Paid Tax at source on dividends. How far can I back claim if at all?

Jeremy535897

The problem is that under the UK-Mexico double tax agreement, most Mexican company dividends received by a UK resident are exempt from tax in Mexico. Consequently the solution is to reclaim the 10% incorrectly withheld in Mexico.

As far as HMRC are concerned, if Mexico has no right to tax the dividends, why should they give credit for such tax?

meatandtwoveg

Jeremy535897 said:

The problem is that under the UK-Mexico double tax agreement, most Mexican company dividends received by a UK resident are exempt from tax in Mexico. Consequently the solution is to reclaim the 10% incorrectly withheld in Mexico.

As far as HMRC are concerned, if Mexico has no right to tax the dividends, why should they give credit for such tax?

It warned that dividend payments relating to 2021 and future years will attract a 10% withholding tax obligation, following a corporate income tax reform introduced in Mexico in 2014, although foreign shareholders may be able to recover such tax.

May, but it will be a ball ache at best. I'm going to just offset it in my tax return. If HMRC ask any questions, i'll explain the scenario.

Jeremy535897

The better course of action, if you are unable to recover the tax in Mexico, may be to treat it as an expense against the gross dividend, so declaring only the 90% you receive. The problem is that the UK rules assume you will have no difficulty in recovering the overseas tax you are entitled to recover. See:

https://www.gov.uk/government/publications/calculating-foreign-tax-credit-relief-on-income-hs263-self-assessment-helpsheet/hs263-relief-for-foreign-tax-paid-2019

meatandtwoveg

Jeremy535897 said:

The better course of action, if you are unable to recover the tax in Mexico, may be to treat it as an expense against the gross dividend, so declaring only the 90% you receive. The problem is that the UK rules assume you will have no difficulty in recovering the overseas tax you are entitled to recover. See:

https://www.gov.uk/government/publications/calculating-foreign-tax-credit-relief-on-income-hs263-self-assessment-helpsheet/hs263-relief-for-foreign-tax-paid-2019

Cheers buddy.

Found this interesting.


https://www.whitefieldtax.co.uk/trading-overseas-and-withholding-tax/#:~:text=If a taxpayer is resident,between 10% and 25%.

Jeremy535897

The amount of withholding tax depends on the wording in the double tax agreement. Many agreements do provide for a 10% rate. The UK-Mexico agreement does not. The protocol says:

“(1) Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
(2) However:
 (a) except as provided in sub-paragraph (b), such dividends shall be exempt from tax in the Contracting State of which the company paying the dividends is a resident, if the beneficial owner of the dividends is a resident of the other Contracting State;
 (b) other than where the beneficial owner of the dividends or distributions is a pension scheme, dividends or distributions paid out of income derived from immovable property within the meaning of Article 6 by an investment vehicle:
  (i) which distributes most of this income annually; and
  (ii) whose income from such immovable property is exempted from tax; may be taxed in the Contracting State where the investment vehicle is resident but if the beneficial owner of the dividends or distributions is a resident of the other Contracting State the tax so charged shall not exceed 15 per cent of the gross amount of the dividends or distributions.
This paragraph shall not affect the taxation of the company or trust in respect of the profits out of which the dividends or distributions are paid.
In the case of Mexico distributions referred to in sub-paragraph (b) above mean ‘the distributed taxable result’ of real estate trusts referred to in articles 223 and 224 of the Income Tax Law or the distributions made by any other immovable property investment vehicle which may be incorporated in the Mexican legislation, where the conditions of such sub-paragraph are met.”

Basically there is no withholding tax unless the value of the company's value is in real estate