In cases of income for granting the right to temporarily use or enjoy real properties, the source of wealth shall be in Mexican territory when said property is in Mexico, therefore subject to income tax.
The income mentioned in the previous paragraph includes the considerations obtained by a resident abroad for the granting of the right of temporarily use or enjoyment, as well as other rights over real estate located in the country, even when the considerations are derived from the disposition or assignment of said rights.
In the following, we will review article 158 from the Income Tax Law, as well as few tax rules regarding the subject.
Income Tax Withholding
The tax on the lease of immovable property or real state shall be calculated by applying a 25% rate on total income earned, without any deductions, and the individual that makes the payments shall withhold the corresponding tax. If the person making the payments is a foreign resident, the tax shall be paid by filing a tax return with the tax authorities within 15 days after receiving the income.
Taxpayers shall be required to issue tax invoices for the considerations they receive. When said income is received through trusts, the trustee shall be required to issue the tax invoice and withhold as described in the preceding paragraph.
Lease of personal property
In cases of income earned in exchange for the temporary use and enjoyment of personal property within the national territory, whenever such property is used within the country in agricultural, livestock or fishing activities. It will be presumed that such property is used in such activities within the country whenever the user is a Mexican resident or a foreign resident with a permanent establishment in Mexico. In cases where the property is used in other activities, whenever the physical delivery thereof is performed within the country.
In these cases, the tax shall be determined by applying the 25% rate on income earned without any deduction, which shall be withheld by the payer.
Charter agreements
In cases of income from charter agreements, except for leases of commercial, industrial or scientific equipment, the source of wealth shall be deemed to be found within the national territory, whenever the chartered vessels perform cabotage within the national territory. In these cases, the tax shall be determined by applying a 10% rate on income earned without any deduction, which shall be withheld by the payer.
Option not to withhold income tax for the temporary use or enjoyment of real estate for residents of the United States of America
According to the rule 3.18.5 of the Miscellaneous Tax Rules, individuals who make payments for the use or temporary enjoyment of real estate to residents of the United States of America may stop withholding the income tax referred to in article 158 of the Income Tax Law, provided that said residents abroad prove that they have chosen to calculate the tax for the aforementioned income on a net basis as if it were attributable to a permanent establishment in accordance with Article 6, numeral 5 of the Agreement between the Government of the United States Mexicans and the Government of the United States of America to avoid double taxation and prevent fiscal evasion in matters of Income Taxes, through their inclusion in the list of foreign residents who have exercised said option, published on the website of the tax authorities.
For these purposes, individuals who make payments for the use or temporary enjoyment of real estate, in accordance with the preceding paragraph, must verify each time they make a payment that the resident abroad is on the list published by the SAT.
Residents abroad who wish to be included in the list of the SAT Portal, must express their willingness to choose to determine the ISR in accordance with the provisions of the procedure sheet 22/ISR «Notice to choose to determine the tax on a net” in the months of January and February of each year, contained in Annex 1-A and request the inclusion of your data in the SAT Portal.
In any case, residents abroad must prove their residence for tax purposes in the United States of America.
Learn more about Income tax and VAT in Mexico
Contact us for questions or more information,
Tax Partner CPA Mario Enrique Morales mario.morales@bmtc-dfk.com
Senior Tax Comunications CPA Carla Torres carla.torres@bmtc-dfkc.om
The purpose of this article is merely informative. BMTC-DFK nor any of the firms affiliated with DFK International is responsible for the decisions made based on what is described in it.
