Do Foreigners Pay Tax on Rental Income in Mexico?

Yes. Any income earned from renting out property located in Mexico is taxable in Mexico, regardless of the property owner’s nationality or tax residence.

Even if you live abroad and file taxes in another country, Mexico requires you to report and pay taxes on income generated within its borders.

Key Taxes on Rental Income in Mexico

1. Income Tax (ISR – Impuesto Sobre la Renta)

This is the main tax applied to rental income in Mexico.

• If you register as an individual taxpayer in Mexico (RFC):
  You can deduct allowable expenses (such as maintenance, property management, and utilities with proper receipts) and pay progressive income tax, ranging from 1.92% to 35% depending on your net income.

• If you don’t register and rent as a foreigner:
  The tax authority withholds 25% on gross rental income, with no deductions allowed. This flat-rate method is simple but often results in higher taxes, especially if you have significant property-related expenses.

2. Value-Added Tax (IVA – Impuesto al Valor Agregado)

IVA is a 16% sales tax that may apply to rental income in certain situations:

• Applies to:

  • Short-term rentals (under 28 days)

  • Rentals through platforms like Airbnb

  • Commercial properties

• Does NOT apply to:

  • Long-term residential leases (over 6 months)

  • Properties rented to individuals for personal use (not business)

If IVA applies, you must charge your guests 16%, collect it, and remit it to the Mexican tax authority.

3. Lodging Tax (Impuesto Sobre Hospedaje)

Some states also impose a local lodging tax, especially in tourist areas like Quintana Roo (Playa del Carmen, Tulum, Cancún), Jalisco (Puerto Vallarta), and Baja California Sur (Los Cabos).

• Rates: Usually range from 3% to 5%

• Who pays: The guest, but you are responsible for collecting and remitting it

How to Report Rental Income Properly

To remain compliant, it’s important to register with the Mexican tax authority (SAT) and obtain an RFC (tax ID). If you’re actively renting your property and want to claim deductions, this is the best approach.

• File monthly tax returns

• Issue official receipts (facturas)

• Track all income and deductible expenses

• Work with a Mexican accountant to avoid errors

If you do not register, your notary or rental platform may automatically withhold the flat 25% tax on your behalf.

Consequences of Not Paying Rental Taxes in Mexico

• Fines, interest, or penalties from the SAT

• Complications during property sale (you may be asked to show proof of past tax compliance)

• Issues with renewing your fideicomiso or business permits

• Rental platforms like Airbnb are increasingly reporting income to authorities

Pro Tip: Keep All Receipts (Facturas)

To claim deductions on expenses like repairs, utilities, or property management, you must have official facturas (invoices with your RFC) issued by registered businesses in Mexico. Without them, deductions won’t be allowed.

Final Thoughts

If you’re generating income from a Mexican property, understanding and complying with rental tax laws is essential. While the system may seem complex at first, with the right professional support, it can be managed efficiently—and even strategically optimized.

Renanza Real Estate Services can help connect you with licensed Mexican tax and accounting experts who specialize in assisting foreign property owners with rental income compliance.

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