Mexico Tax Treaties with Other Countries

Mexico has signed Double Taxation Agreements (DTA) with 60 countries.

In general, all of Mexico’s tax treaties provide for similar benefits; however, definitions may differ in the various treaties in a manner that could provide benefits to taxpayers in certain countries.

Mexico Tax Treaties with China 
Mexico Tax Treaties with Taiwan 

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

We set up below judgment criteria on Treaty application:

Scenario:

If you are not a Mexico legal resident, and if your resident country has DTA with Mexico, and if you are without PE (Permanent Establishment), please go to section Ａ.

If you are not a Mexico legal resident, and if your resident country has DTA with Mexico, and if you are with PE (Permanent Establishment) please go to section Ｂ.

If you are not a Mexico legal resident, and if your resident country has not DTA with Mexico, please go to Section Ｃ.

Section Ａ:

Scenario:

If you are not a Mexico legal resident, and if your resident country has DTA with Mexico, and if you are without PE (Permanent Establishment), it will be deemed as “non-Mexico Domestic Sourced Income”.
That means Mexico will levy zero-tax.
However, your still need to send zero-tax application to Mexico Tax Bureau for being approved.

Below, we will let you understand through Q&A.

DTA-Q-10:         

In Mexico, which foreign legal resident company can apply for zero tax rate without PE under DTA?

DTA-A-10:
Mexico has signed DTAs with the following 60 countries:

Argentina	Estonia	Korea, Republic of	Romania
Australia	Finland	Kuwait	Russia
Austria	France	Latvia	Saudi Arabia
Bahrain	Germany	Lithuania	Singapore
Barbados	Greece	Luxembourg	Slovak Republic
Belgium	Hong Kong	Malta	South Africa
Brazil	Hungary	Netherlands	Spain
Canada	Iceland	New Zealand	Sweden
Chile	India	Norway	Switzerland
China	Indonesia	Panama	Turkey
Colombia	Ireland, Republic of	Peru	Ukraine
Costa Rica	Israel	Philippines	United Arab Emirates
Czech Republic	Italy	Poland	United Kingdom
Denmark	Jamaica	Portugal	United States
Ecuador	Japan	Qatar	Uruguay

DTA-Q-20:         

Why does the Country’s foreign capital without a permanent establishment (PE) in Mexico, under the DTA enjoy zero tax rate?

DTA-A-20:

It follows Article 5 and Articles 7 in the DTA Treaty. Article define if foreign entity having PE in Mexico. Article 7 regulate if no PE, non-Mexico domestic sourced income will not be levied tax in Mexico.

DTA-Q-30:         

Under what circumstances are deemed to have no PE, and will the establishment of a foreign-funded subsidiary in Mexico be regarded as a foreign-funded subsidiary in Mexico?

DTA-A-30:

According to DTA Article 5 item 7, A Wholly Foreign Owned subsidiary in Mexico will not be treated as PE because it is a separate legal entity.

That means if a Mexico Subsidiary pay service fee to non- Mexico Parent Company through service contract signed between subsidiary and non – Mexico Parent company
as an investor, non- Mexico 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.
Please see Mexico Transfer Pricing webpage.

DTA-Q-40:

If foreign company establishes a branch or office in Mexico, can the zero-tax rate without PE be applied?

DTA-A-40:

According DTA Article 5 item 2, If foreign company set up a branch or Office in Mexico, then will be considered as Mexico domestic Income.

But According DTA Article 5 item 4，if an Office is only doing preparatory or auxiliary activity, will apply zero-tax rate.

DTA-Q-50:

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

DTA-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 it.

Section Ｂ:

Scenario:

If you are not a Mexico legal resident, and if your resident country has DTA with Mexico, and if you are with PE (Permanent Establishment), 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.
Below, we will let you understand through Q&A

DTA-Q-60:         

What are the factors that deemed to be the country’s domestic source income?

DTA-A-60:

Mexico source of income includes where the service is provided in or benefited in Mexico and when the payment is made by a Mexican resident or a PE.

DTA-Q-70:

Does Article 5 and Article 7 in the DTA take precedence over the Mexico determination factors on Mexico domestic sourced income?

DTA-A-70:

When DTA is applied, in the event of a different PE definition between Mexico domestic tax laws and Article 5 in the DTA, the definition under the DTA shall prevail the domestic regulations.

When DTA is applied, if foreign company being defined as without PE (Permanent Establishment) in Mexico, then will be considered non-Mexico domestic sourced income, in the event business profit is relevant to this issue, the clause in Article 7 in the DTA zero-rate tax can be applied accordingly.

In this scenario, please see section A.

DTA-Q-80:
When non-tax residents of Mexico having Mexico domestic sourced income ，what is the withholding tax rate according to Mexico tax regulations excluding DTA?

DTA-A-80:

The withholding tax rates under domestic law are:

Business Profits – 0% (Note 1)

Dividend – 10%

Interest (General loan) – 35%/ 21% (Note 2)

Royalties fee – 25%/ 35% (Note 3)

Technical services – 25%

Professional services – 0% (Note 1)

Note:

1. Mexico does not impose withholding tax on payments to a nonresident corporation for services.
2. 35% for interest that does not fall into any of the categories. 21% for interest paid by the purchaser to the seller on a credit sale of machinery and equipment.
3. 25% for royalties, subject to the exceptions outlined below. 35% for advertising royalties, and royalties for the use of, or the right to use, a patent or trademark.

DTA-Q-90:         

If DTA Tax Rate is higher than Mexico tax rate, apply which tax rate?

DTA-A-90

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.

DTA-Q-A0:         

When non-tax residents of Mexico having Mexico domestic sourced income, what is Mexico’s application procedure based on the DTA preferential tax rate?

DTA-A-A0:

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.

Section Ｃ:

DTA-Q-B0:

As an investor, if your country has not signed DTA with Mexico, what kinds of tax rates when you have Mexico-relevant income?

DTA-A-Q0:

The withholding tax rates under domestic law are:

Business Profits – 0% (Note 1)

Dividend – 10%

Interest (General loan) – 35%/ 21% (Note 2)

Royalties fee – 25%/ 35% (Note 3)

Technical services – 25%

Professional services – 0% (Note 1)

Note:

1. Mexico does not impose withholding tax on payments to a nonresident corporation for services.
2. 35% for interest that does not fall into any of the categories. 21% for interest paid by the purchaser to the seller on a credit sale of machinery and equipment.
3. 25% for royalties, subject to the exceptions outlined below. 35% for advertising royalties, and royalties for the use of, or the right to use, a patent or trademark.

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Mexico City Evershine BPO Service Limited Corp.
Email: mex4ww@evershinecpa.com
Manager Cindy Victoria Speak in Bahasa, English, and Chinese.
Whats App +886-989-808-249
wechatid: victoria141193

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