BDO Corporate Tax News

Mexico’s temperate climate, vibrant culture, world-class cuisine and stunning natural beauty—combined with a relatively low cost of living—have long attracted both visitors and long-term residents. Among its many attractions, the country’s pristine beaches stand out. Mexico’s temperate climate, vibrant culture, world-class cuisine and stunning natural beauty—combined with a relatively low cost of living—have long attracted both visitors and long-term residents. Among its many attractions, the country’s pristine beaches stand out.

However, investing in Mexican beachfront property is not without complexity. Legal restrictions and cross-border tax implications—both in Mexico and the investor’s home country—can significantly affect the structure and profitability of such investments. A thorough understanding of these factors is essential before making any investment decision. This article highlights the key tax and nontax considerations for foreigners contemplating a coastal property purchase in Mexico.

Acquiring Beachfront Land in Mexico

While Mexico generally encourages foreign investment, restrictions persist in strategic sectors such as oil, transportation and real estate located along the Mexican coastline and borders. Article 27 of the Constitution prohibits foreigners from directly owning residential real property within 50 km (31 miles) of the coast or 100 km (62 miles) of the border—an area referred to as the “restricted zone.” Despite this limitation, two well-established mechanisms allow foreigners to acquire rights to property in the restricted zone: the use of a bank trust or the establishment of a Mexican corporation. Each option has distinct legal, tax and administrative implications that should be carefully evaluated.

Option A: Bank Trust (Fideicomiso)

• Most common method for foreigners.
• A Mexican bank, as a legal fiduciary, holds title and ownership of the property as a trustee.
• The foreigner is the beneficiary with full rights to use, lease or sell the property.
• Frequently utilised for property intended for personal use.

Option B: Mexican Corporation

• Suitable for business ventures or owning multiple properties.
• The foreigner owns 100% of the shares.
• The corporation rather than the foreigner owns the property.
• This structure triggers corporate tax and compliance obligations.

Foreigners should be aware of the following Mexican costs and obligations when purchasing property in Mexico:
 

Tax/Cost Type	Typical Rate/Details
Acquisition tax	Around 2% of the property value (varies by state)
Notary fees	1%-2%
Registration fees	Around 0.5% or less
Rental income tax	25% on gross income for nonresidents
Corporate compliance	Monthly VAT/income tax filings and the filing of an annual corporate income tax return

Additionally, new rules that will apply as from 2026 introduce a withholding obligation when income is obtained through online platforms used to sell goods, provide services or make property available for use.
The withholding tax rate will be 20% if a Mexican tax registration number is not provided, i.e., where a nonresident lists property on a platform (such as Airbnb) since it is not required to register for tax purposes in Mexico if rental income is the only revenue in the country. As a result, the 20% withholding will be considered a final tax in Mexico (although it may be creditable in the nonresident’s home country).

Nonresidents also should consider potential tax and/or reporting obligations in their home countries. For example, rental income derived from the property may be subject to tax in the home country (with a possible foreign tax credit for Mexican income tax paid). The use of the bank trust may give rise to reporting requirements.

Alienation of Property in Mexico

When a foreign investor decides to sell the Mexican real estate, the process will differ depending on whether the property is held in a bank trust or via a Mexican corporation. Both structures have tax implications, with capital gains tax being a significant consideration.
 
If the real estate is held in a bank trust:

• The beneficiary instructs the bank to transfer rights to the buyer.
• The bank executes the sale on behalf of the beneficiary and withholds capital gains tax.
• Under Mexican law, trust-held rights are treated as real property so gains are taxable.

If the property is owned via a Mexican corporation:

• The corporation sells the property.
• Gains are taxed as corporate income, not a personal capital gain.
• Dividends distributed to the foreign shareholder may face a 10% withholding tax.

As is the case for acquiring property, there may be tax and/or reporting obligations on the disposition of the Mexican property, and it may be necessary to review the provisions of an applicable tax treaty. For example, under the Mexico-US tax treaty, Mexico retains taxing rights to the disposition of Mexican-situs real property, so there are Mexican tax consequences on the sale. Under Mexican domestic law, the tax consequences of a sale by a nonresident are as follows:

• 25% on the gross sale price; or
• 35% on the net gain (sales price less documented costs) if the nonresident has a legal representative in Mexico and proper documentation.

BDO Insight

Ownership or investment in Mexican coastal real estate offers both lifestyle and financial rewards but also entails legal and tax complexities. The optimal structure depends on the investor’s objectives (personal use vs. business activity), tax residency and long-term plans. Whether utilising a bank trust or a Mexican corporation, each approach has implications. Before committing capital, investors should consider:

• Conducting a thorough review of Mexican and home country tax law;
• Analysing potential tax treaty benefits and/or any reporting obligations; and
• Seeking professional legal and tax advice.

Roberto Zaragoza
BDO in Mexico