The Mexico-United Arab Emirates tax treaty, signed on May 20, 2012 (the "Treaty"), entered into force on July 9, 2014 after its publication in the Mexican Official Gazette. Pursuant to Article 28, the Treaty will be applicable on January 1, 2015. The Treaty results from Mexico's relatively new effort to expand the country's tax treaty network, becoming the 58th tax treaty in force. The Mexico-Malta tax treaty, which was signed on the same date as the Treaty, is currently pending, and treaties with Costa Rica, Malaysia, and Nicaragua are being negotiated by the Mexican government.
Although Mexico uses the Model Tax Convention on Income and on Capital issued by the Organisation for Economic Co-Operation and Development as a starting point for its tax treaty negotiations, its common practice has been to incorporate provisions of the United Nations Model Double Taxation Convention between Developed and Developing Countries. The latter model treaty tends to favor source-based taxation.
Among the noteworthy features of the Treaty are the following:
Dividends. The Treaty eliminates the new 10 percent withholding tax rate on dividend payments to both foreign individuals and entities, which was just enacted by the new Mexican tax reform law effective January 1, 2014. Instead, no withholding tax is permitted with respect to dividends effectively paid by a resident of one contracting state in favor of a resident of the other contracting state.
Interest. No withholding tax may be imposed on interest payments when the beneficial owner is the government, a political subdivision, a governmental bank, or an export bank of a contracting state, nor may withholding tax be imposed on interest payments made by...