“The new protocol amending the existing tax treaty between the United States and Mexico reflects the close economic relationship between our two countries. We are delighted that the new agreement provides for substantial reductions in dividend taxes, which will further facilitate cross-border trade and investment,” said Assistant Secretary Dam. The new protocol also puts the tax treaty`s relationship with Mexico more closely in line with U.S. treaty policy and modernizes the agreement to reflect changes in the laws and policies of both countries since the signing of the current treaty. Another important aspect of the new protocol is, for example, a modernised provision on the determination of the source of income for the purposes of applying the rules on the elimination of double taxation. Under the new rule, income that can be taxed by one of the parties under the contract is generally treated as if it were generated in that country. Therefore, the other country will generally exempt this income or a credit for people paid in relation to that income. The main aspects of the new protocol concern the taxation of cross-border dividends. The new protocol is only the third U.S. tax treaty, which provides for a zero withholding tax rate on dividends from certain direct investments.
Dividends paid by 10% companies that do not qualify for this exemption would remain subject to the maximum withholding tax rate of 5% under the existing agreement. The new agreement will therefore serve to further reduce tax barriers and investment flows between the United States and Mexico. Mexico has tabled agreements with Canada and Spain on social security. An agreement with the United States has been signed, but it has not yet completed the entire approval process. Mexico has double taxation (TB) treaties in place with the following countries: The U.S.-Mexico tax treaty covers double taxation in terms of income tax and capital gains tax, but as mentioned earlier, the benefits are limited due to a savings clause for U.S. expats in Mexico. However, the agreement ensures that no one pays more taxes than the higher of the two tax systems, and it also defines where taxes must be paid, which usually depends on where the income is generated. Corporate capital tax rate. Mexico does not provide for special tax treatment with respect to capital gains. Common legal entities. The new protocol is subject to ratification according to the procedures of each country. In the United States, the signed protocol is forwarded to the Senate for consultation and approval for ratification.
The rules of the EFA. Yes, Mexico provides a regime for controlled foreign enterprises (CFCs) for certain “controlled” enterprises with significant passive income, which are subject to low rates compared to Mexican legal rates. Taxpayers are subject to global taxation, which means that the taxpayer pays income tax from all sources and jurisdictions. Taxpayer tax rates are 30% (corporate tax rate) and can be as high as 35% for individuals….