Rental income tax for non-residents of Mexico

The rule in article 158

Article 158 says the source of rental income is in Mexico when the property is in Mexico, and treats as the same kind of income the amounts a foreign resident gets for granting rights of use or enjoyment of a Mexican property, even if they arise from selling or assigning those rights.

The tax is “determined by applying the 25% rate on the income obtained, without any deduction, the persons who make the payments having to withhold”. Written as a formula: tax = 25% x gross rent. Mortgage interest, property tax, repairs and agent fees do not reduce it.

If the person making the payments is also a non-resident, the landlord pays the tax by return to the tax authorities within fifteen days after receiving the income.

The landlord must issue a tax invoice (comprobante fiscal) for the rent. Where the income comes through a fideicomiso, the trustee issues the invoice and makes the withholding.

Who is a non-resident

Article 9 of the Federal Tax Code treats an individual as a Mexican resident if they have set up their home in Mexico, and, if they also have a home elsewhere, if their centre of vital interests is in Mexico (for example, more than 50% of their annual income has a Mexican source, or their main professional activities are there). A person who lives abroad and owns a vacation home in Mexico that they do not live in is generally on the non-resident side, but the tax test, not the immigration status, decides. Anyone unsure should ask the tax authority (SAT) or a tax adviser.

Comparison with a resident

A resident landlord is taxed on net rent with deductions or a 35% flat option (resident rental tax). The non-resident cannot use those deductions under art. 158. If the net-basis route in the treaty is open to the person, that is the only text read that changes the base.

The United States treaty option

Article 6 of the 1992 convention between the United States and Mexico says income from immovable property “may be taxed in” the state where the property is situated, including income from its “direct use, letting, or use in any other form”. Paragraph 5 adds:

“A resident of a Contracting State who is liable to tax in the other Contracting State on income from real property situated in the other Contracting State may elect for any taxable year to compute the tax on such income on a net basis as if such income were attributable to a permanent establishment in such other State. Any such election shall be binding for the taxable year of the election and all subsequent taxable years unless the competent authority of the Contracting State in which the immovable property is situated agrees to terminate the election.”

In plain terms: a US resident can elect, for a tax year, to be taxed on rent net of expenses, as if the property were a business establishment. The election binds the year and all later years unless Mexico’s competent authority agrees to end it. This guide does not describe the procedure or paperwork, which the texts read do not set out, and it does not cover US tax. Protocols to the 1992 convention were not read.

Canada and the United Kingdom also have treaties with Mexico; see the Mexico-Canada treaty guide and the Mexico-UK treaty guide. This guide does not say whether they contain a net-basis election like the US one; read those guides and ask a tax adviser.

VAT

Mexican VAT is separate from income tax. Renting a dwelling is exempt from VAT, except when the property is furnished or used as a hotel or guest house (LIVA art. 20-II). The rate is 16% (art. 1). See VAT on furnished rentals.

Platforms

For rentals booked through an online platform, special withholding rules exist. See short-term rental platform taxes. The texts read do not say how a non-resident owner’s platform income is taxed under art. 158, so ask the SAT.

Practical points

• Art. 158 puts the withholding on “the persons who make the payments” and, if the payer is a non-resident, requires the landlord to file within fifteen days.
• Keep the lease and invoices: the law requires an invoice.
• A trust bank will tell the owner how it handles the withholding for its trusts.

Which professional to consult

• A tax accountant familiar with non-resident filings in Mexico and in your home country.
• A real estate lawyer, for the lease and the trust: real estate lawyer page.
• The trust bank’s fiduciary officer for invoices and withholding.