On January 1, 2013, Mexico will enter into new income tax treaties with Lithuania and Ukraine. Once these treaties come into force, Mexico will have a tax treaty network with 51 countries. In negotiating and executing the tax treaties, Mexico has been using the OECD Model Tax Convention on Income and on Capital, incorporating some features from the UN Model Tax Convention (Article 5—period for converting a construction site into a permanent establishment; Article 15—independent personal services; and Article 21—other income taxed in the source country). The tax treaties executed by Mexico with Ukraine and Lithuania follow the same approach.
The Mexico–Ukraine Treaty
For the Mexico–Ukraine treaty, the withholding rates are the following: Dividends. A five percent rate is allowed when the beneficial owner of the dividends is a company (other than a partnership) and has direct ownership of at least 25 percent of the corporation distributing the dividends. A 15 percent rate applies in every other scenario. However, Mexican tax law does not impose a withholding tax on dividends. Interest. No withholding tax is imposed when the beneficial owner is the government, a political subdivision, a governmental bank, or export bank, or if those entities pay interest. The rate is reduced to 10 percent when the interest is paid to governmental banks. A 10 percent rate applies in every other scenario. In addition, Mexican tax law has a 4.9 percent withholding tax rate for interest payments made from Mexico to registered foreign banks and financial institutions. Royalties. 10 percent rate.
The Mexico–Lithuania Treaty