Mexico

Payments to Mexican residents

Payments to resident corporations and PEs in Mexico are generally not subject to WHT.

Payments by resident corporations to resident individuals are subject to WHT as follows:

Note

1. WHT on interest paid by financial institutions to Mexican resident investors is generally set at 0.08% of the invested capital.

Payments to non-residents

Income tax must usually be withheld from payments to non-resident corporations and individuals. In the case of non-tax treaty countries, the statutory withholding rates are as noted below.

Income tax of 40%, with no deductions, must be withheld on most Mexican-source payments made to foreign-related parties whose income is deemed to be subject to a PTR, in lieu of the tax provided in the domestic law for non-PTR foreign resident entities. This is not applicable in certain cases, such as on income from dividends and certain types of interest, including interest payments made to foreign banks. In these cases, the regular provisions of the domestic law should be applied to determine the income tax withholding.

Additionally, revenues for intermediation services, including commissions for brokerage, agents, distribution, and assignment, and generally all income from the negotiation of third-party interests, are also subject to 40% WHT when paid to residents whose income is subject to a PTR. The 40% may be reduced if the foreign related party beneficiary resides in a country with which Mexico has signed a comprehensive exchange of information agreement.

As of 2020, payments made to non-Mexican resident related parties or through structured agreements will be non-deductible when such payments are subject to a PTR. Please refer to Non-deductible payments in the Deductions section.

In broad terms, the revenue of a foreign entity is considered subject to a PTR when it is not subject to tax abroad or taxed lower than 75% of the tax that it would have borne if the recipient was a Mexican tax resident pursuant to the Mexican Tax Laws.

Non-residents’ wages and salaries are taxed on the basis of a 12-month earnings period at the following income tax withholding rates:

The above mentioned rates are also applicable to retirement fund payouts.

However, no tax arises on compensation (wages, salaries, or fees other than board fees) paid by a non-resident with no establishment in Mexico (even if not subject to tax) to which the services relate, provided the individual remains in Mexico for fewer than 183 days (consecutive or not) in any 12-month period.

The tax, when applicable, is withheld if the income is paid by a resident (or a non-resident PE located in Mexico). Otherwise, the tax is generally payable within 15 working days of the associated payment, by the foreign party earning the Mexican-sourced income.

Statutory withholding rates (not mentioned above) classified as Mexican sourced and obtained by foreign residents under local legislation are as follows:

Notes

1. The non-resident may elect to pay tax at a rate of 35% (see Note 11 below for the rate applicable thereafter) on the net taxable profit in the case of (i) time-sharing services, (ii) share sales, (iii) sales of real property, (iv) activities of sportsmen/artists, and (v) derivative stock and debt transactions, provided that the non-resident recipient of the income has a legal representative resident in Mexico and to the extent that the following specific requirements are met:
• For time-sharing services, the resident legal representative must keep the audited financial statements of the foreign resident, or the financial statements included in the foreign resident taxpayer’s informative return on their tax status, available for inspection by the Mexican tax authorities.
• For share sales, a tax opinion issued by a registered public accountant is required (not applicable to foreign residents whose income is subject to a PTR or resides in a territorial tax regime).
• For shares and debt-for-equity swap transactions, this election is available only where the foreign taxpayer whose income is not subject to a PTR or resides in a country with a territorial tax system. It should be noted that there is an option to defer Mexican income tax arising from the sale of shares on a share-for-share basis within the same group due to a corporate reorganisation, provided certain conditions are met.
2. The sale of shares through the Mexican Stock Exchange is subject to a 10% WHT. When the investor is a resident in a country with which Mexico has signed a tax treaty, such withholding will not apply if certain requirements are satisfied.
3. The applicable WHT rate (based on the WHT rates for interest) for debt-derivative transactions is applied on a net basis. However, if the transaction is liquidated in kind, the applicable WHT rate (on the same net basis) is 10%.
4. Interest payments to non-residents are exempt from Mexican income tax when they are paid on the following:
• Loans to the federal government or to the Bank of Mexico (Central Bank) or bonds issued by the latter organisation to be acquired and paid abroad.
• Loans for three or more years granted or guaranteed by duly registered financial entities that promote exports through special financing.
• Preferential loans granted or guaranteed by foreign financial entities to institutions authorised to receive tax-deductible donations in Mexico, provided these institutions are properly registered and use the funds for purposes consistent with their status.
• Loans derived from bonds issued by the federal government or the Bank of Mexico placed on a recognised national stock exchange, to the extent the beneficial owner is a foreign resident.
5. A 4.9% WHT rate is applicable when the interest is paid to banks resident in countries with which Mexico has signed a tax treaty.
6. The 4.9% WHT rate applies, provided the placement is handled through banks or brokerage firms resident in a country with which Mexico has signed a tax treaty if there is compliance with the information requirements established in the general rules issued by the Ministry of Finance. If there is failure to comply with these requirements, the 10% WHT rate applies. The 4.9% and 10% WHT rates mentioned in the preceding paragraphs do not apply, and instead a 35% WHT rate is applicable to interest, when the direct or indirect beneficiaries of the interest, either individually or jointly with related parties, receive more than 5% of the interest arising from the instrument in question, and are either (i) holders of more than 10% of the voting shares of the issuing company, either directly or indirectly, either individually or jointly with related parties, or (ii) business entities holding more than 20% of their shares, either directly or indirectly, either individually or jointly with parties related to the issuer.
7. The 4.9% WHT rate is applicable to interest payments made to foreign financial institutions in which the Mexican federal government or the Mexican Central Bank has equity participation.
8. The WHT rate is applied to the gross amount of the payment.
9. The non-resident taxpayer may elect to pay 35% tax on the net profit if the taxpayer has a resident legal representative and so informs the customer, who then makes no withholding. When business activities last for more than 183 days, the foreign taxpayer is deemed to have a PE in Mexico for tax purposes and is taxed in the same manner and subject to the same rules as a local resident corporation or branch.
10. The 21% federal rate is applied only in the case of non-qualifying prizes (i.e. income derived from prizes that is subject to a state tax that exceeds a rate of 6%).
11. The statutory WHT rates mentioned above may be reduced by applying tax treaty provisions. During the last two decades, Mexico has embarked on a policy of negotiating a network of tax treaties with its main trading and investment partners (see table below).
12. The 10% WHT on dividend payments to foreign residents does not apply to distributions of profits subject to corporate-level tax prior to 2014. If a corporation makes a distribution out of earnings that for any reason have not been subject to CIT, such as distributions of book earnings (i.e. not yet recognised for tax purposes in Mexico), the corporation will also be subject to CIT on the grossed-up distributed earnings (gross-up factor is 1.4286).

As of December 2019, the treaties with the following countries are pending ratification while waiting for the completion of specific formalities by the respective governments in order to become effective, have not been published yet in the Official Gazette, or are under negotiation: Egypt, Guatemala, Iran, Lebanon, Malaysia, Morocco, Nicaragua, Oman, Pakistan, Slovenia, Thailand, and Venezuela.

Tax treaties with the countries listed in the following table have been published in the Official Gazette and are in force.

The WHT rates negotiated under the tax treaties are as follows:

Notes

The applicable tax rates on dividends paid abroad in accordance with the tax treaties executed by Mexico are detailed below; however, under domestic law, no withholding is applied on distributions of profits subject to corporate-level tax generated prior to 2014, when the 10% dividend WHT started applying.

There are certain specific cases of interest paid to parties resident abroad that might be exempted by certain tax treaties (e.g. interest paid to a pension fund or paid by a bank, interest paid on certain loans granted or guaranteed by certain entities for exports under preferable conditions), which are not detailed in the information below.

The tax legislation gives the Mexican tax authorities the ability to require that the foreign-related party provide a sworn statement through its legal representative confirming that the item of income for which a treaty benefit is claimed would otherwise be subject to double taxation.

1. This rate applies when the recipient corporation that is the beneficial owner of the dividend (except for civil partnerships) directly owns at least 10% of the capital of the distributing corporation. In the case of Barbados, Hungary, and South Africa, the specific exclusion of civil partnerships is not included.
2. This rate applies where the company that is the beneficial owner of the dividends directly or indirectly owns at least 25% of the capital of the distributing company. In the case of Argentina specifically, there must be a direct ownership of 25% of the capital of the distributing company. In the case of Belgium, no WHT would apply if the beneficial owner holds for an uninterrupted period of at least 12 months shares representing directly at least 10% of the capital of the company paying the dividends or to pension funds if certain requirements are met.
3. This rate applies where the company that is the beneficial owner of the dividends (except for civil partnerships) directly owns at least 25% of the capital of the company distributing the dividends.
4. This rate applies where the recipient corporation that is the beneficial owner of the dividend owns at least 10% of the voting shares of the paying corporation. The Mexico-US tax treaty contains a most-favoured nation clause.
5. This rate applies where a company that is the beneficial owner of the dividends (except for civil partnerships, although limited liability partnerships are included) directly owns at least 10% of the voting shares of the company distributing the dividends.
6. This rate applies where a company that is the beneficial owner of the dividends owns at least 20% of the voting shares of the company paying the dividends.
7. This is the maximum WHT rate for dividends, with no distinction for substantial holdings. In the case of Ecuador and India, the tax payable on dividends paid to residents in Mexico must not exceed a limit established in the treaty.
8. The 5% rate applies when a company that is the beneficial owner of the dividends owns at least 25% of the voting shares of the company paying dividends during the six months prior to the end of the tax period in which dividends are paid. Under certain particular rules and provided this ownership requirement is satisfied, dividend payments are only subject to taxin the country of residence of the recipient of the dividends.
9. No withholding applies when more than 50% of the shares of the recipient corporation are owned by residents of France or Mexico or when the beneficial owner of the dividend is a resident individual. Accordingly, the WHT applies to dividends when more than 50% of the recipient corporation’s shares are owned by residents of other countries. However, the WHT must not exceed 5% when the party receiving the dividend is the effective beneficiary of said dividend. Dividends paid by a company resident in France to a resident of Mexico, other than a company that directly or indirectly holds at least 10% of the capital stock of the first-mentioned company, may also be taxed in France, in accordance with the law of France, but if the recipient of the dividends is the beneficial owner, the tax thus charged must not exceed 15% of the gross amount of the dividends.
10. The 5% rate applies where the company that is the beneficial owner of dividends directly or indirectly owns at least 10% of the capital of the company distributing the dividends. There is a 10% tax rate that applies when these same ownership requirements are satisfied, but the company paying dividends is a resident of Israel (provided dividends are paid from earnings taxed in Israel at a tax rate lower than the regular corporate tax rate in Israel).
11. The applicable tax rate on the gross amount of the dividends when the recipient company (beneficial owner) (except for civil partnerships) directly holds at least 10% of the capital of the corporation paying the dividend must not exceed 5% in the case of Luxembourg and 8% in the case of Mexico. The protocol of the Mexico-Luxembourg tax treaty states that this rate might be reviewed in the future by the contracting states if the WHT is not fully creditable, and can be adjusted under the principle of avoiding double taxation, provided the adjusted WHT rate is not lower than 5%.
12. Dividends paid by a company resident in Mexico to a company resident in the Netherlands (which is the beneficiary of said dividends) are subject to a maximum tax of 5% on the gross amount of the dividends if the beneficial owner is a company that directly or indirectly owns at least 10% of the capital of the company paying said dividends. However, as long as a company resident in the Netherlands is not subject to Dutch income tax on dividends received from a company resident in Mexico under the terms of the Dutch income tax law and any future amendments thereto, the dividends mentioned in the preceding paragraph may only be taxed in the Netherlands (not in Mexico).
13. The Mexico-New Zealand tax treaty contains a most-favoured nation clause that may be applicable in the future.
14. The exemption on dividend WHT is not applicable in the case of deemed dividends.
15. To the extent certain requirements provided in the Protocol are met, the WHT may be reduced to 0%.
16. The 10% rate applies to loans from banks. In the case of Belgium, the 5% rate is available for loans from banks and on interest paid from bonds that are regularly and substantially traded on a recognised securities market, and the 10% rate applies in all other cases.
17. The 5% WHT rate is applicable to interest paid to banks.
18. The 5% rate applies to interest on loans from banks, insurance companies, and retirement and pension plans. However, in the case of Saudi Arabia, interest income on loans from insurance companies is excluded for the reduced 5% WHT rate.
19. The 10% rate applies to interest on loans from banks, insurance companies, and securities regularly and substantially traded on a recognised national stock exchange.
20. The 4.9% rate applies to interest on loans from banks and insurance companies and to interest on securities regularly and substantially traded on a recognised national stock exchange.
21. In the case of the Netherlands, the 5% rate applies to interest on loans from banks and to interest on securities regularly and substantially traded on a recognised national stock exchange. In the case of the United Kingdom, the 5% rate extends to interest paid to insurance companies. In the case of Spain, the 4.9% rate applies to interest on loans from banks, interest on securities regularly and substantially traded on a recognised national stock exchange, and interest paid to insurance companies.
22. The updated WHT rates of the Tax Convention are effective as of 27 September 2017.
23. The 10% rate on interest applies in the case of interest paid to the original seller of M&E and interest paid by banks.
24. The 10% rate applies to interest on loans from banks and to interest derived from bonds or securities that are regularly and substantially traded on a recognised securities market, as well as to interest paid by the purchaser of M&E to a beneficial owner that is the seller of the M&E.
25. The 10% rate applies to interest on loans from banks and insurance companies, to interest on securities regularly and substantially traded on a recognised national stock exchange, to interest paid to the original seller of M&E in a sale on credit, and to interest paid by banks.
26. The 5% rate is applicable to interest on loans granted by banks and insurance companies, securities traded on a recognised securities market, and the sale on credit of M&E.
27. It is understood that the definition of royalties applies to any type of payment received for the provision of technical assistance services. The 15% rate applies to royalties arising from the use of, or the right to use, trademarks.
28. The original rate is 15% but has been reduced to 10% as long as the Netherlands does not impose a WHT.
29. The reduced WHT rate results from the application of the most-favoured nation clause.
30. The 5% rate applies to industrial, commercial, and scientific equipment.
31. The 10% rate also applies to fees for technical assistance, which are payments of any kind, other than those mentioned in Articles 14 and 15 of the treaty as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel.
32. This rate applies where the company that is the beneficial owner of the dividends directly owns at least 25% of the capital of the distributing company.
33. The treaty broadly defines royalties and includes payments related to certain software.
34. This rate applies where the company that is the beneficial owner of the dividends directly or indirectly owns at least 10% of the capital of the distributing company.
35. The 5% rate applies on the gross amount of the interest paid to, among others, banks and insurance institutions.
36. No withholding applies where the company that is the beneficial owner of the dividends (except for civil partnerships) directly owns at least 10% of the capital of the company distributing the dividends or when the dividends are distributed to a pension fund.
37. The updated protocol of the Italy Tax Convention is applicable since 16 April 2015. In the case of Belgium, the new protocol entered into force in general as of 1 January 2018.
38. The 4.9% rate applies on the gross amount of the interest paid to banks and pension funds or pension schemes; the 10% rate applies on the gross amount of the interest paid in any other case.
39. The 5% rate applies on the gross amount of the interest paid to and by banks; the 10% rate applies on the gross amount of the interest in all other cases.
40. The 5% rate applies on the gross amount of the interest if the beneficial owner of the interest is a bank; the 10% rate applies on the gross amount of the interest in all other cases.
41. The 10% rate applies on the gross amount of the interest if it is paid to a bank; the 15% rate applies on the gross amount of the interest in all other cases.
42. The 10% rate applies on the gross amount of royalties derived from the use of intellectual property over literary, theatre, musical, artistic, or scientific works; the use of patents, designs, models, plans, formulas or secret procedures, computer programs, commercial equipment, industrial equipment, scientific equipment, or for information related to industrial, commercial, or scientific experiences or the rendering of technical assistance services; the 15% rate applies on the gross amount of the royalty in all other cases.
43. Even though the tax conventions are currently in force, the withholding reduced rates and provisions related to other taxes would be applicable until 1 January 2019, per articles 30 and 29 of the Jamaica and Saudi Arabia Tax Conventions, accordingly.
44. The 5% and 10% rates apply if the beneficial owner is an entity owning at least 70% or 10% of the equity of the distributing entity, respectively.
45. The 12.5% and 15% rates apply if the beneficial owner of the interest is a resident of the other contracting state (Philippines).