Withholding Third Party TaxesRoyalties All payments related with royalties or technical assistance are considered originated from a Mexican source of income when the benefit of the goods or services subject to the royalty payment is within Mexico.
Technical assistance and royalties different from those mentioned in the next paragraph are subject to a withholding rate of 25%. Royalties paid for the use or exploitation of patents or certificates of invention or improvement, trademarks and commercial names, as well as advertising are subject to a withholding rate from 3% to 32%. In accordance with the US-Mexico Tax Treaty, the use and temporary enjoyment of industrial drawings and models, patents, trademarks and commercial names are considered royalties. The tax on these royalties shall not exceed 10% of the gross amount thereof if the effective beneficiary is a resident of the US. Likewise, such Treaty does not consider the technical assistance or transfer of technology and publicity as royalties. Therefore, they shall not enjoy the benefits of the Treaty, and the tax shall be calculated in accordance with the applicable laws of each state in particular, this is 25% on royalties for technical assistance or transfer of technology and from 3% to 32% on royalties for publicity in the case of Mexico. The ITL provides that the following requirements must be met for the payments under technology transfer or assistance or know-how to be deductible: the supplier party must have proper technical elements for such purpose; the transfer of technology or know-how or assistance must be effectively performed and not merely made available, except in those cases in which payments are made to residents of Mexico and the agreement provides that the assistance or transfer shall be performed by a third party; and the services have actually been rendered.
Interest (Financing)According to the ITL, interest payments derived from loans granted by foreign banks registered before the Mexican Ministry of Finance, interest payments from loans by foreign state’s financial entities, interest payments to foreign entities derived from debt quoted in a stock exchange are all subject to a withholding rate of 10%. The interest payments from negotiable instruments, bonds, debentures, real state certificates, loan of securities, provided that these ones are placed in a stock exchange, are subject to a withholding rate of 4.9%. However, if the beneficiaries of such interest payments are residents in a country which has a tax treaty with Mexico, the withholding tax rate shall be 4.9%. If interest is paid to re-insurance companies, the rate will be 15%. If said interest payments are made to non-registered foreign financial entities and to suppliers or lenders for the acquisition of machinery and equipment for commercial/industrial activities in general, the withholding tax prevailing shall be 21%. A withholding tax rate from 3% to 32% will be levied on interest payment derived from situation different from those mentioned in the preceding paragraphs. However, if the beneficiaries of such interest payments are residents in a country that has signed a tax treaty with Mexico, the withholding tax rate shall be 10%. Return to top |
