in the France treaty, the
withholding tax rate for interest and royalties is reduced if Mexico
enters into a tax treaty with an OECD member that provides for withholding
tax rates that are lower than the rates under the Mexico –
France treaty. However, the rate may not be lower than 10% if the
OECD member country is not a member of the European Union (EU).
Under the Italy treaty, the MFN clause applies only to interest.
It may reduce the withholding tax rate for interest to as low as
10% only if Mexico enters into a treaty with an EU country that
provides for a withholding tax rate for interest of less than 15%.
Under the MFN clause, the Spain treaty, the withholding tax rates
for interest and royalties may be reduced if Mexico enters into
a tax treaty with an EU country that provides for withholding tax
rates that are lower than the rates under the Mexico-Spain treaty.
The standard rate of interest and for patent and know-how royalties
under all of the above treaties is generally 15%. However, as a
result of the operation of the MFN clause, the lower rates listed
in the table may apply in certain circumstances.
(c) The 0% rate applies if the recipient of the dividends is the
effective beneficiary of dividends. The 5% rate applies if the recipient
is owned by residents of countries other than France or Mexico.
(d) The 5% rate applies if the recipient is a corporation
owing at least 10% of the shares of the payer.
(e) The 10% rate applies to interest derived from
loans granted by banks and insurance companies. Under the Germany
treaty, the 10% rate also applies to interest paid on bonds or with
respect to sales by suppliers of machinery and equipment. Under
the Poland treaty, the 10% rate also applies to interest paid on
publicly traded securities.
(f) The 5% rate applies if the recipient is a corporation
that owns at least 10% of the shares of the payer and if the tax
levied in Israel is not less than the corporate tax rate.
(g) The effective beneficiary of royalties is subject
to withholding tax on the gross payments. Royalties on cultural
works (literature, music and artistic works other than films for
movies or television) are not subject to withholding tax if they
are taxed in the recipient’s country.
(h) A 10% rate applies to interest paid on bank
loans or publicly traded bonds, as well as to interest paid with
respect to sales by suppliers of machinery and equipment.
(i) The 5% rate applies if the beneficial owner
of the interest is a bank or insurance company or if the interest
is derived from bonds or securities that are regularly and substantially
traded on a recognised securities market. The 10% rate applies to
interest paid by a bank or by a purchaser with respect to a sale
on credit of machinery if the seller is the beneficial owner of
the interest. The 15% rate applies to other interest.
(j) The 0% rate applies if the recipient is a corporation
owning at least 10% of the shares of the payer.
(k) Dividends are not subject to withholding tax
under Mexican domestic law.
(l) Beginning in the sixth year the treaty is in
effect, the 15% rate is reduced to 10% if the beneficial owner of
the interest is a bank. For the first five years, however, the 15%
rate applies to such interest.
(m) The 5% rate applies if the beneficial owner
of the interest is a bank.
(n) The 5% rate applies if the recipient is a corporation
owning at least 25% of the shares of the payer. The 0% rate applies
if the condition described in the preceding sentence is satisfied
and if both of the following conditions are satisfied:
- The recipient’s shares are shares are regularly traded on
a recognised Stock exchange
- More than 50% of the recipient’s shares are owned by one
or any combination of the following;
- The state of residence of the recipient;
- Individuals resident in the state of residence of the Recipient;
and
- Corporations resident in the state of residence of the recipient
if their shares are owned by individuals, Resident in the state
of residence of the recipient.
(o) The 5% rate applies if the interest is derived
from loans granted by banks or insurance companies or if the interest
is derived from bonds or securities that are regularly and substantially
traded on a recognised securities market. The 10% rate applies to
interest paid by banks or by purchasers with respect to sales on
credit of machinery or equipment. The 15% rate applies too other
interest.
(p) The 10% rate applies to interest derived from
loans granted by banks.
(q) The 4.9% rate applies if the beneficial owner
of the interest is a bank or insurance company or if the interest
is derived from bonds or securities that are regularly and substantially
traded on a recognised securities market. The 10% rate applies to
interest paid by banks or by purchasers with respect to sales on
credit of machinery and equipment. The 15% rate applies to other
interest.
(r) Under a protocol to the treaty with the Netherlands,
the 5% rate is reduced to 0% if the dividends are paid on a shareholding
that qualifies for the participation exemption under the corporate
tax law of the Netherlands.
(s) The 10% rate applies if the beneficial owner
of the interest is a bank.
(t) the 5% rate applies if the recipient is a corporation
owning at least 20% of the shares of the payer
Salient Features
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Corporate
Income Tax |
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For
2005, the resident companies are subject to income tax at
the rate of 30% (29% in 2006 and 28% in future years). |
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Dividends
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Dividends
distributed by Mexican corporations are not taxable to the
extent they are paid from previously taxed earning. |
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Interest
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Interest
expense that satisfies the strictly indispensable standard
should be deductible by Mexican corporate taxpayers in the
period in which it is accrued. Interest on loans granted by
foreign non resident entities is normally subject to a 30%
(40% for tax-haven entities) withholding tax on the amount
paid abroad. |
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Royalties
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Royalties
are subject to a 30% withholding tax. |
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Loss
Relief |
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Corporate
taxpayer may carry losses forward against tax liabilities
for ten years. Loss carry back is not available. |
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Case Studies
Offshore Investing Into Mexico
EU Company Investing Into Mexico
Mexican Individual Investing Into
Mexico
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