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Mexico Concludes Tax Treaties with Qatar, Hong Kong and Latvia

Mexico
Mexico has recently concluded income tax treaties with Qatar, Hong Kong and Latvia. These treaties have now entered into force. Some of their provisions, however, will not be effective until 1 January 2014.

Taxand Mexico investigates the impact these treaties will have on multinationals with operations in these jurisdictions, and globally.

Below are the descriptions of the main features of these treaties.

Dividends

The treaty with Latvia provides a 5% withholding tax rate on intercompany dividends and 10% in any other case. In the case of the treaties with Hong Kong and Qatar, dividend distributions will not be subject to taxation in the country of residence of the payer. This is consistent with Mexican tax law, as dividends paid by Mexican entities are not subject to withholding tax.

Interest

Interest from one of the Contracting States will be subject to income tax withholding in that state, at the following rates. This is subject to the recipient being the beneficial owner of such interest:

Country

Rate

Requirement

Hong Kong

4.9%

Interest paid to banks

10%

Any other case

Latvia

5%

Interest paid by or to banks

10%

Any other case

Qatar

5%

Interest paid to banks

10%

Any other case


Royalties

All three treaties state that royalty income earned by a resident of a Contracting State will be subject to a 10% withholding tax rate, provided that such income derives from the other Contracting State, and to the extent the recipient is the beneficial owner.

Capital Gains

All of these treaties provide that income derived from a resident of a Contracting State can be taxed in the other Contracting State. This is applicable to the income derived from the sale of shares or other interests acquiring their value mainly from real estate situated in the other Contracting State.

However, the provisions regarding the sale of shares vary in each case as explained below:

  • Hong Kong: Income derived from the sale of shares will generally be subject to income tax in the country of residence of the issuer. This shall not apply if the sale takes place as a part of a corporate restructuring. In this case such income would be exempt.
  • Latvia: Income derived from the sale of shares can be taxed in the country of residence of the issuer, however, the tax due cannot exceed 20% of the taxable gains.
  • Qatar: Income derived from the sale of shares issued by a company which is a resident of a Contracting State will be subject to taxation therein. This is provided that the seller, at any point during the twelve-month period preceding the sale, held a participation of at least 25% in the capital of such company.

Exchange of information and other relevant provisions

All of the treaties contain an exchange of information provision.

The treaty with Qatar also contains a limitation-on-benefits article where the treaty is applied solely with the purpose of obtaining a tax benefit. Finally, the treaty with Hong Kong provides that the provisions of the treaty will not affect the application of domestic anti-avoidance rules.

 


Your Taxand contacts for further queries are:
Manuel Tamez
T. +52 (55) 5201 74 03
E. mtamez@macf.com.mx

Luis A. Monroy
T. +52 (55) 5201 74 66
E. lmonroy@macf.com.mx

 

Taxand's Take

By entering into these treaties, Mexico continues to expand its income tax treaties network. Mexico's tax treaty negotiation policy has been consistent over the recent years, generally adhering to the OECD Model Convention with certain exceptions to protect taxation at source. This is the case in the income tax treaties concluded with Hong Kong, Latvia and Qatar.

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Taxand's Take Author

Manuel Tamez
Mexico