Canada And Mexico Sign New Tax Agreement

by Mike Godfrey, Tax-News.com, Washington

25 September 2006

A new agreement between Canada and Mexico for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income has been signed and now awaits ratification by both governments.

The agreement limits the rate of withholding tax to 5% for dividends between affiliated companies, to 15% for dividends in all other cases, to 10% for interest, and to 10% for royalties. It also provides an exemption in respect of certain copyright royalties.

The agreement will enter into force on the date on which Canada and Mexico exchange notes through diplomatic channels notifying each other that all the necessary measures to give the Convention the force of law in their respective countries have been completed.

The agreement will have effect, in respect of tax withheld at source on amounts paid or credited to non-residents, as of the beginning of the first calendar year following that in which the Convention enters into force; and, in respect of other taxes, for taxation years beginning after the calendar year in which the Convention enters into force.

The existing Convention between Canada and Mexico, signed at Ottawa on April 8, 1991, shall cease to have effect from the dates on which the new Convention becomes effective.

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