Controversy relating to interest paid by U.S. lessors of Mexican real property

Real estate investment in Mexico has remained, throughout the years, an important focus of direct foreign investors. The country offers opportunities for various types of investment in housing, as well as industrial, commercial, and tourism-related real property. The Mexican market and its players a... Full description

Real estate investment in Mexico has remained, throughout the years, an important focus of direct foreign investors. The country offers opportunities for various types of investment in housing, as well as industrial, commercial, and tourism-related real property. The Mexican market and its players are mature and knowledgeable and, despite all the other variables that have impacted direct foreign investment, real estate remains an expanding sector of the economy. Mexico has sophisticated provisions governing the operation and taxation of real estate activities and income derived from immovable property (real property). Under the Mexican Income Tax Law, a 25% withholding tax is imposed on the gross income derived from a lease payment, unless the rate is reduced under the provisions of an applicable income tax treaty. For US investors, the US-Mexico Income Tax Treaty provides for an alternative form of taxation of income from immovable property. Mexico has a long and painful history of resorting to treaty overrides.