MEXICO Trends and Developments Contributed by: Ángel Escalante, Gabriel Rojas, Uzziel Rodríguez and Daniel Colunga, Escalante & Asociados
In many cases, the authorities have challenged financ - ing arrangements on the basis that they lack econom - ic substance or business purpose, particularly where debt appears to be artificially introduced to generate tax deductions. As a result, taxpayers have begun to restructure financing models, moving towards: • increased use of equity funding; • more conservative leverage ratios; and • enhanced documentation to support the commer - cial rationale of financing transactions. In practice, this reflects a broader shift towards a sub - stance-over-form approach, where legal structuring alone is no longer sufficient to sustain tax benefits. Real Estate Investment and Nearshoring Dynamics Mexico has emerged as a key destination for for - eign direct investment in real estate, largely driven by nearshoring trends and the strategic relocation of manufacturing and logistics operations closer to North American markets. This shift has resulted in a significant increase in demand including industrial and logistics infrastruc - ture, particularly in northern and central regions, warehousing and distribution facilities; and commer - cial and hospitality developments linked to industrial expansion. From a tax perspective, Mexico offers a relatively attractive framework for real estate investment, com - bining structural flexibility with specific tax incentives. One of the most important features of the Mexican system is the widespread use of trusts ( fideicomisos ) as investment vehicles. Trusts are generally treated as tax transparent, meaning that income is attributed directly to the beneficiaries rather than taxed at the trust level. This allows investors to structure invest - ments in a flexible manner while maintaining tax effi - ciency. In addition, Mexico has developed a sophisticated market for real estate investment trusts ( Fideicomisos de Infraestructura y Bienes Raíces or FIBRAs), which
are publicly traded vehicles designed to facilitate investment in income-generating real estate. FIBRAs offer several tax advantages, including: • deferral of taxation upon contribution of assets; • access to capital markets; and • a single level of taxation at the investor level. Recent government initiatives, particularly the “Infra - structure Investment Plan for Development with Well - being 2026–2030” programme, have further enhanced the attractiveness of real estate and infrastructure investment by introducing tax regimes for certain types of assets, including construction and infrastruc - ture investments. The programme also outlines poten - tial use of specialised funds and structures aimed at attracting institutional capital, reducing financing costs, and enhancing transparency standards. Despite these advantages, real estate investments in Mexico involve a high degree of complexity due to the interaction between: (i) federal taxes (income tax and VAT); and (ii) local taxes, including property taxes and transfer taxes, which vary significantly across states and municipalities. VAT treatment can be complex in cases involving mixed-use properties, where some activities are tax - able, and others are exempt. This may result in non- creditable VAT, which can significantly impact project profitability. Furthermore, real estate structures must carefully consider the potential creation of a permanent estab - lishment (PE), particularly where foreign investors are involved in active management or development activi - ties. Under domestic law, a PE is deemed to exist when construction, installation, or related activities exceed a period of 183 days within a 12-month period. Notably, this threshold is broadened by rules that require the aggregation of time spent by subcontractors, signifi - cantly increasing the likelihood of triggering a PE. Overall, while Mexico presents significant opportuni - ties for real estate investment, it also requires a highly
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