Dividend Tax Rate Between India and Mexico Under DTAA

Quick answer: Under Article 10(2) of the India-Mexico DTAA, dividends paid between the two countries are capped at a flat 10% withholding tax, well below India's domestic rate of 20% under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). The rate applies uniformly regardless of shareholding percentage — there is no tiered structure of the kind found in the India-USA or India-Brazil treaties. The treaty was signed 10 September 2007 and entered into force 1 February 2010, with withholding-tax provisions taking effect in India from 1 April 2011 (CBDT Notification No. 86/2010). Since India abolished the Dividend Distribution Tax from 1 April 2020, dividends are taxed directly in the shareholder's hands, so the 10% treaty cap applies straightforwardly at source. Claiming it requires a Tax Residency Certificate from Mexico's Servicio de Administración Tributaria (SAT) and Form 41 (formerly Form 10F).

Key takeaways:

• Flat 10% DTAA dividend rate versus 20% domestic rate — a 50% reduction, with no shareholding-based tiers.
• Applies identically whether the Mexican shareholder holds a small stake or full control of the Indian company.
• Treaty signed 10 September 2007; in force from 1 February 2010; withholding tax effective in India from 1 April 2011.
• Requires a Tax Residency Certificate from SAT plus electronically filed Form 41.
• Anti-abuse is dual: the treaty's original Article 28 Limitation of Benefits clause, now supplemented by the MLI's Principal Purpose Test from 1 January 2024.

Dividend Tax Rate Between India and Mexico

The Double Taxation Avoidance Agreement (DTAA) between India and Mexico, signed on 10 September 2007 in New Delhi and in force since 1 February 2010, is built on the UN Model Tax Convention — a framework that generally preserves broader source-country taxing rights than the OECD Model. Under Article 10, the maximum withholding tax on dividends paid between the two countries is capped at 10% of the gross amount, compared to India's domestic rate of 20% for non-resident shareholders.

India-Mexico bilateral trade and investment has grown steadily, with Mexico ranking among India's largest trading partners in Latin America. The flat 10% dividend rate — identical across every shareholding tier — makes the India-Mexico treaty one of the more straightforward dividend regimes in India's DTAA network, and it applies equally to Mexican investors in Indian companies and Indian investors holding shares of Mexican companies listed on the Bolsa Mexicana de Valores (BMV). Beacon Filing's tax advisory services can help structure cross-border shareholdings to make full use of this treaty rate. See also our India-Mexico DTAA complete guide and withholding tax rates page for the treaty's full rate card.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Under Indian domestic law, dividends paid by an Indian company to a non-resident shareholder are withheld at 20% (plus applicable surcharge and health & education cess) under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). This rate applies to all foreign shareholders unless a more favourable treaty rate is available. Since the Dividend Distribution Tax under the erstwhile section 115-O was abolished with effect from 1 April 2020, dividends are no longer taxed at the distributing company's level — they are taxed in the hands of the recipient, which is precisely the layer at which the treaty rate operates.

DTAA Rate (With Treaty)

Article 10(1) of the treaty gives the residence state the primary right to tax dividends paid to its resident. Article 10(2) then preserves a limited source-state right: "such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends." Article 10(3) defines "dividends" broadly as "income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident." Unlike the India-USA treaty (15% for substantial corporate holdings, 25% otherwise) or the India-Brazil treaty (10–15% tiered by shareholding), the India-Mexico rate is a single flat 10% regardless of ownership percentage.

Effective Tax Savings

For an Indian subsidiary declaring INR 4 crore in dividends to its Mexican parent: without the DTAA, withholding at 20% is INR 80 lakh, leaving the Mexican parent INR 3.2 crore. With the DTAA, withholding at 10% is INR 40 lakh, leaving INR 3.6 crore — a saving of INR 40 lakh on this single distribution. The Mexican parent then claims a credit in Mexico for the Indian tax paid, under Article 23 of the treaty, eliminating double taxation on the same income.

Who Qualifies for the Reduced Rate

Beneficial Ownership Requirement

The reduced rate under Article 10(2) applies only where the recipient is the beneficial owner of the dividend — someone with the unrestricted right to use and enjoy the income, not a nominee, agent, or conduit obligated to pass it on. A holding company interposed between India and Mexico purely to access the 10% rate, with no independent economic function, risks failing this test and losing the treaty benefit.

Tax Residency

The recipient must be a tax resident of Mexico under Article 4 of the treaty, which defines residence by reference to domicile, residence, place of management, "or any other criterion of a similar nature," and separately clarifies that the term "also includes that State and any political sub-division or local authority thereof." Where an individual is resident in both states under domestic law, Article 4(2) applies a sequential tie-breaker: permanent home, then centre of vital interests, then habitual abode, then nationality, with unresolved cases referred to the competent authorities by mutual agreement.

Anti-Abuse Rules: Article 28 Limitation of Benefits Plus the MLI's Principal Purpose Test

The India-Mexico DTAA carries a Limitation of Benefits (LoB) article — Article 28 — that predates the OECD's BEPS project, unusual for a treaty signed in 2007. Article 28(2) restricts treaty benefits to "qualified persons": government entities; companies whose principal class of shares is listed and regularly traded on a "recognized stock exchange" (for India, any exchange recognised by the Central Government under the Securities Contracts (Regulation) Act, 1956; for Mexico, the Bolsa Mexicana de Valores) or at least 50% owned, directly or indirectly, by residents of either state; qualifying partnerships on the same 50%-ownership test; and charitable or tax-exempt institutions whose main activities are carried on in either state. A base-erosion proviso then withdraws benefits from an otherwise-qualified person if "more than 50 per cent of the person's gross income for the taxable year is paid or payable directly or indirectly to persons who are not residents of either of the Contracting States" as deductible payments. Article 28(3) then supplies an escape route, but not a self-executing one: a resident "shall nevertheless be granted the benefits of the Agreement if the Competent Authority of the other Contracting State determines that the said resident actively carries out business in the other State and that the establishment or acquisition or maintenance of such person and the conduct of its operations did not have as one of its principal purposes the obtaining of benefits under the Agreement." Article 28(6) closes the article with a standalone denial rule: "Notwithstanding anything contained in paragraphs 2 to 5 above, any person shall not be entitled to the benefits of this Agreement, if its affairs were arranged in such a manner as if it was the main purpose or one of the main purposes to avoid taxes to which this Agreement applies."

Both India and Mexico have since ratified the OECD Multilateral Instrument (MLI) and listed each other as Covered Tax Agreements — India's MLI entered into force 1 October 2019, Mexico's on 1 July 2023. The MLI's Principal Purpose Test (PPT) now sits alongside the original LoB article rather than replacing it, giving the India-Mexico DTAA a dual anti-abuse framework from 1 January 2024. Note also that this treaty carries no Most Favoured Nation clause anywhere in the Agreement or Protocol — unlike some of India's other Latin American and European treaties, a more favourable rate negotiated later with a third country does not automatically flow through to Mexico.

No Permanent Establishment Connection

Article 10(4) withdraws the 10% cap where the Mexican beneficial owner carries on business in India through a permanent establishment (or performs independent personal services from a fixed base) and the shareholding is effectively connected with it: "In such case the provisions of Article 7 or Article 14, as the case may be, shall apply." The dividend is then taxed as business profits rather than at the capped withholding rate.

Documentation Required to Claim the Reduced Rate

Tax Residency Certificate (TRC) from SAT

The Mexican shareholder must obtain a Tax Residency Certificate from Mexico's Servicio de Administración Tributaria (SAT) confirming Mexican tax residency for the relevant fiscal year. This is the foundational document required under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961) — without it, the Indian payer must withhold at the domestic 20% rate.

Form 41 (formerly Form 10F)

If the TRC does not carry all prescribed particulars — name, status, nationality, Registro Federal de Contribuyentes (RFC) tax identification number, and period of residential status — the Mexican shareholder must also furnish Form 41, filed electronically on the Indian income tax e-filing portal even where the non-resident holds no Indian PAN.

Self-Declaration and No-PE Certificate

A written self-declaration confirming beneficial ownership of the dividend and the absence of an Indian permanent establishment to which the shareholding is attributable completes the documentation the Indian payer should hold on file before applying the reduced rate.

Withholding Procedure for Indian Payers

Section 393(2): TDS Obligation

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), the Indian company must deduct tax at source on dividends paid to the Mexican shareholder at the time of payment or credit, whichever is earlier — 10% if the TRC, Form 41 and self-declaration are on file, or 20% under domestic law if they are not.

Forms 145 and 146 (formerly Forms 15CA and 15CB)

Before remitting the dividend, the Indian company must file Form 145 electronically. For remittances exceeding INR 5 lakh in a financial year, a Chartered Accountant must additionally certify Form 146, confirming the applicable treaty article, rate, and that TDS has been correctly deducted. Failing to file these forms before remittance can attract a flat penalty of INR 1 lakh under section 462 of the Income-tax Act, 2025 (section 271-I of the Income-tax Act, 1961).

Lower Withholding Certificate (Section 395(1))

If the Mexican shareholder's actual Indian tax liability on the dividend is expected to be lower than the amount that would otherwise be deducted, it can apply to the Assessing Officer for a certificate authorising lower or nil withholding under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961). This application is made by the payee, not the Indian payer — the payer's own route, where only part of a remittance is chargeable to tax, is an application under section 395(2) of the Income-tax Act, 2025 (section 195(2) of the Income-tax Act, 1961).

Common Disputes and Practical Considerations

Surcharge and Cess Over the Treaty Rate

Multiple ITAT rulings across India's treaty network have held that a DTAA rate is the maximum total Indian tax chargeable, inclusive of surcharge and health & education cess. The Indian tax administration does not always follow this position uniformly, making it a recurring point of dispute when the 10% cap is applied to dividends under Article 10(2).

Beneficial Ownership and Conduit Scrutiny

Indian tax authorities scrutinise multi-layered holding structures where a Mexican entity receives dividends but the ultimate economic owner sits in a third jurisdiction with no treaty, or a less favourable one, with India. Genuine economic substance in Mexico — offices, employees, decision-making — is the practical safeguard against such challenges, on top of the qualified-person test under Article 28.

Applying the More Beneficial Rate

Under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961), a taxpayer may apply whichever of the treaty rate or the domestic rate is more beneficial. For dividends between India and Mexico, the treaty's 10% is consistently lower than the domestic 20%, so the treaty rate should be applied wherever the supporting documentation is available.

Practical Examples and Calculations

Example 1: Mexican Parent Receiving Dividends from an Indian Subsidiary

Grupo Industrial de México, S.A., holds 100% of an Indian manufacturing subsidiary. The subsidiary declares a dividend of INR 6 crore. Without the DTAA, TDS at 20% is INR 1.2 crore, leaving INR 4.8 crore. With the DTAA, TDS at 10% is INR 60 lakh, leaving INR 5.4 crore — a saving of INR 60 lakh, which the parent then offsets in Mexico with a foreign tax credit for the Indian tax actually paid, under Article 23(2) of the treaty.

Example 2: Indian Resident Holding Mexican Shares

An Indian resident individual holds shares of a company listed on the Bolsa Mexicana de Valores and receives a dividend. Article 10 applies symmetrically — Mexico's withholding on the dividend paid to the Indian beneficial owner is likewise capped at 10% under Article 10(2). The Indian resident includes the full dividend in Indian taxable income at the applicable slab rate and claims a credit under section 159 of the Income-tax Act, 2025 (section 90 of the Income-tax Act, 1961) for the Mexican tax withheld, avoiding double taxation on the same income.

Frequently Asked Questions

What is the dividend tax rate under the India-Mexico DTAA?

Article 10(2) of the India-Mexico DTAA caps withholding tax on dividends at 10% of the gross amount, provided the recipient is the beneficial owner. This compares to India's domestic rate of 20% under section 207(1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961).

Does the 10% rate depend on how much of the company the Mexican shareholder owns?

No. Unlike the India-USA or India-Brazil treaties, the India-Mexico DTAA applies a single flat 10% rate to all dividends, regardless of the beneficial owner's shareholding percentage in the paying company.

What documentation does a Mexican shareholder need to claim the reduced rate?

A Tax Residency Certificate from Mexico's Servicio de Administración Tributaria (SAT), Form 41 (formerly Form 10F) filed electronically if the TRC lacks prescribed details, and a self-declaration of beneficial ownership and non-PE status. The Indian payer must also file Form 145, and Form 146 for remittances exceeding INR 5 lakh.

Does the MLI affect dividend taxation under this treaty?

Yes, but only by adding a further layer. Both India and Mexico have ratified the MLI and listed each other as Covered Tax Agreements, so the Principal Purpose Test now supplements — rather than replaces — the treaty's original Article 28 Limitation of Benefits clause, effective for withholding tax from 1 January 2024.

What happens if the Mexican shareholder has a permanent establishment in India?

Under Article 10(4), if the shareholding generating the dividend is effectively connected with a permanent establishment the Mexican shareholder has in India, the 10% cap does not apply. The dividend is instead taxed as business profits under Article 7.

Is there a Most Favoured Nation clause that could lower the rate further?

No. The India-Mexico Agreement and its Protocol contain no Most Favoured Nation clause. A more favourable dividend rate India later grants to a third country under a different treaty does not automatically extend to Mexico.