The US-Mexico income tax treaty

By Brent Chudoba, editor Updated September 15, 2026

Under the US-Mexico income tax treaty, the most the paying country can withhold from an ordinary investor is 10% on dividends, 15% on interest and 10% on royalties. Some recipients and some kinds of payment get a different rate, and the table below lists each one. Without a treaty, US-source dividends and royalties paid to a nonresident are withheld at 30%, while the tax code already exempts most portfolio and bank-deposit interest whether or not a treaty applies.

The treaty has generally applied since 1994, and IRS lists its most recent protocol as taking effect in 2004. It also decides residency when both countries claim you, and assigns who taxes pensions and Social Security. It does not generally stop the US taxing its own citizens.

What are the US-Mexico treaty withholding rates?

US-Mexico treaty withholding rates and who qualifies
Income	Rate cap	Who gets this rate, and where the treaty says so
Dividends	10%	Anyone not in a category below, including an ordinary individual investor (Article 10(2)(b))
Dividends	5%	a company resident in the other country that directly owns at least 10% of the voting stock of the paying company (not available on dividends from a RIC or REIT) (Article 10(2)(a))
Dividends	0%	a company resident in the other country that has owned 80% or more of the voting stock of the paying company for the 12 months ending on the date the dividend is declared, and that also either owned 80% or more before 1 October 1998, is a listed company or a wholly owned subsidiary of a listed company of its own country under Article 17(1)(d)(i) or (ii), qualifies under the derivative benefits test of Article 17(1)(g), or has a competent authority determination under Article 17(2) (not available on dividends from a RIC or REIT) (Article 10(3)(a))
Dividends	0%	a tax-exempt pension or employee benefit trust, company or organization resident in the other country, as long as the dividends are not derived from it carrying on a business, directly or indirectly (Article 10(3)(b))
Interest	15%	Anyone not in a category below, including an ordinary individual investor (Article 11(2)(c))
Interest	4.9%	a bank (including an investment or savings bank) or insurance company owning interest on a loan granted by a bank or insurance company (per the 1992 Technical Explanation, the rate follows the owner, not the original lender) (Article 11(2)(a)(i))
Interest	4.9%	anyone resident in the other country, including an individual, owning interest on bonds or securities that are regularly and substantially traded on a recognized securities market (the exchanges listed in 1992 Protocol paragraph 15(b)) (Article 11(2)(a)(ii))
Interest	10%	an owner not covered by the 4.9% rate, on interest paid by a bank (including an investment or savings bank) (Article 11(2)(b)(i))
Interest	10%	the original seller of machinery and equipment, on interest the buyer pays on a sale on credit; if the seller transfers the debt, the new owner's own rate applies (1992 Protocol paragraph 10(b)) (Article 11(2)(b)(ii))
Interest	0%	either government, or a political subdivision or local authority, as owner of the interest (Article 11(4)(a))
Interest	0%	anyone resident in the other country, including an individual, on interest paid by either government or a political subdivision or local authority (Article 11(4)(b))
Interest	0%	a tax-exempt pension, retirement or employee benefit trust, company or organization resident in the other country (Article 11(4)(c))
Interest	0%	interest on a loan or credit of at least three years made, guaranteed or insured by Banco Nacional de Comercio Exterior or Nacional Financiera (US-source interest) or by the Export-Import Bank or the Overseas Private Investment Corporation (Mexico-source interest) (Article 11(4)(d) and 11(4)(e))
Royalties	10%	Everyone, including an ordinary individual investor (Article 12(2))

The cap applies to income paid from one country to a resident of the other, and each treaty conditions it on that resident being the real recipient rather than a conduit; the article cited beside each rate is the one that sets the condition. Which document sets each rate today: dividends, 2002 Second Additional Protocol, Article II(a), which replaced Article 10 in full. The 10% and 5% rates match the original 1992 text, which had a temporary 15% rate in place of 10% for the first five years (1992 Article 10(3)) and no 0% rate.; interest, 1992 Convention, Article 11; not amended by the 1994 or 2002 protocols. The five-year transitional rates in 11(3) (10% in place of 4.9%, and 15% in place of 10%) no longer apply.; royalties, 1992 Convention, Article 12; not amended by the 1994 or 2002 protocols..

What else changes the rate?

These are edge cases. If you hold ordinary shares, bonds or a copyright, skip to the next section.

Dividends: Dividends from a RIC get the 10% rate, or 0% for a qualifying pension fund (10(4)(b)). Dividends from a REIT get those rates only if the owner is an individual or pension fund holding not more than 10% of the REIT, or holds not more than 5% of any class of its stock and the dividend is on a publicly traded class, or holds not more than 10% of a REIT whose largest single real property interest is not more than 10% of its real property; otherwise the treaty sets no rate (10(4)(c)). Dividends attributable to a permanent establishment or fixed base in the paying country are taxed as business or independent-service income (10(5)). Symmetrical.

Interest: The 15% rate is the treaty's rate for all other cases, such as a private loan made by an individual. What an individual actually faces depends on the debt: 4.9% on traded bonds, 10% on interest paid by a bank, 0% on government bonds. The treaty rates do not apply to interest on back-to-back loans, which is taxed under the paying country's own law (11(2)), or to excess inclusions on a REMIC residual interest (1992 Protocol paragraph 10(a)). The rates are ceilings: the treaty never takes away a lower result under either country's own law (1(2)), and the 1992 Technical Explanation notes the US statutory exemption for portfolio interest. Interest attributable to a permanent establishment or fixed base in the paying country is taxed as business or independent-service income (11(6)). Symmetrical apart from the named export-credit institutions, which mirror each other.

Royalties: One rate for every kind of royalty. The definition includes payments for the use of industrial, commercial or scientific equipment and gains on selling a right or property that depend on its productivity, use or disposition (12(3)), so equipment rentals are royalties under this treaty. Royalties attributable to a permanent establishment or fixed base in the paying country are taxed as business or independent-service income (12(4)). Symmetrical.

Which country are you a resident of under the US-Mexico treaty?

If the US and Mexico both treat you as a resident under their own laws, Article 4(2) decides. It works through these tests in order, and stops at the first one that points to a single country:

Where you have a permanent home available to you
If you have a permanent home in both countries, where your personal and economic ties are closer (your centre of vital interests)
If that centre cannot be determined, or you have no permanent home in either country, where you have a habitual abode
If you have a habitual abode in both countries or in neither, the country you are a national of
In any other case, the two tax authorities settle it by mutual agreement

Using the tie-breaker to be treated as a resident of Mexico has US consequences: you file Form 1040-NR with Form 8833 attached, and a green card holder of 8 of the last 15 years who makes the claim is treated as having ended US residency. The details are on the hub page.

Before the treaty: does the US count you as a resident at all?

For someone who is not a US citizen or green card holder, US residency starts with the substantial presence test: at least 31 days in the US this year and 183 days over three years, counting every day this year, 1/3 of last year's days and 1/6 of the year before. If you pass it, the closer connection exception on Form 8840 can still keep you a nonresident without relying on the treaty, but only if you were in the US fewer than 183 days this year, kept a tax home in Mexico all year and closer ties there than to the US, and hold no green card and have taken no step toward one.

Both answers turn on an accurate day count, so run yours:

The calculator is made by Spyglass Beacon, a sister site. It runs entirely in your browser: the days you enter are not sent anywhere, by them or by us. For the closer connection exception there is a separate Form 8840 calculator.

Counting after the fact is the hard part, because the answer depends on days you have to remember months later. Spyglass Beacon is a paid app that keeps the running count for you and warns you before you cross a line. We link it because it is a sister site, not because we are paid for the click.

How does the US-Mexico treaty tax pensions and Social Security?

Pensions (Article 19(1)(a)). A pension for past employment (other than a government-service pension, which follows Article 20(2), or social security) is taxable only in the country where the owner lives, and annuities are treated the same way under 19(2). This rule is not an exception to the saving clause, so the United States still taxes its citizens living in Mexico on their pensions.

Social Security (Article 19(1)(b)). Social security benefits and other public pensions are taxable only by the country that pays them, when paid to a resident of the other country or to a US citizen. Because this is an exception to the saving clause, the United States may not tax Mexican social security even for a US citizen, and Mexico may not tax US Social Security paid to someone living in Mexico.

Does the treaty stop the US taxing its own citizens?

Generally no. The saving clause (Article 1(4)) keeps that right. Each country may tax its own residents (as decided under Article 4) and its own citizens as if the treaty did not exist, and a former citizen or long-term resident who gave up that status with tax avoidance as one of the principal purposes is treated as a citizen for 10 years on income from that country's sources (1(6)).

The exceptions: Under Article 1(5) as replaced by the 2002 protocol, everyone keeps Articles 9(2), 19(1)(b) (social security and public pensions), 19(3) (alimony and child support), 22, 24, 25 and 26; people who are neither citizens nor green card holders of the taxing country also keep Articles 20 (government service), 21 (students) and 28 (diplomats).

What does the treaty say about students?

Article 21. A student or business apprentice who is, or was just before the visit, a resident of the other country and is in the host country only for education or training is not taxed there on payments for maintenance, education or training that come from outside the host country. The article sets no time limit; pay for work and grants from inside the host country are not covered (1992 Technical Explanation), and the rule does not help a citizen or green card holder of the host country.

What do people most often get wrong about this treaty?

The dividend rate an individual faces is 10%, not the 15% common in other US treaties. Interest is not one rate: it runs 15%, 10%, 4.9% or 0% depending on the kind of debt and who owns it, and an individual gets 4.9% on regularly traded bonds and 0% on government bonds. Mexico treats a US citizen or green card holder as a US resident only if the person has a substantial presence in the United States, or has a permanent home, center of vital interests or habitual abode there rather than in a third country (1992 Protocol paragraph 2(a)). A US citizen living in Mexico is still taxed by the United States on a private pension because of the saving clause, but not on Mexican social security.

How do you claim the treaty rate?

Give the US payer Form W-8BEN naming Mexico as your country of residence, before the payment. Many countries ask a US resident for Form 6166, a US residency certificate requested on Form 8802, before they apply the lower rate on their side. Both, with the fees and who can get them, are covered on US tax treaties by country.

Sources

Every rate and article on this page was read in the treaty text and its protocols, then checked a second time by a separate review of the same documents, on September 15, 2026.