Mexico offers diverse tax regimes and incentives shaping how nationals and foreign investors approach real estate opportunities
Mexico’s real estate market is gaining momentum, driven by strong demand in commercial, industrial, and hospitality projects. For investors, the landscape is attractive but complex, with federal-level income and value-added taxes, local property levies, and evolving incentives that must be carefully assessed before structuring any deal.
For individuals, income tax can reach 35 percent on a worldwide basis, with real estate revenues taxed as capital gains or rental income. Two main regimes exist for rental streams: one allowing statutory deductions, and another offering a 35 percent standard deduction plus property taxes. Each suits different scenarios, from newly financed assets to properties with limited deductions.
Corporations face a 30 percent corporate tax, with the possibility of carrying forward net operating losses for a decade. Capital gains and rental income remain central, with deductions for capital and operational expenses playing a key role in overall efficiency.
FOREIGN INVESTORS AND VEHICLES
Foreign residents are generally taxed at 25 percent on gross income from Mexican property sales, or 35 percent on net income under certain conditions. Rental income is similarly taxed at 25 percent of gross income, typically withheld at source. Double tax treaties provide taxation relief in rental income, though benefits are limited for net calculations except in specific cases, such as the Mexico–US agreement.
Trusts (fideicomisos) remain the most common vehicle for real estate investment, treated as transparent for tax purposes, with income attributed to grantors or beneficiaries. Business trusts have relevant tax obligations, while administrative trusts have non or minimal tax obligations.
Mexican REITs, known as FIBRAs, offer attractive benefits: deferral of taxes on property contributions, stepped-up asset values, and favorable 30 percent taxation without dividend withholding. These structures have become a leading choice for large-scale projects.
VAT AND LOCAL TAXES
Value-added tax (VAT) applies at a 16 percent general rate, triggered by transfers, rentals, and construction services. Notably, land sales and residential construction are VAT-exempt, while non-residential property and furnished or short-term rentals remain taxable. Correct VAT structuring is crucial to avoid leakage, especially in mixed activities.
Local governments levy property taxes based on cadastral values, updated annually. These state-level obligations vary significantly and are frequently challenged in court, sometimes resulting in refunds for taxpayers.
Real estate transfer taxes are regulated at a local level and are often substantial, since they are calculated on transaction or appraised values. Tax planning is crucial, since each transfer may be taxed at rates up to 7% of the fair market value. Many local legislations deem as transfers some transactions that are not commonly qualified as such.
NEW INCENTIVES AHEAD
The recently announced Plan México introduces powerful incentives for 2025–2030. Investors may deduct immediately a high percentage of new fixed assets, particularly relevant to construction and infrastructure. Deductions range from 72 percent for heritage properties in the early years, down to 49 percent for other constructions later in the period—well above standard statutory rates.
Such measures are designed to strengthen industry, boost innovation, and enhance Mexico’s appeal as one of the top 10 global economies. For real estate players, they represent an opportunity to structure projects with improved tax efficiency, provided assets are new and held for at least two years.
In this environment, understanding the interaction of federal and local taxes, the treatment of residents and foreign investors, and the strategic use of trusts or REITs is key. Real estate remains one of Mexico’s most dynamic sectors, but only careful planning will turn incentives into lasting gains.