Hong Kong and Mexico sign agreement vs. double taxation

The new comprehensive double taxation agreement gives Hong Kong a number of key advantages.

Hong Kong’s Financial Secretary, John Tsang and the Mexico’s Secretary of Finance and Public Credit, José Antonio Meade Kuribreña, recently signed the CDTA that will provide legal certainty regarding the tax system applicable to investments in Hong Kong and Mexico.

Under the agreement, tax paid in Hong Kong will be allowed as a credit against tax payable in Mexico. Without the CDTA, the income earned by Mexican residents in Hong Kong is subject to both Hong Kong and Mexican income tax.

The CDTA caps at 10% the withholding tax rate Hong Kong residents receiving interest from Mexico are subject to from the current 30%. The withholding tax on interest will be further reduced to 4.9% if the beneficial owner is a bank.

Also, the Mexican withholding tax on royalties will be limited to 10% from the current 25% or 30% tax rate but depending on the nature of the royalties.

Under the CDTA, Hong Kong airlines operating flights to Mexico will be taxed at Hong Kong's corporation tax rate (which is lower than that of Mexico), and will not be taxed in Mexico.

Profits from international shipping transport earned by Hong Kong residents that arise in Mexico (currently subject to tax there) will not be taxed in Mexico under the agreement.

Currently, profits of Hong Kong companies doing business through a permanent establishment in Mexico may be taxed in both places if the income is Hong Kong-sourced. This double taxation will be avoided under the CDTA since any Mexican tax paid by the companies will be allowed as a credit against the tax payable in Hong Kong in respect of the income, subject to the provisions of the tax laws of Hong Kong.

The Hong Kong/Mexico CDTA has also incorporated the latest Organization for Economic Co-operation and Development standard on the exchange of tax information.

The CDTA will come into force after the completion of ratification procedures on both sides.