MEXICO Law and Practice Contributed by: Ángel Escalante, Gabriel Rojas, Daniel Colunga and Brenda Favela, Escalante & Asociados
3.2 Business Profits Pursuant to Article 9 of the MITL, business profits earned by resident legal entities are subject to corpo - rate income tax at a rate of 30%. Resident legal entities are taxed on a worldwide income basis, meaning that all income must be included in the tax base regardless of the jurisdiction in which it arises. Income tax is paid through monthly advance payments calculated based on accumulated profits during the fiscal year. For non-residents, business profits are generally tax - able only if they are attributable to a PE located in Mexican territory, according to Article 2 of the MITL and applicable tax treaties. Rule 2.1.33 of the Miscellaneous Tax Resolution estab - lishes that, for the purpose of applying tax treaties, the term “business profits” refers to income derived from business activities, which pursuant to Article 16 of the FFC, are defined as those of a commercial, industrial, agricultural, livestock, fishing or forestry nature; there - by providing a functional domestic reference for the interpretation of the treaty concept of business profits. 3.3 Passive Income Passive income (eg, dividends, interest and royalties) is generally taxed through withholding at source. Dividends Dividends distributed by Mexican companies to resi - dent individuals are subject to an additional withhold - ing tax of 10% in accordance with Article 140 of the MITL. Dividends paid to non-residents are also subject to a 10% withholding tax, subject to potential reductions under an applicable tax treaty. Interest Interest income is subject to different withholding rates depending on the nature of the lender and the financial instrument involved. In general terms, with - holding rates range approximately between 4.9% and 35%, pursuant to Title V of the MITL provisions.
For tax residents, interest income is treated as taxable income and included in the taxpayer’s taxable base. Royalties Royalties paid to non-residents are subject to with - holding taxes that may range between 1% and 25%, depending on the nature of the underlying rights involved (eg, copyrights, patents, trade marks or tech - nical assistance) (Article 167 of the MITL). Withholding Tax The withholding tax rates established under domes - tic legislation may be reduced or eliminated under an applicable double taxation treaty. In practice, treaty benefits are generally applied direct - ly at the withholding stage by the payer (withholding agent), who is responsible for applying the appropri - ate reduced rate, provided that the recipient demon - strates tax residence in the relevant contracting state and complies with the applicable procedural require - ments under national law. In this context, the withholding agent assumes a posi - tion of joint liability for the correct application of the treaty provisions. Accordingly, if treaty benefits are applied incorrectly, the withholding agent may be held liable. 3.4 Capital Gains Capital gains are generally treated as taxable income for income tax purposes. Residents For resident individuals, capital gains are taxed under the progressive rates established in Article 152 of the MITL, while resident legal entities are taxed at the cor - porate income tax rate of 30%. Non-Residents For non-residents, capital gains derived from the dis - posal of assets located in Mexico or shares issued by Mexican companies may be subject to withholding taxes under Title V of the MITL, unless an applicable tax treaty provides otherwise.
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