New Tax Treaty Between Mexico and United Arab Emirates Enters into Force

New Tax Treaty Between Mexico and United Arab Emirates Enters into Force

The Mexico–United Arab Emirates tax treaty, signed on May 20, 2012 (the "Treaty"), entered into force on July 9, 2014 after its publication in the Mexican Official Gazette. Pursuant to Article 28, the Treaty will be applicable on January 1, 2015. The Treaty results from Mexico's relatively new effort to expand the country's tax treaty network, becoming the 58th tax treaty in force. The Mexico–Malta tax treaty, which was signed on the same date as the Treaty, is currently pending, and treaties with Costa Rica, Malaysia, and Nicaragua are being negotiated by the Mexican government.

Although Mexico uses the Model Tax Convention on Income and on Capital issued by the Organisation for Economic Co-Operation and Development as a starting point for its tax treaty negotiations, its common practice has been to incorporate provisions of the United Nations Model Double Taxation Convention between Developed and Developing Countries. The latter model treaty tends to favor source-based taxation.

Among the noteworthy features of the Treaty are the following:

Dividends. The Treaty eliminates the new 10 percent withholding tax rate on dividend payments to both foreign individuals and entities, which was just enacted by the new Mexican tax reform law effective January 1, 2014. Instead, no withholding tax is permitted with respect to dividends effectively paid by a resident of one contracting state in favor of a resident of the other contracting state.

Interest. No withholding tax may be imposed on interest payments when the beneficial owner is the government, a political subdivision, a governmental bank, or an export bank of a contracting state, nor may withholding tax be imposed on interest payments made by such entities. Consistent with Mexican tax law, which provides a 4.9 percent withholding tax rate for interest payments made to foreign banks and financial institutions resident for tax purposes in a country that has a tax treaty in force with Mexico, the Treaty provides that withholding tax on such entities may not exceed 4.9 percent. Otherwise, the general 10 percent rate shall apply. These rates are also applicable to interest payments sourced in the United Arab Emirates paid to Mexican residents for tax purposes.

Royalties. The Treaty permits withholding on royalties at a 10 percent rate. It also includes a "most-favored nation clause" that potentially would reduce the withholding rate to the lowest rate applicable under any tax treaty that a contracting state has in force. This provision is currently moot as regards Mexican withholding tax, however, as Mexico currently is not a party to any other tax treaty with a lower rate.

Anti-Treaty Shopping Provisions. In addition to the beneficial ownership test included in the dividends, interests, and royalties Articles, the Treaty has a limitation on benefits clause that contains a main purpose test and a base erosion test. Taxpayers must satisfy these tests in order to claim Treaty benefits.

Jones Day's highly experienced international tax attorneys can assist in any matter that may arise on this subject.

Lawyer Contacts

For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at

Karl L. Kellar

Sheila L. Shadmand

Rodrigo Gómez
Mexico City

Andrés Lieja
Mexico City

Luis Ignacio Martel
Mexico City

Luis R. Salinas
New York

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