Up to December 31, 2013, Mexico did not tax dividend payments.
However, the Mexican Income Tax Law ("MITL") that entered
into force on January 1, 2014 established a new 10 percent
withholding tax on the gross amount of dividend payments made by
legal entities resident in Mexico for tax purposes to its
shareholders.
The 10 percent withholding tax will be applicable to the following
shareholders of the relevant entity paying dividends: individuals
who are tax residents in Mexico and foreign shareholders. No
withholding tax is triggered when a legal entity resident for tax
purposes in Mexico pays dividends to other Mexican resident legal
entities.
Most of the 57 tax treaties executed by Mexico include either a
reduced withholding tax rate on dividend payments for some
qualified shareholders (e.g., 5 percent for the tax treaties with
the United States, Germany, Belgium, Spain, Canada, France,
Luxembourg, South Africa, Panama, Uruguay, Japan, or China, among
others) or a source taxation exemption (e.g., the tax treaties with
the U.S., Singapore, Australia, Colombia, Hong Kong, Japan, Kuwait,
Qatar, Sweden, Switzerland, or the United Kingdom, among
others).
As established in the former income tax law, the MITL provides
that all Mexican entities are obligated to keep and calculate the
after-tax profit account ("CUFIN," for its Spanish
acronym), in order to identify all profits that were already
subject to corporate taxes in Mexico. In this respect, the
transitory provisions of the MITL establish that the 10 percent
withholding tax on dividends will be applicable only to those
dividends paid from the CUFIN generated after 2013.
Finally, in order to avoid distortions when paying dividends
between Mexican legal entities, the administrative regulations
issued by the tax authorities clarified that dividend payments made
by a Mexican tax resident legal entity to another Mexican legal
entity from the 2013 CUFIN will be considered as an increase of the
2013 CUFIN of the entity receiving the dividends.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
