MEXICO Law and Practice Contributed by: Ángel Escalante, Gabriel Rojas, Daniel Colunga and Brenda Favela, Escalante & Asociados
• involve the transfer of ownership rights or the granting of the use or enjoyment of property owned by the foreign resident; or • require the foreign resident to provide services. PE domestic definition is aligned with the OECD Mod - el Tax Convention definition, particularly regarding the existence of a fixed place of business through which the enterprise carries on its activities. However, Mexico introduced some reservations and observations with respect to the OECD Model, par - ticularly concerning: • the recognition of a PE in construction or supervi - sion projects exceeding certain time thresholds; • taxation of services performed in the source state for extended periods; and • the interpretation of preparatory or auxiliary activi - ties. These positions reflect Mexican policy stance as a source-oriented jurisdiction seeking to preserve broader taxing rights over income generated within its territory. 3. Taxation of Cross-Border Income 3.1 Income From Immovable Property Resident legal entities are taxed on their worldwide income under the general corporate income tax regime. Accordingly, income derived from immov - able property, whether through transfer or leasing, is included in the taxable base and is subject to the general corporate income tax rate of 30%. Capital gains are determined on a net basis, by sub - tracting the tax basis and allowable deductions from the sale price. This gain is tax at the corporate income tax rate of 30%. Resident individuals Resident individuals are also taxed on a worldwide income basis, but subject to a progressive rate sched - ule under Article 152 of the MITL. Taxation of Residents Resident legal entities
In the case of real estate leasing, individuals can choose between: (i) deduction of the proven expenses like maintenance, insurance and property tax; or (ii) a so called “blind deduction” under which a statutory 35% deduction of the gross income plus property tax applies. In the case of capital gains from the transfer of real estate, the taxable gain is calculated by subtracting the cost of acquisition and authorised deductions from the sale price. Capital gains derived from the transfer of real estate are determined by subtracting the tax basis (cost of acquisition) and certain allowa - ble deductions from the sale price. The corresponding tax is calculated using the progressive rate schedule established in Article 152 of the MITL. Additionally, the MITL provides that if the real estate is the taxpayer’s primary residence, the sale may be exempt up to 700,000 UDIs or investment units For non-residents, Article 160 of the MITL provides that the tax is determined by applying a 25% with - holding tax on the gross proceeds, without allowing deductions. However, non-residents may elect to be taxed on a net basis (ie, on the actual capital gain) applying the general tax rate, provided certain formal requirements are met. These include the requirement that the trans - action be formalised through a public deed before a notary public and that the relevant reporting obliga - tions be satisfied. In addition, certain state-level taxes on the acquisition of real estate may apply depending on the jurisdiction where the property is located. Rental income from real estate located in Mexico For non-residents, withholding tax at source is applied, typically at a 25% rate on the gross income, without allowing deductions. (approximately USD320,000). Taxation of Non-Residents
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