Us Mexico Double Tax Agreement

by lobo April 13, 2021  

The U.S.-Mexico tax contract includes double taxation on income and capital gains taxes, but, as has already been mentioned, due to a savings clause, the benefits for U.S. expatriates in Mexico are limited. However, the contract ensures that no one will pay more taxes than the higher of the two tax regimes, and it also determines where to pay taxes, which normally depends on where the income is generated. The new protocol also places the relationship between the tax agreements with Mexico in a closer coherence with U.S. policy and modernizes the treaty 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 modernized provision on the determination of the source of income for the application of the rules for the elimination of double taxation. Under the new rule, income that can be taxed by one of the parties under the contract is generally considered likely to be generated in that country. Thus, the other country will generally exempt these incomes from tax or a credit for income paid in relation to those incomes. Mexico has agreements with Canada and Spain on the totalization of social security. An agreement with the United States was signed, but it did not complete the entire approval process. Mexico has double taxation agreements (DBA) with the following countries: The main aspects of the new protocol relate to the taxation of cross-border dividends.

The new protocol is only the third U.S. tax treaty that provides for a zero withholding tax rate on dividends from certain direct investments. Under the existing contract, dividends of 10 per cent held by companies that are not eligible for this exemption remain subject to the maximum withholding rate of 5%. The new agreement will further reduce tax-related trade and investment flows between the United States and Mexico. “The new protocol amending the existing U.S.-Mexico tax agreement reflects the close economic relationship between our two countries. We are pleased that the new agreement provides for substantial reductions in dividend taxes, which will further facilitate cross-border trade and investment,” said Deputy Secretary Dam. Mexico, on the other hand, only asks Mexican residents to impose taxes. An American generally qualifies as a Mexican tax citizen when he has a stable homeland in Mexico, or when more than 50% of his global annual income is generated in Mexico or when the core of his professional activity is in Mexico. VAT also applies to transactions made via digital platforms. In addition, digital service providers who do not have a MOU in Mexico must register with the Mexican tax authorities and, although they are not subject to income tax or VAT, they must collect VAT on services provided to Mexican consumers.


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