Mexico’s withholding tax on payments to non-residents runs from 4.9% to 40% depending on what the payment is for, and the Mexican payer deducts it before the money leaves the country. The rate you actually pay often drops sharply under one of Mexico’s roughly 60 double taxation treaties, but only if you deliver the right paperwork to the Mexican payer before the payment date. Miss that step and the full domestic rate applies, even when a treaty would have cut it in half or more.
When Mexico Can Tax Your Payment
Mexico taxes non-residents on Mexican-source income only. The source test depends on the type of income. Rent and sales of Mexican real estate are always Mexican-source. Services are Mexican-source when the work is physically performed in Mexico, regardless of where the contract was signed or where payment originates. Interest and royalties are Mexican-source when paid by a Mexican resident or charged against a permanent establishment in Mexico. Capital gains on shares are Mexican-source if the issuing company is a Mexican resident, or if more than 50% of the shares’ book value traces, directly or indirectly, to Mexican real property.1PwC. Mexico Corporate – Income Determination
The Mexican payer is the withholding agent by law. The payer calculates the rate, deducts the tax, and remits it to the Mexican Tax Administration Service (SAT). If the payer withholds too little, the SAT can collect the shortfall plus penalties from the payer directly, which is why Mexican companies are strict about getting documentation from foreign recipients before releasing funds.
Domestic Rates by Income Type
These are the statutory rates under Mexican domestic law. They apply when no treaty is claimed, or when the recipient lives in a country that has no treaty with Mexico. Most rates apply to the gross payment.
Interest
Interest carries the widest range of any category, and the rate depends on who the lender is and how the debt is structured:
- 4.9% on interest paid on publicly placed debt instruments abroad through banks or brokerages in a treaty country, and on interest paid to certain foreign financial institutions in which the Mexican government holds equity.
- 10% on interest paid to foreign government financing entities and to registered foreign banks that fund themselves through publicly traded debt. This rate also applies when the conditions for the 4.9% rate aren’t fully met.
- 15% on interest paid to reinsurance companies, and on the interest component of financial lease payments.
- 21% on interest paid by Mexican financial institutions to foreign residents, and on interest from registered foreign suppliers financing equipment, inventory, or working capital.
- 35% as the catch-all rate for interest that doesn’t fit a lower category. It also applies when the beneficial owner holds more than 10% of the issuing company’s voting shares (directly or through related parties) and receives more than 5% of the total interest from that instrument.
- 40% on interest paid to foreign related parties whose income is subject to a preferential tax regime abroad. This rate overrides what would otherwise apply, though it does not apply to dividends or to certain interest paid to foreign banks.
If you’re lending from a related entity in a low-tax jurisdiction, expect the 40% rate unless the entity can show it falls outside the preferential-regime definition.
Royalties and Technical Assistance
Royalties split by what’s being licensed. The rate is 35% for the temporary use of patents, trademarks, trade names, and advertising rights, and 25% for the use of industrial, commercial, or scientific equipment, as well as payments for technical assistance, plans, formulas, procedures, and transfers of know-how. When one agreement bundles trademark rights with equipment or technical assistance, the payer has to allocate between the two tiers, and the allocation can swing the final bill by ten points.
Service Fees and Wages
Fees for independent professional services performed in Mexico are withheld at 25% on the gross payment. Consulting, engineering, legal, and similar engagements all fall here when the work happens on Mexican soil.
Non-resident wages follow a progressive scale measured over a rolling 12-month period. For 2026, the first MXN 125,900 of employment income is exempt. Income between MXN 125,900 and MXN 1,000,000 is taxed at 15%, and income above MXN 1,000,000 is taxed at 30%.2PwC Worldwide Tax Summaries. Mexico – Individual – Taxes on Personal Income Board of directors fees are withheld at a flat 35%.
Dividends
Dividends paid by Mexican companies to non-residents are subject to 10% withholding on the gross distribution, treated as a final tax. The rate applies to profits generated after January 1, 2014. Older profits already taxed under the previous CUFIN system can be distributed without the additional 10%, but those legacy balances shrink every year.
Capital Gains
Non-residents selling Mexican real property or shares in non-publicly traded Mexican companies can choose between a flat 25% on the gross sales price or 35% on the net gain after deducting basis and transaction costs.2PwC Worldwide Tax Summaries. Mexico – Individual – Taxes on Personal Income The net-basis election usually produces a lower bill, but it requires appointing a Mexican legal representative and keeping documented proof of your original cost basis.
Rental Income
Rent from Mexican property paid to a non-resident is withheld at 25% on the gross rent, with no deductions.3Servicio de Administración Tributaria. Cases in Which the Income Tax Must Be Paid Maintenance, property management, and mortgage interest don’t reduce the taxable base, so a property with heavy costs can produce a punishing effective rate.
Treaty Rates (US-Mexico Convention)
Mexico has treaties with about 60 countries, and treaty rates override domestic rates wherever they are lower.4PwC Worldwide Tax Summaries. Mexico – Individual – Foreign Tax Relief and Tax Treaties For US residents, the US-Mexico Income Tax Convention is the relevant agreement, and it produces substantial reductions across most income categories.
Interest
The treaty generally caps interest withholding at 10% for arm’s-length payments between unrelated parties. Interest paid to banks or on publicly traded debt can still take the 4.9% domestic preferential rate, since that’s already below the treaty ceiling.
Dividends
Treaty dividend rates depend on how much of the Mexican company the US recipient owns:
- 0% on dividends paid to a company that has owned at least 80% of the voting power of the distributing company for the 12-month period ending on the dividend declaration date.5U.S. Congress. Ex. Rept. 108-4 – Protocol Amending the Tax Convention
- 5% on dividends paid to a company owning at least 10% of the voting stock of the distributing company.5U.S. Congress. Ex. Rept. 108-4 – Protocol Amending the Tax Convention
- 10% on all other dividends paid to residents of the other treaty country.
The 0% rate for majority-owned subsidiaries is what makes a US-parent, Mexican-operating-company structure workable. Without it, every profit repatriation carries a 10% toll.
Royalties
The treaty caps royalty withholding at 10% of the gross amount, regardless of the type of intellectual property.6Internal Revenue Service. United States – Mexico Income Tax Convention That’s 15 to 25 percentage points below the domestic rates, so the treaty claim is essential for any licensing arrangement.
Capital Gains on Shares
Share-sale gains are taxable only in the seller’s country of residence as a general rule under Article 13, with two exceptions where Mexico keeps the right to tax: when at least 50% of the company’s assets consist of Mexican real property, and when the seller held a direct or indirect participation of 25% or more in the company during the 12 months before the sale.6Internal Revenue Service. United States – Mexico Income Tax Convention A minority shareholder selling stock in a company whose value doesn’t trace primarily to real estate is generally exempt from Mexican tax on the gain.
How to Actually Get the Treaty Rate
Reduced treaty rates don’t apply automatically. You deliver documentation to the Mexican payer before payment, and the payer needs that documentation in hand before withholding at anything less than the full domestic rate.
The core document is a Certificate of Tax Residence from your home country’s tax authority. For US residents, that’s IRS Form 6166, a letter on Treasury Department stationery certifying US tax residency.7Internal Revenue Service. Form 6166 – Certification of U.S. Tax Residency Processing takes time. Request it from the IRS well ahead of when you need it in Mexico.
You also have to qualify as the beneficial owner of the income, meaning you receive it for your own account and aren’t a conduit for someone in a third country. For related-party transactions and for the net-basis capital gains election, you must additionally appoint a Mexican tax-resident legal representative through a power of attorney, which has to be apostilled or legalized for use in Mexico. US state apostille fees typically run $2 to $20 per document. That legal representative takes on joint and several liability for your Mexican tax obligations and must keep supporting documentation for at least five years. Mexican authorities may also request a sworn declaration that the income benefiting from the reduced rate is subject to tax at home.
Limitation on Benefits
Article 17 of the US-Mexico treaty includes a Limitation on Benefits (LOB) clause designed to stop entities from routing income through the US just to pick up treaty rates. You must satisfy at least one of these tests:6Internal Revenue Service. United States – Mexico Income Tax Convention
- Natural persons and government entities qualify automatically.
- An entity actively conducting business in its home country (not just managing investments) qualifies if the Mexican-source income connects to that business.
- A company whose principal class of shares is regularly traded on a recognized stock exchange in either country qualifies, as do wholly owned subsidiaries of such companies.
- An entity more than 50% owned by persons who independently qualify for treaty benefits qualifies, provided less than 50% of its gross income flows out as deductible payments to non-qualifying persons.
- Tax-exempt nonprofits and pension funds qualify when more than half their beneficiaries or members would independently qualify.
Fail every LOB test and the full domestic rate applies regardless of what the treaty tables show. The SAT has also disregarded treaty claims entirely when required formalities, like timely appointment of a legal representative, weren’t completed before the payment date.
When Flat Withholding Stops Applying: Permanent Establishment
All of the above assumes you don’t have a permanent establishment (PE) in Mexico. Once a PE exists, flat-rate withholding stops. Income attributable to the PE is taxed like a Mexican corporation, at the standard corporate income tax rate on net profits after deductions.
A PE is generally triggered by a fixed place of business in Mexico (office, warehouse, construction site beyond a certain duration) or by a dependent agent in Mexico who habitually exercises authority to conclude contracts on your behalf. The consequences are substantial: SAT registration, issuance of digital invoices (CFDIs), corporate tax filings, and transfer pricing documentation. For service providers, the line between rendering services in Mexico (25% withholding on gross) and creating a PE (corporate tax on net) depends on the duration and nature of the work. Get it wrong and you either overpay on gross-basis withholding when a PE would produce a lower effective rate, or you create a PE without realizing it and miss required filings.
Proof of Tax Paid and the US Foreign Tax Credit
When a Mexican payer withholds, it issues a Comprobante Fiscal Digital por Internet (CFDI) de retenciones to you. That digital tax receipt reports the gross payment, the tax withheld, and your identity as the foreign recipient. Keep it. It’s your proof of Mexican tax paid and the document you need to claim relief at home.
US taxpayers claim a foreign tax credit on IRS Form 1116 (individuals) or Form 1118 (corporations) to avoid being taxed twice on the same income.8Internal Revenue Service. Certification of U.S. Residency for Tax Treaty Purposes The credit is limited to the US tax attributable to foreign-source income, so it won’t always offset the full Mexican withholding. When the Mexican effective rate exceeds the US rate on the same income, which happens with the 25% and 35% domestic rates on services and royalties, the excess credit can be carried back one year or forward ten.
Claiming treaty-reduced rates in Mexico up front is almost always better than relying on the foreign tax credit after the fact. Reducing tax at source puts cash in your hands immediately; an excess credit can take years to absorb and may expire unused.
What Goes Wrong
If the Mexican payer under-withholds, the SAT can pursue the payer for the shortfall plus statutory interest from the original due date, along with fines of 55% to 75% of the omitted tax. The payer will pass that cost back to you contractually in most cases. If you claim a treaty rate without proper documentation in place at the time of payment, the SAT can reclassify the payment at the full domestic rate and assess the difference. If the Mexican payer fails to withhold at all, the SAT can come after you directly for the tax owed. The paperwork isn’t optional, and timing matters as much as content: documents dated after the payment don’t fix a withholding that was already too low.