MEXICO Law and Practice Contributed by: Javier Díaz de León, Monica Ramos and Martín Cortina, Díaz de León Abogados
subsidiary or a foreign entity. The income arising from Mexican real estate is typically categorised either as lease income or capital gains as follows. Capital Gains For capital gains derived from the transfer of real estate, a withholding tax rate of 25% is generally imposed on the gross transfer price. However, if the foreign resident appoints a Mexican legal representa - tive and the title is passed by notary public, the with - holding tax is computed at a rate of 35% based on the net capital gain determined by reducing the trans - fer price by the applicable cost basis and allowable deductions. Foreign residents are generally subject to the same capital gains treatment following the sale of Mexican real estate companies, unless the gains arise from the sale of “publicly traded shares”, in which case the withholding tax rate may be reduced to 10% or the transfer may qualify as a tax-free reorganisation under one of Mexico’s existing double taxation treaties. Indirect Transfers When at least 50% of the value of a foreign company is represented by real estate located in Mexico, the transfer of shares or interests in that foreign company may also be subject to withholding tax at the above- mentioned rate of 25%. In this case, double taxation treaties entered into by Mexico need to be carefully analysed to evaluate potential relief provisions for indi - rect transfers of shares by foreign resident transferors. Lease Income Foreign residents are subject to withholding of income tax at a rate of 25% on the lease of Mexican real estate, including time shares or properties leased by digital platforms. Under specific Mexican double taxation treaties, lease income may be reduced by operating expenses and allowances, providing a net income taxation to the benefit of foreign residents. Foreign residents may also set up a Mexican com - pany to conduct real estate leasing activities, which will result in a net income taxation rate of 30% for the operating entity, after taking into account a broad range of authorised deductions. Mexican REITs Mexican real investment trusts (Mexican REITs) are fiscally transparent vehicles formed exclusively to
conduct real estate activities in Mexico. The REITs certificates are acquired in the public market by resi - dents and non-resident investors who enjoy the fiscal transparency of the vehicle and become subject to direct taxation in Mexico at a rate of 30% with respect to the income derived by the Mexican REIT’s opera - tions unless they are excluded from income taxation as occurs with Mexican and foreign pension funds or when the foreign resident qualifies for a reduced tax treaty rate, if any. 1.6 Stability of Tax Laws Under its policy of financial and fiscal discipline, the Mexican federal government has announced no new taxes or increase of tax rates for the upcoming years. There are no immediate actions from the federal con - gress for any potential estate and gift tax or tax on global assets as adopted by other OECD countries. In contrast, the federal government relies heavily on the development of digital audits and artificial intelligence parameters to conduct tax audit programmes on tax - payers in Mexico. The wealth planning segment is also subject to tax scrutiny given the information that is reportable by the Mexican financial system, the exist - ing compliance and required records on UBOs, as well as the exchange of information with other countries. The Base Erosion and Profit Shifting Plan (the BEPS Plan) has resulted in the adoption of different meas - ures to combat tax evasion and prevent abusive fis - cal transactions by both Mexican and non-resident taxpayers. 1.7 Transparency and Increased Global Reporting General Framework The Mexican tax system provides specific compliance and reporting obligations aiming to enhance the col - lection of taxes and information relating to domestic and international activities. As an OECD member country, the Mexican tax provi - sions require that Mexican resident individuals report on an annual basis different types of information con - cerning: • income arising from CFC entities subject to low effective taxation; • income derived from blacklisted countries; and
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