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New Tax Treaties Between Mexico And Hong Kong And Qatar

Author:Mr Rodrigo Gómez, Luis Rodrigo Salinas and Luis Ignacio Martel
Profession:Jones Day

In March 2013, two new income tax treaties signed by Mexicowith Hong Kong and with Qatarwere published in the Mexican Official Gazette. With these new tax treaties, Mexico will have a tax treaty network comprising 54 countries. Both tax treaties will become effective as of January 1, 2014. While negotiating and executing both tax treaties, Mexico took advantage of the OECD Model Tax Convention on Income and on Capital, incorporating some features from the UN Model Tax Convention (Article 5period for converting a construction site into a permanent establishment, Article 14independent personal services, and Article 22other income taxed in the source country). The tax treaties Mexico signed with Hong Kong and Qatar follow the same approach. The withholding rates and special source taxation features of these new tax treaties are the following: Tax Treaty Between Mexico and Hong Kong Dividends. No withholding tax is imposed, since the treaty sets forth that income derived from dividends paid by a resident of a contracting state in favor of a resident of the other shall be taxed only in that other state. Accordingly, considering that Mexico does not impose any income tax on dividends paid to foreign residents, such dividends shall not be subject to any withholding in that country. Interest. No withholding tax is imposed when the beneficial owner is the government, a political subdivision, a governmental bank or export banks, or where those entities pay the interest. A 4.9 percent rate applies where the beneficial owner is a banking institution; otherwise, the 10 percent general rate shall apply. Notwithstanding the foregoing, Mexican tax law has in force a 4.9 percent withholding tax rate for interest payments carried out to registered foreign banks and financial institutions. Royalties. 10 percent rate. Capital Gains. Capital gains obtained by a resident of a contracting state derived from the alienation of shares of an entity residing within the other contracting state may be taxed by...

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