Mexico: Protocol amending income tax treaty with Spain

Mexico: Protocol amending income tax treaty with Spain

Representatives of the governments of Mexico and Spain on 17 December 2015 signed a Protocol to amend the existing Mexico-Spain income tax treaty. The Protocol includes the following new measures:

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  • Dividends: There is now a single withholding tax rate of 10%.
  • Interest: A withholding tax rate of 4.9% applies with respect to interest on a loan of any kind paid to a bank or financial institution.
  • Capital gains: Net capital gains from the sale of stock, equity interests, or similar equity instruments in a company are subject to a maximum withholding tax rate of 10%, but only if the company whose shares are being disposed of derives more than 50% of its value, directly or indirectly, from immovable property situated in the contracting state. For these purposes, immovable property that relates to industrial, commercial, or agricultural activity of the taxpayer is disregarded, as is immovable property used by the taxpayer in the provision of professional services. There are exemptions provided for net capital gains from the sale of publicly traded shares on a recognized stock market, gains derived by pension funds, financial institutions, and insurance companies, as well as gains from certain intra-group restructurings.
  • Permanent establishment for activities related to hydrocarbons: Income derived from entrepreneurial activities that consist of exploration, production, refinement, processing, transportation, distribution, warehousing, and commercialization of hydrocarbons, will give rise to a permanent establishment if such activities are conducted for a period, or periods, exceeding 30 days in any 12-month span.

Other changes in Protocol

  • Revisions were made to certain definitions and the residency concept, including the “tie-breaker rules.”
  • A “most-favored nation” clause was introduced for the Interest and Royalty articles of the treaty. If Mexico subsequently signs an income tax treaty with a third state that is an OECD member country in which lower tax rates would apply (including zero tax rates), the lower tax rate would automatically apply to the Mexico-Spain income tax treaty, effective on the date of the entry into force of the treaty between Mexico and the third state.
  • In the event Mexico signs an income taxation treaty with a third state and that tax treaty includes arbitration provisions (similar to those of the OECD Model Tax Convention), then those provisions would automatically apply to the Mexico-Spain income tax treaty.
  • A new article on assistance with the collection of taxes is included.


For more information, contact a tax professional with KPMG’s Latin America Markets Tax practice:

Devon M. Bodoh | +1 (202) 533 5681 |

Alfonso A-Pallete | +1 (305) 913 2789 |


Or a KPMG Mexico tax professional:

José Manuel Ramirez | +1 (212) 872 6541 |

Catherine Thibault | +52 (555) 246-8474 |

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