Mexico Tax Treaties with China

Email: mex4ww@evershinecpa.com
Manager Cindy Victoria Speaks in Bahasa, English, and Chinese.
Whats App +886-989-808-249
wechatid: victoria141193

CN-Q-10:

China Parent Company, can apply for zero tax rate without PE under DTA in Mexico?

CN-A-10:

Yes.
China has DTA with Mexico, and if China Legal Resident company is without PE (Permanent Establishment), it will be deemed as “non-Mexico Domestic Sourced Income”.
That means Mexico will levy zero-tax.
However, China Legal Resident company still need to send zero-tax application to Mexico Tax Bureau for being approved.

CN-Q-20:

When China Parent Company as an Investor, setup a Mexico subsidiary, and provide services from China to Mexico Subsidiary, can apply for zero tax rate without PE under DTA in Mexico?

CN-A-20:

According DTA Article 5 item 7, a Mexico subsidiary will not be treated as PE of China Parent company as an investor because it is a separate legal entity.

That means if a Mexico Subsidiary pay service fee to China Parent Company through service contract signed between subsidiary and China Parent company
as an investor, China Parent Company can apply zero tax.

As for if paid amount being reasonable, it will get involved TP (Transfer Pricing) judgement by Mexico Tax Bureau.

CN-Q-30:           

What is the procedure for Mexico to apply for zero tax rate under DTA without PE?

CN-A-30:

Article 4 of the LISR establishes that the benefits of treaties to avoid double taxation will only be applicable to taxpayers who:

• Prove that they are residents of the country in question.
• Comply with the provisions of the treaty.
• Comply with the other procedural provisions contained in the LISR.

In the cases in which the treaties to avoid double taxation establish withholding rates lower than those indicated in the Law, the rates established in said treaties can be applied directly by the withholding agent.

In the event that the withholding agent applies higher rates than those indicated in the treaties, the foreign resident has the right to request a refund for the corresponding difference.

The certificates issued by foreign authorities to prove residence will take effect without the need for legalization and it will only be necessary to show an authorized translation when the tax authorities so require.

Submit the procedures through the tax mailbox.

CN-Q-40:           

When China Resident company having Mexico domestic sourced income, what are the withholding tax rates for various incomes in Mexico?

CN-A-40:

China has DTA with Mexico, and if you are with PE (Permanent Establishment) in Mexico, your income will be considered as Mexico domestic sourced income.
As for levying Tax Rate, please be aware:
if Mexico Tax rate > DTA Rate, adopt DTA Rate; if Mexico Tax rate < DTA Rate, adopt Mexico Rate.

If DTA applied, the DTA rates between China and Mexico are as below:

*The withholding tax rate under domestic law may apply rather than the treaty rate where the domestic law rate is lower than the treaty rate.

CN-Q-50

When China Tax Resident has Mexico domestic sourced income, what is Mexico’s application procedure based on the DTA preferential tax rate?

CN-A-50:

Article 4 of the LISR establishes that the benefits of treaties to avoid double taxation will only be applicable to taxpayers who:

• Prove that they are residents of the country in question.
• Comply with the provisions of the treaty.
• Comply with the other procedural provisions contained in the LISR.

In the cases in which the treaties to avoid double taxation establish withholding rates lower than those indicated in the Law, the rates established in said treaties can be applied directly by the withholding agent.

In the event that the withholding agent applies higher rates than those indicated in the treaties, the foreign resident has the right to request a refund for the corresponding difference.

The certificates issued by foreign authorities to prove residence will take effect without the need for legalization and it will only be necessary to show an authorized translation when the tax authorities so require.

Submit the procedures through the tax mailbox.

Summary of TAX TREATY between Mexico and CHINA

The Government of The People’s Republic of China and The Government of the United Mexican States concluded and signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Double Taxation Agreements, DTA), on 12 September 2005 and takes effects from 1 January 2007.

Permanent Establishment

Article 5 states the term permanent establishment (PE) means a fixed place of business which generally includes the followings:

*A place of management

*A branch

*An office

*A factory

*A workshop

*A building site, a construction, assembly or installation project, or supervisory activities last more than 6 months.

Withholding Tax

*Article 7 of DTA between Mexico and China explained, Mexico may not tax payments on general business services rendered by China corporation unless it is attributable to the permanent establishment situated in the relevant territory.

*In Article 10, dividends paid by Mexico company to a resident of China shall be charged at 5%.

*Article 11 states that interest arising in Mexico may be taxed in Mexico according to the laws applicable in Mexico, the tax so charged shall not exceed 10% of the gross amount of the interest.

*Article 12 explained royalties means payment for (a) the use of, or the right to use, any copyright of literary, artistic, or scientific work including cinematograph films and films or tapes for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula, or process; (b) the use of, or the right to use, industrial, commercial, or scientific equipment; or (c) information concerning industrial, commercial or scientific experience.

*Technical services are covered by the business profits in Article 7. Mexico corporations may not tax payments for technical services rendered by a China enterprise unless it is attributable to PE. Technical services rendered in an independent capacity should be covered in Article 14 (see professional services) instead.

*A professional service or other activities provided by individuals of an independent character was explained in Article 14. Mexico corporations may not tax payments for professional service rendered by a China resident unless the China resident has a fixed place or stay in Mexico for 183 days or more. An independent activity includes physicians, lawyers, engineers, architects, dentists, and accountants.

Elimination of Double Taxation

Article 23 of the DTA states that double taxation shall be eliminated by allowing tax credit to be made available to the home resident territory. It shall be credited against the tax levied in the first-mentioned territory on that resident. However, the amount of credit shall not exceed the amount of the tax in the first-mentioned territory.

Exchange of Information

Article 26 states that the competent authorities of the territories shall exchange such information (including documents or certified copies of the documents) relevant to the provision of this Agreement.

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Whats App +886-989-808-249
wechatid: victoria141193

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