Dividends Mexico–U.S.: How Much Do You Pay, and Where? Key Insights from the Double Tax Treaty

The Complete Guide to Mexico–U.S. Dividend Taxation: Everything You Need to Know

If your company or investments involve paying or receiving dividends between Mexico and the United States, the Mexico–U.S. Double Taxation Treaty (DTT) is a crucial guide. Article 10 of the Treaty provides specific rules that directly impact tax liability, planning strategies, and compliance obligations.

 The General Rule

Dividends may be taxed in both countries:

• The residence country of the shareholder (beneficial owner), and

• The residence country of the company paying the dividend (the source).

  
  

Without a treaty, this could lead to double taxation. The DTT establishes limits and relief mechanisms to avoid this outcome.

Withholding Tax Limits (at Source: Mexico or the U.S.)

Important Exceptions

Relevant Case Law (TFJA, Mexico)

💡 Why This Matters for Cross-Border Planning

📩 Conclusion: Optimize Your Cross-Border Dividend Strategy

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Withholding Tax Limits (at Source: Mexico or the U.S.)

Under Article 10, taxation at the source country is capped at:

• 5% → If the beneficial owner is a company holding at least 10% of voting shares directly.

• 10% → In all other cases.

• 0% (Exemption) → If the recipient is a qualifying pension fund, or if the shareholder owns 80% or more of voting shares for at least 12 months (special control requirements apply).

  
  

👉 These thresholds are designed to encourage cross-border investment and avoid excessive tax burdens.

Important Exceptions

The dividend article does not apply when:

• The dividend income is attributable to a permanent establishment (PE) or a fixed base in the source country.

  
  

• In such cases, taxation follows the rules of:

  • Article 7 (Business Profits), or

  • Article 14 (Independent Personal Services).

    
    

This ensures consistency with international standards (OECD Model Tax Convention).

Relevant Case Law (TFJA, Mexico)

Mexican courts have provided further clarity:

• Case V-P-1aS-245Confirms that, under some treaties (e.g., with the Netherlands), dividends paid to companies with significant shareholding may be exempt at source, reinforcing the principle of residence-based taxation.

• Case V-P-1aS-212Clarifies that the “gross amount” of dividends (the real amount approved for distribution by shareholders) is the basis for treaty taxation, not the adjusted tax base under Mexican domestic law.

  
  

👉 This interpretation prevents authorities from inflating or recharacterizing the taxable base for dividends.

💡 Why This Matters for Cross-Border Planning

Correctly applying the Treaty can:

• Reduce withholding tax rates (5%, 10%, or even 0%).

• Prevent double taxation between Mexico and the U.S.

• Align corporate structures with treaty benefits.

• Minimize disputes with tax authorities through compliant documentation.

📩 Conclusion: Optimize Your Cross-Border Dividend Strategy

The Mexico–U.S. Tax Treaty offers clear benefits for structuring dividend payments. However, navigating treaty conditions, domestic rules, and judicial criteria requires a specialized approach.

At Villaseñor Asesores Fiscales, we support companies and investors in:

✔️ Structuring cross-border dividend flows.

✔️ Applying treaty benefits with legal certainty.

✔️ Preventing costly double taxation.

👉 Contact us today — let’s solve it together.

International Tax | Cross-Border Dividends | Mexico–U.S. Tax Treaty | Double Taxation | Withholding Tax | Tax Planning | TFJA Case Law