Post by Sapphire Capital on Jul 11, 2008 23:17:45 GMT 4
On April 7 2008 Mexico and Barbados signed an income tax treaty Ratification and publication is still pending. The treaty covers the Mexican income tax and the Barbadian income and corporation tax (including the premium income, branch profits and petroleum winning operations taxes). According to Mexico's tax authority press release, Barbados is among the countries that have agreed to consider the new Mexican flat tax as a covered tax in the respective treaty. Some of the main provisions included in the treaty are:
Permanent establishment (PE)
Under treaty provisions, for activities related to construction, perforation and exploration a PE would be deemed to exist when such activities exceed a six month period.
Regarding the maintenance of a fixed place of business solely for the combination of activities, provided the overall activity results are preparatory or auxiliary, the treaty clarifies that its applicability should be mutually agreed between the contracting states.
Dividends, interests, royalties and capital gains
Like in other treaties Mexico has in force, dividend distributions, royalties and interest payments benefit from lower tax rates. Basically, a 10% withholding rate should apply to royalties, interest and dividends. In the case of dividends where the beneficial owner holds at least 10% of ownership, the rate should be 5%. In accordance with Mexican legislation, there is no withholding tax on dividends paid. Gains obtained by an entity that during the last 12 months, either directly or indirectly, owned less than 25% of the shares are exempt. Transfer of shares or similar rights represented, directly or indirectly, by immovable property are taxed as well.
Limitation of benefits (LOB) and exchange of information
Attention must be given to LOB provisions to qualify for treaty benefits. If a Barbadian entity is subject to a special tax regime with an effective tax rate different from that generally applicable for companies or individuals, then all applicable conditions or limitations of the treaty should apply, except for the benefits on international transport, dividends, interest, royalties, capital gains and independent personal services. Moreover, a contracting state can apply its provisions regarding thin capitalization, controlled foreign corporations, and preferential tax regimes. Regarding the exchange of information, the competent authorities are enabled to carry out all necessary trade of facts to administer or demand the covered taxes, including value added tax.
Source:
Roberto del Toro (roberto.del.toro@mx.pwc.com) & Adriana RodrÃguez (adriana.rodriguez@mx.pwc.com), Mexico City, Mexico,
phone: ++52 55 5263 5773
Permanent establishment (PE)
Under treaty provisions, for activities related to construction, perforation and exploration a PE would be deemed to exist when such activities exceed a six month period.
Regarding the maintenance of a fixed place of business solely for the combination of activities, provided the overall activity results are preparatory or auxiliary, the treaty clarifies that its applicability should be mutually agreed between the contracting states.
Dividends, interests, royalties and capital gains
Like in other treaties Mexico has in force, dividend distributions, royalties and interest payments benefit from lower tax rates. Basically, a 10% withholding rate should apply to royalties, interest and dividends. In the case of dividends where the beneficial owner holds at least 10% of ownership, the rate should be 5%. In accordance with Mexican legislation, there is no withholding tax on dividends paid. Gains obtained by an entity that during the last 12 months, either directly or indirectly, owned less than 25% of the shares are exempt. Transfer of shares or similar rights represented, directly or indirectly, by immovable property are taxed as well.
Limitation of benefits (LOB) and exchange of information
Attention must be given to LOB provisions to qualify for treaty benefits. If a Barbadian entity is subject to a special tax regime with an effective tax rate different from that generally applicable for companies or individuals, then all applicable conditions or limitations of the treaty should apply, except for the benefits on international transport, dividends, interest, royalties, capital gains and independent personal services. Moreover, a contracting state can apply its provisions regarding thin capitalization, controlled foreign corporations, and preferential tax regimes. Regarding the exchange of information, the competent authorities are enabled to carry out all necessary trade of facts to administer or demand the covered taxes, including value added tax.
Source:
Roberto del Toro (roberto.del.toro@mx.pwc.com) & Adriana RodrÃguez (adriana.rodriguez@mx.pwc.com), Mexico City, Mexico,
phone: ++52 55 5263 5773