Mexico: Mexico’s expanding treaty network with the Baltic States

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Mexico: Mexico’s expanding treaty network with the Baltic States

cuellar.jpg

gutierrez.jpg

David Cuellar


Mario Alberto Gutierrez

The Baltic States are those countries east of the Baltic Sea that gained independence from the Russian Empire in the wake of World War I. Today, this means the countries of Estonia, Latvia and Lithuania. The three countries' market economies in recent years have undergone rapid expansion in early 2000 and their previous fast growth has switched to recession in Estonia and Latvia as from end of 2008 followed by Lithuania in 2009.

Nonetheless, Mexico's approach to expand its treaty network includes entering into tax treaties with this region of Eastern Europe. The tax treaty status with the region is shown in Table 1.

Since Estonia's tax treaty is the one lagging in the process to become applicable, our comments are focused on the tax treaties with Lithuania (already applicable) and Latvia (applicable as from beginning of next year).

Table 1


Date of signing by the States

Approved by Mexican Senate

Approved by the Other State

Published in the Mexican Official Gazette

Applicable as from

Estonia

Oct 9 2012

Feb 7 2013

Not yet

Not yet

Not yet

Latvia

Apr 20 2012

Dec 11 2012

Yes

Feb 27 2013

Jan 1 2014

Lithuania

Feb 23 2012

Apr 19 2012

Yes

Nov 26 2012

Jan 1 2013


Taxes covered

Like in all recent tax treaties concluded by Mexico, the taxes covered include both income and flat tax (IETU for its acronym in Spanish).

Permanent establishment (PE)

The treaty with Lithuania has a broad PE definition that considers services (including consulting services) rendered by an enterprise through employees or other personnel contracted by the foreign enterprise, if the activities in the other country last for more than 183 days within a 12-month period.

A PE would be created under the Latvian treaty for the performance of activities related to the exploration of seabed or natural resources if they are carried on for more than 90 days within a 12-month period.

Dividends

In Lithuania, the withholding tax rate on dividends is 15%, while in Latvia it is 10%. These withholding tax rates are reduced under the treaties on one hand with Latvia to 5% when the shareholding exceeds 10% and on the other hand to 0% under the treaty with Lithuania provided that the shareholding exceeds 10%.

Interest

Both treaties provide for a 10% reduced withholding tax rate for intercompany interest payments.

The treaty with Latvia includes a 5% withholding on interest paid to banks. The tax treaty with Latvia exempts from withholding tax the interest paid to certain pension funds.

Royalties

The treaty with Lithuania provides a broad definition of royalties including the right to use visual images or sounds transmitted through satellite, fiber optic cable or similar technology.

Capital gains

The tax rate in both tax treaties is capped to 20% of the net gain. Furthermore, the tax treaty with Lithuania allows the taxation of capital gains from the sale of shares only when within a 12-month period, the seller has held a participation of at least 25% of the company. The protocol to the Lithuanian treaty includes a most favoured nation provision allowing the possibility to automatically apply additional benefits.

The Latvia tax treaty provides for a reorganisation benefit to the extent the transfer of shares takes place between members of the same group and the remuneration is on share-for-share basis upon other requirements being satisfied.

Limitation on benefits

If companies or other persons are totally or partially exempt from tax, based on a special regime in accordance with the legislation or administrative practices of either state, the tax treaty benefits with Latvia would be denied. A special regime will be considered to exist only after both contracting states have decided such under a mutual agreement procedure.

The treaty with Lithuania includes an anti-abuse rule that denies treaty benefits if one of the main purposes is just to obtain treaty benefits.

David Cuellar (david.cuellar@mx.pwc.com) and Mario Alberto Gutierrez (mario.alberto.gutierrez@mx.pwc.com), Mexico City

PwC

Tel: +52 55 5263 5816

Fax: +52 55 5263 6010

Website: www.pwc.com

more across site & shared bottom lb ros

More from across our site

It should be easy for advisers to be transparent about costs, Brown Rudnick partner Matthew Sharp said in response to exclusive ITR in-house data
The sprawling legislation phases out Joe Biden-era green tax incentives for businesses; in other news, the UK will reportedly maintain its DST despite US pressure
New French legislation should create a more consistent legal environment for taxing gains from management packages, say Bruno Knadjian and Sylvain Piémont of Herbert Smith Freehills Kramer
The South Africa vs SC ruling may embolden the tax authority to take a more aggressive approach to TP assessments, an adviser tells ITR
Indirect tax professionals now rate compliance as a bigger obstacle than technology and automation; in other news, Italy approved a VAT cut on art sales
AI-powered tax agents are likely to be the next big development in tax technology, says Russell Gammon of Tax Systems
FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
Gift this article