News › Taxand’s Take Article

Turkey & Mexico conclude tax treaty

Turkey & Mexico conclude tax treaty
On 17 July 2015 the Convention between the United Mexican States and the government of the Republic of Turkey for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the 'Convention') was published in the Federal Official Gazette. The Convention will enter into force 30 days after its publication and its provisions will become effective on 1 January 2016. Taxand Mexico and Taxand Turkey take a look at the main features of the Convention.

Taxes covered

  • The Convention covers the Mexican income tax and the flat tax 
  • In the case of Turkey, the Convention covers the income tax (Gelir Vergisi) and the corporation tax (Kurumlar Vergisi)

Residence

  • In the case of a dual-resident company, if such company has its seat of effective management in one state and its central legal office in the other contracting state, the tax authorities of each contracting state will have to determine the state of residence of such company through a mutual agreement procedure
  • In the absence of such an agreement such company will not be considered a resident of either state for purposes of the Convention 

Permanent establishment ('PE')

  • Standard provisions are included for purposes of this article for physical and dependent agent PE 
  • A project PE will exist if it continues for a period of more than 6 months
  • No service PE is included 

Dividends

  • Dividend income can be taxed in the state of source but the income tax due cannot exceed 5% of the gross amount of the dividend if the beneficial owner is a company that owns at least 25% of the capital of the payer 
  • In any other case the tax on dividend income may not exceed 15%
  • Thus in the case of Mexico the maximum withholding on dividend income would be 10% on the gross amount of the dividend under domestic law 

Interest

  • Withholding tax on interest is limited to 10% on interest paid to banks
  • A 15% withholding rate will apply in any other case provided the recipient is the beneficial owner. Thus in the case of Turkey the maximum withholding on interest income would be 10% on the gross amount of the dividend under domestic law 

Royalties

  • Taxation at source cannot exceed 10% on the gross amount of the royalty

Capital gains

  • Gains from the sale of shares of a company deriving their value principally from real estate property situated in a contracting state may be taxed in that contracting state 
  • Gains derived from the sale of shares issued by a company which is a resident of a contracting state may be taxed in that state according to the provisions of domestic law provided that 1 year holding period is not exceeded.

Independent personal services

  • Income obtained by an individual which is resident of a contracting state from the provision of professional services or other activities of an independent nature can be taxed in the other contracting state if such services are performed therein and if such individual has a fixed base through which these services are rendered or spends more than 183 days within any twelve-month period in that state
  • A company resident of a contracting state performing these kind of services in the other contracting state will be taxed in this other state if it has a PE therein or spends more than 183 days within any twelve-month period in that state

Other relevant provisions

  • The protocol provides that with respect to dividends, interest, royalties and capital gains, if a mismatch of the classification of these kinds of income results in double non taxation, each of the contracting states will be able to tax such item of income according to the provisions of its domestic law 

Your Taxand contacts for further queries are:
MEXICO
Manuel Tamez
T. +52 55 5201 7403
E. mtamez@macf.com.mx

Luis Monroy Gonzalez
T: +52 55 5201 7466
E: lmonroy@macf.com.mx    

TURKEY
Uluc Ozcan
T: +90 212 337 00 00
E: uluc.ozcan@erdikler.com

 

Taxand's Take

The Convention joins the increasing number of income tax treaties that have been negotiated and concluded by Mexico in the past few years. The provisions of the Convention are standard in nature but they will still help to give legal security and a decreased tax burden to investors from these jurisdictions. 

 

Taxand's Take Author

Manuel Tamez
Mexico

Access Taxand's Take

Access Taxand's Take

Register to receive Taxand’s latest opinion on topical tax news

Taxand is 10...

Taxand is 10...

Celebrating 10 years of quality tax advice, globally