MEXICO Law and Practice Contributed by: Roberto Cannizzo, Carlo Cannizzo, Stefano Amato and Mauricio Moreno-Rey, Cannizzo
8.2 Mitigation of Tax Liability The most common method used to defer trans - fer liability is through the use of a real estate trust. This arrangement is not considered a sale for tax purposes, in accordance with Article 14 of the Federal Tax Code, as long as the trustor retains the right to reverse the ownership of the real estate. If the reversion right is lost, either through a subsequent sale, termination of the right or failure to meet the necessary tax require - ments, the transferor will be responsible for pay - ing the taxes owed. 8.3 Municipal Taxes There are no federal or local occupation taxes, only fees, licences and permits as required. 8.4 Income Tax Withholding for Foreign Investors The taxes to be paid are withheld by the notary public who formalises the transaction if the seller is not a tax resident in Mexico. The amount of taxes owed is determined based on the Mexican income tax law and can be up to 35% of the net gains.
Rental income from real estate is taxed in Mex - ico per the income tax and VAT law. The rules regarding the taxation of rental income vary depending on the type of entity or individual receiving the income, as well as their residency status (Mexican or foreign). For example, flat fees of 20% or certain deductions may apply. 8.5 Tax Benefits Owners of real estate in Mexico are eligible for tax depreciation of fixed assets, mainly con - structions, and can deduct certain things from their income tax liabilities. These include the proven cost of acquisition, the cost of certain construction and improvements, notary fees and commissions. While there is no tax depreciation allowed for land, a portion of the sale price will be allocated to the land when the real estate is sold. These tax benefits serve to reduce the amount of income tax owed on the sale of the real estate.
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