Taxes for Foreign Property Owners in Mexico: Complete Tax Guide

Investing in real estate in Mexico offers attractive returns, but understanding the tax framework is essential to maximizing your return. Whether you plan to rent out your property in the Riviera Maya, keep it as a vacation home or eventually sell it, there are tax obligations both in Mexico and in your home country that you need to know about.

This guide covers the main taxes foreign owners face —citizens of the United States, Canada and France— with rates updated for 2026.

1. Property Tax (Predial): Your Basic Annual Obligation

Predial is the equivalent of property tax and is paid annually to the municipality where the property is located. In Mexico, predial rates are considerably lower than in North America or Europe.

• Rate: Varies by municipality, generally between 0.1% and 0.3% of the cadastral (assessed) value
• Early payment discount: Most municipalities in Quintana Roo offer discounts of 10% to 25% if you pay in January
• Cadastral value vs. market value: The cadastral value is usually significantly lower than market value, which reduces the tax burden

Example: A property with a cadastral value of MXN $2,000,000 (approx. USD $110,000) could pay between MXN $2,000 and $6,000 per year in predial (USD $110–$330).

Key fact: Compared with the average property tax in the U.S. (0.99% of market value) or Canada (0.87%), Mexican predial is a fraction of the cost.

2. Income Tax (ISR) on Rental Income

If you rent out your property —whether as a long-term lease or a vacation rental such as Airbnb— you must declare and pay Income Tax (Impuesto Sobre la Renta, ISR) in Mexico.

Tax options for non-residents:

Option A – Flat 25% rate on gross income:

• No expense deductions
• Simple calculation: the tenant or property manager withholds 25% and pays it to the SAT
• Ideal if your expenses are low or you don't want to keep accounting records in Mexico

Option B – Register with the SAT and file as a tax resident:

• Progressive rates from 1.92% to 35% on net income
• You can apply the 35% “blind deduction” — an automatic deduction with no need to prove expenses
• Or deduct actual expenses: maintenance, commissions, insurance, depreciation (5% per year of the construction value)
• Requires obtaining your RFC (Mexican tax ID) and filing monthly and annual returns

Tip: If your actual expenses exceed 35% of gross income, deducting actual expenses makes sense. If not, the blind deduction is more efficient and simpler.

VAT (IVA) on tourist rentals

Short-term rentals (such as Airbnb) are subject to 16% VAT (IVA), plus a state lodging tax of 2% to 5% depending on the state. Platforms such as Airbnb already withhold part of these taxes automatically.

3. Capital Gains Tax (ISR) When Selling

When you sell a property in Mexico, the notary public calculates and withholds the capital gains ISR. As a non-resident, you have two options:

Option 1 — 25% on the gross sale price:

• No deductions
• Simple but generally more expensive

Option 2 — 35% on the net gain:

• Gain = Sale price − (Purchase price adjusted for inflation (INPC) + documented improvements + commissions + notary fees)
• Generally more favorable if you have good documentation

Example: You bought for USD $200,000 and sell for USD $350,000. With option 1 you pay USD $87,500 (25% of $350k). With option 2, if the adjusted net gain is $120,000, you pay USD $42,000 (35% of $120k). The difference is huge.

Important: Keep ALL receipts for improvements, remodeling and acquisition expenses. They are your best tool for legally reducing ISR when you sell.

4. Acquisition Tax (ISAI)

When you buy a property, you pay the Real Estate Acquisition Tax (Impuesto Sobre Adquisición de Inmuebles, ISAI), also known as the transfer tax. In Quintana Roo, the rate is approximately 3% of the highest value among the purchase price, the cadastral value and the commercial appraisal.

For a complete breakdown of all purchase costs, see our guide to acquisition costs.

5. Double Taxation Treaties

Mexico has double taxation treaties with more than 60 countries, including the three main markets of foreign investors in the Riviera Maya:

🇺🇸 United States – Mexico

• Treaty in force since 1994 (with additional protocols in 2002)
• Rental income from real estate in Mexico is taxed first in Mexico
• The U.S. allows you to credit the ISR paid in Mexico against your federal tax liability (Foreign Tax Credit, Form 1116)
• Capital gains from the sale of real estate are taxed in the country where the property is located

🇨🇦 Canada – Mexico

• Treaty in force since 2006
• Same logic: Mexico has the primary right to tax real estate located in its territory
• Canada allows you to credit taxes paid in Mexico through the federal Foreign Tax Credit

🇫🇷 France – Mexico

• Treaty signed in 1991, in force since 1993
• Real estate is taxed in the country where it is located (Articles 6 and 13 of the treaty)
• France allows taxes paid in Mexico to be deducted from French tax liability

6. Reporting Obligations in Your Home Country

U.S. citizens: FBAR and FATCA

• FBAR (FinCEN Form 114): If you have financial accounts in Mexico (including bank accounts linked to the fideicomiso (bank trust)) with an aggregate balance above USD $10,000 at any time during the year, you must report them
• FATCA (Form 8938): If your foreign financial assets exceed USD $50,000 (or $200,000 if you live outside the U.S.)
• Form 8865 / 5471: If you set up a Mexican company to acquire the property

Canadian citizens: T1135

• Form T1135: Mandatory if the total cost of your foreign assets (including investment properties) exceeds CAD $100,000
• Exception: Properties used exclusively for personal use (a vacation home you do NOT rent out) are exempt
• Penalty for not filing: CAD $25/day up to a maximum of $2,500
• A simplified method is available if your assets do not exceed CAD $250,000

French citizens

• France taxes the worldwide income of its tax residents
• Real estate income in Mexico must be reported on the annual French tax return
• The Mexico-France tax treaty prevents double taxation through a tax credit

Frequently Asked Questions

Do I need an RFC to own property in Mexico?

You don't need an RFC just to own property. However, if you earn rental income or want to apply tax deductions, you do need to register with the SAT and obtain your RFC.

Can I avoid paying taxes in Mexico with a fideicomiso?

No. The fideicomiso is a holding mechanism, not a tax avoidance tool. All taxes —predial, ISR on rental income, ISR on the sale— apply equally with a fideicomiso.

What happens if I don't declare my rental income in Mexico?

The SAT can impose fines of up to 75% of the unpaid tax, plus surcharges and interest. In addition, non-compliance in Mexico can affect your tax status in your home country.

Can I deduct depreciation on my property?

Yes, if you file using actual deductions. Depreciation of the construction component is 5% per year of the construction value (excluding the land).

Do platforms like Airbnb already withhold Mexican taxes?

Airbnb has withheld and remitted ISR and VAT in Mexico since 2020. However, this does not eliminate your obligation to file annual returns or to comply with local lodging regulations.

If you need personalized advice on taxes and tax obligations for foreign owners in Mexico, contact us on WhatsApp. Our team will guide you every step of the way.

Sources

• SAT (Servicio de Administración Tributaria) — Mexico's tax authority, which administers federal tax collection
• Income Tax Law (Ley del ISR) — the legal framework governing Income Tax in Mexico
• Mexico-U.S./Canada/France Double Taxation Treaties — international agreements to avoid double taxation between countries
• IRS (Internal Revenue Service) — the U.S. tax agency, relevant for U.S. taxpayers who own property in Mexico
• CRA (Canada Revenue Agency) — Canada's tax agency, applicable to Canadians with real estate income in Mexico

You may also be interested in: Safety in the Riviera Maya: What You Really Need to Know as a Foreign Buyer and How to Manage Your Airbnb Property from Abroad.