Renting out a home held in a Mexican fideicomiso

What the trust law says about use

Article 11 of the Foreign Investment Law (Ley de Inversión Extranjera, LIE) allows the bank to acquire rights in the restricted zone when the trust’s purpose is to permit “la utilización y el aprovechamiento” of the property without creating real rights over it. Article 12 defines the expression: the rights to use or enjoy the property “incluyendo en su caso, la obtención de frutos, productos y, en general, cualquier rendimiento que resulte de la operación y explotación lucrativa, a través de terceros o de la institución fiduciaria”. The text names operation “through third parties” or through the bank, so a lease to a tenant is within its words.

The residential line

The same Regulation that supports renting contains a limit. Article 5 defines a residential property as one “destinado exclusivamente a vivienda para uso del propietario o de terceros” (used exclusively as housing by the owner or by others). Letting the home to a tenant who lives there fits the words “o de terceros”.

The Regulation then lists, as examples of non-residential property, those used for an industrial, commercial or tourist activity and, at the same time, for residential purposes. A home rented to short-stay guests as a business may fall into that wording. The Regulation also says that for any doubt about whether a property is residential, the SRE answers a consultation within ten business days; if that period ends without a ruling, the property is deemed to be used for non-residential activities. The texts read do not say how the SRE classifies short-term rental of a home inside the zone, so that question has to go to the SRE before relying on it.

Two further rules from the Regulation (art. 11) matter for any change of plan:

• a prior permit from the SRE is needed to enlarge or change the purposes of the trust;
• the bank must report to the SRE on request when there are reasons to think the permit conditions are not being met, and has sixty business days to cure a breach after notification.

Read the purpose clause of your trust deed, which is the first place to see what use the permit covers.

Who files the tax

The Income Tax Law (Ley del Impuesto sobre la Renta, LISR) addresses trusts that grant the use or enjoyment of real estate in two articles, one for each tax status of the beneficiary.

Beneficiary who is a Mexican tax resident (art. 117). The income is attributed to the settlor (fideicomitente) even if the beneficiary is someone else, except in irrevocable trusts in which the settlor has no right to reacquire the property; there the income belongs to the beneficiary from the moment the settlor loses that right. The bank makes provisional payments on behalf of whoever is entitled to the income: in May, September and January, at 10 % of the income of the previous four-month period, without deductions. By 31 January the bank gives the person entitled the tax receipt for the income, the provisional payments and the deductions for the previous calendar year.

Beneficiary who is a non-resident (art. 158). Income from granting use or enjoyment of real estate in Mexico has a Mexican source. The tax is 25 % of the income obtained, without any deduction, withheld by the payer. When the income passes through a trust, “será la institución fiduciaria quien expida el comprobante fiscal y efectúe la retención” (the bank issues the tax receipt and withholds). The second paragraph of article 158 also treats as covered the consideration a non-resident gets for granting use and enjoyment rights over real estate in Mexico, even when it comes from selling or assigning those rights.

The only departure from the 25 % gross rule found in the sources read is in the United States treaty; see the Mexico-US treaty guide. The full rules are in rental income tax for non-residents and rental income tax for residents.

Value added tax and platforms

The VAT law (art. 20, section II) exempts the letting of property used exclusively as a dwelling, but the exemption does not apply to property or parts of property supplied furnished, or used as hotels or guest houses. A furnished rental is therefore subject to VAT; see VAT on furnished rentals. For stays booked through an online platform, see short-term rental platform taxes.

Other conditions

• Registration. The trust is entered in the National Registry of Foreign Investment by the bank: the RNIE explained.
• Local rules. The state’s civil code governs the lease contract, and the municipality or the condominium’s rules may restrict or regulate short stays. Those rules are local and are not covered here.
• Invoices. The LISR (art. 118) requires those who earn rental income as residents to issue tax invoices and keep accounts; the bank does the invoicing for trust income.

Which professional to consult

A tax accountant (contador público) can compute the filings for your status. The bank’s trust department handles withholding and the tax receipt. A real estate lawyer (real estate lawyer) can read the purpose clause of the trust and the lease. Check each professional’s registration yourself.