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Mexico signs tax treaty with Hungary

Mexico, with the largest treaty network in Latin America, signed a new tax treaty with Hungary at the end of June.

David CuéllarRachel Costello

On June 24 2011, representatives from Hungary and Mexico signed a tax treaty which will enter into force after the exchange of ratification instruments and notes are carried out, the treaty is approved by the Mexican senate and it is published in the Official Gazette.

Taxes covered

The treaty covers income tax and flat tax for Mexico and corporate and personal income tax for Hungary, and other income taxes of similar nature in force after the treaty has been signed.


The protocol of the treaty provides that pension funds should be considered as a resident of a contracting state, notwithstanding that the general rule only covers those entities that are subject to tax.

Permanent establishment

The PE definition includes a provision of professional services (including consulting services) rendered by individuals or entities lasting more than 183 days in a 12 month period, as well as construction or installation projects (or supervising activities related to those) lasting longer than six months.


The maximum treaty withholding tax (WHT) on dividends is 5% where the beneficial owner is an entity with a direct participation of at least 10% of the capital of the distributing entity. In all other cases, the maximum WHT rate is 15%. Note that there is no withholding tax obligation under Mexican domestic law for dividends paid.

Interest payments

WHT on interest should not exceed 10% if the beneficial owner is resident of a contracting state.

There are certain exceptions for loans with government entities, central bank, government financial entities or others agreed by the contracting states. The treaty broadly defines interest to include all items treated as interest in the source country.


Royalties are taxable at a maximum 10% WHT rate where the beneficial owner is a resident of a contracting state. Under the treaty, royalties include payments for the use of equipment as well as payments related to the transfer of rights or goods which are conditioned to the productivity, use or disposal of those rights or goods.

Capital gains

Capital gains obtained from the sale of shares or other comparable goods should be taxed at source when more than 50% of the value of the shares derives, directly or indirectly from immovable property located in the other contracting state.

Also, direct sales of shares are taxed when the seller (with its related parties) has had a capital participation of at least 25% at any moment in the 12 months before the disposal of those shares.

Other considerations

The treaty also includes limitation of benefits, non-discrimination and mutual agreement procedure, and exchange of information articles.

David Cuéllar ( & Rachel Costello (
Tel: +52 55 5263 5816
Fax: +52 55 5263 6010

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