A Mexican group looking at Europe usually arrives with a specific commercial reason rather than a tax one: a distributor that wants a European counterparty, an acquisition target, a manufacturing partner, or customers who will not contract with a purely Mexican entity. The structuring question follows the commercial one, and it is the same question every serious entrant faces: where to place the European base so that it serves the business rather than complicating it.
Why the Netherlands rather than Spain
The instinct of many Mexican groups is to enter Europe through Spain, on grounds of language and familiarity, and for a business whose activity is genuinely Spanish that can be right. But for a group whose activity is European rather than Spanish, entering through a single national market ties the group to that market’s rules for holding, financing and eventual expansion elsewhere in Europe. A Dutch holding above the operating companies, wherever in Europe they sit, keeps the ownership and financing layer in a jurisdiction built for exactly that role, with the treaty network and the participation exemption we describe in our note on the participation exemption. Spain remains available as an operating location beneath the Dutch layer, which is often the best of both.
What the Dutch layer does is narrow. Under article 13 of the Dutch corporate income tax act, the results of a shareholding of at least five per cent of the paid up nominal capital stay outside taxable profit, so dividends and disposal gains from the operating companies are not taxed again at the holding, and the Dutch tax authority sets out when it is withdrawn.
The preferential regime test that decides the case
The controlled foreign entity chapter of the Mexican income tax law taxes a resident on income subject to a preferential tax regime obtained through a foreign entity, in proportion to its participation, distributed or not. Income is subject to such a regime when it is untaxed abroad, or taxed at less than 75 per cent of the tax that would be caused and paid in Mexico, measured on each entity’s whole result for the calendar year.
The chapter reaches only entities the taxpayer effectively controls: more than half the votes, the share value or the rights on a liquidation, financial consolidation, or the power to settle the entity’s decisions unilaterally. Rights held by related parties and connected individuals are counted together, and control is presumed unless the taxpayer proves otherwise.
Income obtained through an entity carrying on business activities falls outside the chapter unless the entity’s passive income, which includes interest, dividends, royalties, share gains and rent, exceeds 20 per cent of the total, and that exception falls away where more than half its income has a Mexican source or has been deducted in Mexico. Comparing statutory rates against the 30 per cent Mexican rate is unavailable where the foreign entity is subject to several statutory rates at home, and the Dutch table sets two rates, nineteen and twenty five point eight per cent. The chapter took this shape in the decree of 9 December 2019, tightened in November 2021.
The Mexico-Netherlands treaty and getting cash home
The treaty between Mexico and the Netherlands is the mechanism that makes repatriation efficient, reducing withholding on dividends and interest flowing between the two, provided the recipient is the beneficial owner and the structure has a genuine purpose. This is not automatic, and the principal purpose test set out in our note on treaty access and beneficial ownership applies with full force. A structure assembled purely to capture the treaty rate, with no substance behind it, is exactly what that test is designed to defeat.
The rates sit in the convention promulgated in December 1994. Dividends are capped at 5 per cent where the beneficial owner is a company holding directly or indirectly at least 10 per cent of the payer’s capital, and at 15 per cent otherwise, against a Dutch dividend tax of 15 per cent. But the protocol consolidated with the convention displaces that 5 per cent: while Dutch law does not subject a Dutch company to corporate income tax on dividends from a Mexican company, dividends in that first category are taxable only where the recipient is resident, so nothing is withheld at source, and the participation exemption in article 13 keeps that condition met. Our note on withholding tax in the Netherlands has the domestic side.
The treaty rate is available to a group that has a real reason to be in the Netherlands. It is not available to a mailbox, and the difference is now tested rather than assumed.
The protocol promulgated in December 2009 cut interest to 5 per cent on bank and quoted debt, 10 per cent elsewhere, and royalties and share gains to 10 per cent. It also denies the convention to companies exempt under a special regime, once the competent authorities agree that a regime is one. Mexico later listed it among the treaties covered by the multilateral instrument promulgated in June 2023. There is no most favoured nation clause on those rates; the only automatic extension concerns arbitration.
Tax paid abroad is creditable, conditionally. The credit for underlying corporate tax on a dividend needs 10 per cent of the payer’s capital held for the six months before payment, and a second tier needs a chain of ten, ten and five per cent with exchange of information below. It is capped at the Mexican tax on the foreign source profit, country by country, and the excess is not deductible. Tax withheld above the treaty rate is creditable only once the treaty’s dispute procedure has been exhausted.
Currency and the timing of flows
A group whose functional currency is the peso and whose European operations run in euro carries a currency exposure that the structure should manage rather than ignore. Where and when profits are converted, whether financing is denominated in peso or euro, and how dividends are timed all affect the real return, and these are decisions to make in the design rather than to discover in the accounts. A Dutch holding provides a natural place to hold euro-denominated results and to decide the timing of repatriation deliberately.
The annual inflation adjustment and the exchange gains and losses against the peso are left out of the comparison that decides whether income is subject to a preferential regime, and where the chapter applies the result is computed in the entity’s book currency and converted at the last business day rate.
Substance that a Mexican group can genuinely provide
The substance requirement, set out in our note on Dutch substance requirements, is sometimes read by entrants as a demand to relocate people they do not have. It is not. It is a requirement that the decisions the holding makes are genuinely made in the Netherlands, by people with the authority to make them, with the records to show it. For a Mexican group this usually means resident directors and a real, if modest, presence, scaled to what the holding actually does. The mistake is to provide nothing and hope; the requirement is real and it is checked.
The statute is specific where the holding lends. Article 8c disregards intra-group interest and royalties where the company runs no real risk on the connected loans, and treats the risk as real only where the equity covering it is at least the lower of 1 per cent of those loans or two million euro. Capital is the first thing to fix when Mexican groups finance European acquisitions.
The treaty also tests where decisions are made rather than minuted: a board that formally decides in one state while the decisions are really taken in the other has effective management in the other. From the Mexican side, dealings with entities subject to a preferential regime are presumed not to be at arm’s length unless the contrary is proved, so pricing the functions the holding does perform is not optional.
What has to be filed, and by whom
Taxpayers within the controlled foreign entity chapter file an informative return each February on the preceding year’s income subject to a preferential regime. Income from one of the territories listed in the transitional provisions of the decree that enacted the law in December 2013 triggers the same return, and the law says expressly that this alone does not make the income subject to a preferential regime, while failing to file does. The Netherlands is not on that list.
The related party return is due by 15 May of the following year, and taxpayers above the thresholds in the fiscal code also file the master, local and country by country reports, which sets out revenue, profit, tax and headcount by jurisdiction.
Manufacturing groups carry one more return. A company relying on the maquila safe harbour files the return of its maquila operations by June, showing that the year’s taxable profit reached at least the greater of the two statutory amounts, and the miscellaneous tax resolution for 2026 sets out how it is sent. Without it the safe harbour falls away, and with it the protection against the foreign principal having a Mexican permanent establishment.
The disclosure regime reaches the adviser as well as the client, and disclosure is expressly not a breach of professional secrecy. Two listed characteristics land on structures of this kind: a scheme that avoids the controlled foreign entity chapter, and one involving a resident abroad who applies a Mexican treaty to income that is untaxed, or taxed at a reduced rate against the corporate rate, in the taxpayer’s jurisdiction of residence. Where the adviser is a foreign resident without a Mexican establishment the taxpayer discloses instead, and personalised schemes, apart from those that block exchange of information, sit outside the regime only below the hundred million peso threshold set in February 2021.
The wider Latin American pattern
Mexico is one case of a pattern that recurs across the region, and the reasons a Mexican group chooses a Dutch holding are largely the reasons a Colombian, Chilean or Peruvian group does. We set out the general case in our note on why Latin American companies enter Europe through Dutch holding structures. What is specific to Mexico is the treaty, the USMCA context that makes some Mexican groups a bridge between North American and European supply chains, and the depth of the existing commercial relationship, all of which make the Dutch route a natural fit rather than an exotic one.
A group that leaves the country altogether meets different rules again, as our note on leaving Mexico sets out.
Montclare runs a dedicated Latin American desk, structuring the corporate, tax and holding architecture for groups and families entering Europe through the Netherlands. Our services are set out on our services page.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.