The fiscal implications of renting property in Mexico
It is important to know that in front of Mexican law, at the
moment of acquiring property and the rights to use and enjoy it, if via fideicomiso or another title, (regulated by the Secretaria de Relaciones Exteriores, SRE) you will be considered Mexican in every
respect concerning the fideicomiso. In case of any
failures to comply with Mexican laws, you may lose your rights as the holder of
a fideicomiso and the related property, to the
Mexican Nation as beneficiary (so it is ruled under the Second Title of the
Foreign Investment Law and Regulations). The SRE gives the permission to foreigners
to be holders of a fideicomiso which allows
foreigners to acquire property in any zone. This brings with it the obligation
to comply with all laws concerning the property as the object of the fideicomiso.
Taking into consideration the above, it is important to consider that the
foreigner, who rents the property of his fidericomiso,
has to comply with the Mexican fiscal obligations. One of these obligations
concerns the payment, or in some cases the withholding, of the ISR, which is
the direct tax over the rent or profit no matter what it is called ( for
example: rent, utility, profit, interest, product, participation, income,
salary and so on…).At the moment this tax is 25% of the total profit. This
should not discourage or alarm those foreigners who rent their properties held
through a fideicomiso.
Various options and alternatives of commercial and fiscal strategies exist to
stay on top of tax regulations. For example, one can found a Mexican company as
vehicle for such tax payments. Needless to say, this alternative brings with it
a considerable cost of hiring approved accountants and lawyers and other
obligations such as quarterly and yearly fiscal reports. Another alternative
could be to comply with fiscal obligations as the holder of the fideicomiso as physical person or foreigner. However in
this case, it would be necessary to register the fideicomiso
at the Mexican Tax Office, Secretaria de Hacienda y Credito Publico. The third and
probably easiest alternative would be, to hire a company specialized in the
administration of rentals, which would then take care of all fiscal obligations
for the holder of the fideicomiso, who wants to rent
his property. Of course the reliability and seriousness of this company is of
upmost importance, as they will be in charge of the complete payment of all
taxes and will be obliged to produce the necessary documents to prove the
correct payment of such for the fideicomiso.
In addition to that, a treaty to avoid double taxation exists between Mexico
and the United States of America, which in its article 8 establishes that the
taxation of rental profits will be treated as if the foreigner was a Mexican.
However, if this tax is not paid, this will be treated as non-fulfillment of
fiscal regulations and is thus as a fiscal evasion in both countries.
Los Cabos Agent
Nick Fong