Mexico-US treaty: status and key articles
The Mexico-US tax convention has been in force since 1994 with subsequent protocols. Coverage includes income tax, dividends, royalties, interest, capital gains, and residency tie-breakers. Given the cross-border economic relationship, this is one of the most-used US bilateral treaties.
- Article 7 (Business Profits): Mexican-resident operating profits are taxable only in Mexico without US PE.
- Article 10 (Dividends): 5% for 10%+ ownership. 10% standard.
- Article 11 (Interest): 10-15% on portfolio interest.
- Article 12 (Royalties): 10% under the treaty.
- Article 24 (Relief from Double Taxation): Mexican FTC mechanism.
Withholding rates by income type for Mexican residents
| Income type | Default US rate | Mexico treaty rate |
|---|---|---|
| US-source dividends (10%+ ownership) | 30% | 5% |
| US-source dividends (standard) | 30% | 10% |
| US-source portfolio interest | 30% | 10-15% |
| US-source royalties | 30% | 10% |
| Business profits without US PE | Generally not taxed | Generally not taxed |
How SAT treats US LLCs
Mexico's Tax Administration Service (SAT) generally treats US single-member LLCs as transparent for Mexican tax purposes. LLC operating income flows through to your annual Mexican income tax return (Declaración Anual) and is taxed at progressive Mexican ISR rates.
Cross-border consulting is the most common Mexican LLC pattern. Mexican consultants serving US clients use the Wyoming LLC for USD invoicing and SAT-recognized pass-through to their Mexican return.
How to file W-8BEN-E from Mexico
- Line 1: LLC legal name
- Line 4: Chapter 3 status: Disregarded Entity
- Line 5: Country of residence: Mexico
- Line 6: Permanent residence address in Mexico
- Line 8: US TIN (EIN)
- Line 9: Foreign TIN (your Mexican RFC)
- Part III: claim treaty benefits citing the applicable article
Common mistakes by Mexican founders
- Not filing W-8BEN-E with US payers (30% default applies)
- Missing Form 5472 + 1120 ($25K penalty)
- Not declaring LLC income on Mexican Declaración Anual
- Triggering Mexican CFC rules (REFIPRES) on low-tax-jurisdiction holdings
- Missing CFDI/IVA implications on Mexican client billing through US LLC