Mexico’s tax on dividends
Prof José Carreras Benítez
by Prof José Carreras Benitez
In Mexico, the tax regime on dividends is a topic of significant interest among corporations with foreign investments. Until 2014, Mexico’s local income tax laws exempted dividend payments from taxation. The previous tax structure offered a competitive advantage over other tax systems applied in various countries.
In 2014, the Mexican government imposed a 10% tax on dividends paid. This tax must be withheld by the company distributing the dividend and is considered a final payment.
For Mexican companies with foreign shareholders, it is essential to review the tax implications of applying the benefits of a treaty to avoid double taxation. Mexico has entered into around 65 treaties with countries across North America, the Americas, Europe, Asia, Oceania, and Africa. Under these treaties, reduced tax rates may apply, provided certain formal requirements are met. For example, tax treaties with Germany and Spain established a 5% rate when there is substantial participation, whereas countries like Denmark and Korea apply a 0% rate.
What requirements do Mexican tax laws impose to apply the reduced rate under a treaty to avoid double taxation? Article 4 of Mexico’s Income Tax Law stipulates that the benefits of a tax treaty are only applicable to taxpayers who can prove their residency in the treaty country. In this regard, another Mexican legal provision states it is sufficient to provide a tax residency certificate issued by the relevant authority of the country, or, alternatively, documentation proving the filing of the most recent income tax return.
Furthermore, it is important to note that Mexican companies are required to issue a digital fiscal receipt (CFDI), which shows the details of the dividend payer, the recipient, the amount of the dividend paid, the rate applied, and the tax withheld. This document, in addition to informing the Mexican tax authority, serves as the tax withholding certificate for the foreign shareholder to account for the tax effect in their country of residence, whether by credit or deduction.
In order to comply with the tax regulations surrounding dividend payments under Mexican tax laws, it is necessary to:
Withhold and remit income tax to the tax authority;
Issue a CFDI by the distributing company; and
If a reduced tax rate is to be applied in accordance with a tax treaty, the Mexican company must obtain a tax residency certificate from its shareholders.
GGI member firmIntegroup S.C.Guadalajara, Jalisco, MexicoT: +52 33 36 15 78 15
Audit & Accounting, Tax, Law Firm, Advisory
INTEGROUP is an integral firm offering specialised services in tax, legal, audit, and internal control. IT has a group of experts with extensive experience who offer personalised, ethical, and highly professional service in order to provide effective and rapid responses to client requirements.
José Carreras is the tax partner in charge of dealing with international businesses. Since the year 2000, he has gained experience in offering value-added tax opinions, and win-win ideas. José is fluent in both Spanish and English.
