The Decree promulgating the “Convention between Mexico and the Republic of Colombia for the avoidance of Double Taxation and the prevention of Fiscal Evasions with respect to Taxes on Income” was released on July 11, 2013 through its publication in the Federal Official Gazette.
A few items of relevance are commented below:
- Under article 29 of said Convention, the provisions related to withholding with Mexican source income shall have effect commencing on January 1, 2014.
- In the vent of conflict to determine a legal entity’s tax residency, the Convention diverges from the tie breaker rule of place of effective management, and rather will be solved by a mutual agreement procedure.
- The Convention adopts the long definition of “interest”, which means the definition of the internal legislation is included.
- In connection with “Royalties” these will be deemed to be payments for technical assistance, technical services and consulting paid by residents of Colombia to residents of Mexico, and vice versa. Notwithstanding the above, the parties agreed on the Most Favorable Nation Clause for this purposes, so if Colombia at the conclusion of any Convention with another State does not include these concepts or subject to a lower tax rate, Mexico will enjoy the same tax treatment.
- In respect to withholding taxes, the following rates apply:
(i) Dividends: 0% (except in some cases); (ii) Interest: 5% for Banks and 10% for other cases; (iii) Royalty: 10%; and (iv) Capital Gains: 20% over the net amount