ISR When Selling as a Foreigner: 25% Gross or Tax on Profit

If you're a foreign resident and sell a property in Mexico, you pay ISR in Mexico because the asset is here. The law offers you two paths to calculate it: 25% on the total income, without deducting anything, or the maximum rate of the tax bracket in article 152 applied to your actual profit. They are not equivalent, and which suits you depends on how much your property appreciated and whether you kept the proof of purchase cost.

Why is the ISR on the sale decided before buying?

It's decided before buying because the cheaper option usually depends on a document generated on the day of acquisition: the proof of purchase cost. The sale is taxed in Mexico because the property is in national territory, regardless of where you live: the Income Tax Law, in article 160, states that "the source of income shall be considered to be located in national territory when such assets are located in the country".

The choice between the two paths depends on the proven acquisition cost, which is not data from the moment of sale: it is fixed when you buy and updated over years. If you acquired it long ago and kept the deed and construction invoices and improvement receipts, you can calculate your profit and compare. If you didn't keep those documents, you lose the ability to substantiate the cost and are left with the path that is usually more expensive.

That's why what you do in the purchase phase, where that proof is generated matters years later. And if you acquired through a trust, the documentation of that structure is part of the file you'll need when selling. For you, it means one concrete thing: file the purchase deed, the CFDI, and every proof of work from day one.

What are the two options and how do they differ?

The first path is 25% on the total income received, without any deduction. Article 160 says it literally: "the tax shall be determined by applying the rate of 25% on the total income received, without any deduction". You don't deduct cost, you don't deduct expenses: it applies to the full sale price.

The second path is optional. It consists of applying to the profit obtained the maximum rate for the excess over the lower limit established by the tax bracket in article 152 of the LISR. The profit is determined according to Chapter IV of Title IV of the law, without deducting losses from the last paragraph of article 121.

Taxable base Total income received, without deduction Profit (price minus proven updated cost) Rate 25% Maximum rate of article 152 tax bracket Requirements No additional ones Transfer in public deed, or representative in the country; determine profit per Chapter IV of Title IV Who pays The buyer if resident in the country or has permanent establishment; if no withholding agent, the taxpayer within 15 days Same; the notary calculates and pays when sale is in public deed

Which one suits me?

It depends on the case and can turn out opposite to what seems intuitive. The direction is this: the profit path wins when profit is a moderate fraction of the sale price; the 25% on gross only wins when profit represents a very high fraction of the price, that is, when the proven updated cost is small compared to what you're selling. Moderate appreciation favors the profit path; enormous appreciation favors the 25% on gross. And the inflation adjustment pushes the result toward the profit path, because it raises the recognized cost and lowers the taxable profit.

An illustrative example, not a real case, to see both sides. Property A: appreciated little, the profit is a small portion of the sale price. Here the rate on that small profit usually costs less than 25% applied to the entire price. Property B: the proven cost is minimal compared to a very high sale price, almost everything is profit. There 25% on gross can result in less than applying the rate to a profit that represents almost the entire price. The comparison is done number against number, with your updated cost in hand.

Who withholds the tax?

The buyer withholds when they are resident in the country or a foreign resident with permanent establishment in Mexico. If the buyer is also a foreigner without permanent establishment, there is no withholding agent: then the taxpayer files a return within 15 days following receipt of the income. When the sale is in a public deed, the notary calculates and pays, as you'll see below.

Do you need a tax representative in Mexico? What almost all guides say wrong

If your sale is signed before a notary, you don't need a tax representative to exercise the profit option. Article 160 allows exercising that option to those who have a representative in the country that meets the requirements of article 174, but the same article adds, literally, that "in transfers recorded in a public deed, a representative in the country shall not be required to exercise the option".

And practically every real estate sale in Mexico is recorded in a public deed. There's the error that repeats in the market: it's claimed that without a tax representative you can't pay tax on profit, when the law expressly waives that requirement for the most common case.

What use is the representative then?

It remains relevant in one scenario: the transfer of non-amortizable real estate participation certificates. The waiver of the fourth paragraph applies only to transfers in public deeds, so in that other scenario the representative in the country is the way to exercise the option. Additionally, when there is a representative and the sale is in a public deed, that representative must communicate to the notary the deductions to which their represented party is entitled. The representative keeps the documentation for five years at the disposal of tax authorities.

How is profit calculated and why does inflation adjustment matter?

Profit is the alienation price minus the proven acquisition cost updated with the INPC factors published by INEGI, per article 124 of the LISR. The adjustment is what changes everything in long holdings: the cost of a purchase from ten years ago is not compared in nominal pesos against today's price. It's brought to present value, the recognized cost goes up, and the taxable profit goes down.

What do I do if I don't have construction invoices or improvement receipts?

There's a path in the LISR Regulations, article 205. When you can't prove the construction cost, you can consider 80% of the value of constructions per appraisal as of the corresponding date, conducted by an authorized appraiser. You can also consider the value recorded in the work completion notice. It's an alternative, but it's based on an estimated value, not the actual cost you would have had with your invoices.

Is it worth deeding for less than the actual price?

No, and not for ethics but for arithmetic: undervaluing doesn't save tax, it shifts it to the other party. Article 160 establishes that if the authority conducts an appraisal and it exceeds by more than 10% the agreed consideration, the total difference is considered income of the foreign resident buyer. That difference is taxed at 25% without any deduction, and is paid by the transferor if they are a resident in the country or have permanent establishment; whoever pays it substitutes the taxpayer in the payment obligation.

If you're the foreign buyer, it's a concrete reason not to accept a deed below the actual price: the difference detected becomes your taxed income. For the Mexican seller, an obligation to pay that substitutes for the other's.

Who pays the SAT and in what timeframe?

It depends on whether there's a notary. When the sale is signed before a notary, judge, or broker, they calculate the tax under their responsibility, record it in the deed, and pay it via return within 15 days following the signing date. When there's no withholding agent—for example, a foreign buyer without permanent establishment and a transaction without a notary—the taxpayer files their return within 15 days following receipt of the income.

And there's an obligation that surprises: "a return shall be filed for all transfers even when there is no tax to pay". The notary also files, within 15 days of signing, the information established by the Federal Tax Code on operations of the immediately preceding fiscal year.

What if payment is arranged in installments? The 18-month rule

You can pay the tax as you receive payment. When the transfer is recorded in a public deed and payment is arranged in installments over a period greater than 18 months, the tax can be paid as the consideration becomes due and in proportion to each installment. The requirement is to guarantee tax interest, and the tax on each installment is paid on the 15th of the month following the month in which that payment is due. For those selling with direct financing or on terms, this aligns the tax with actual collection flow.

What if I'm a Mexican tax resident? The exemption and its cap

The law title changes: the Mexican tax resident pays under Title IV (articles 90 to 152), with a proportional mechanism that divides profit among the years elapsed since acquisition. And the primary residence sale exemption appears, which exists but is capped at 700,000 UDIS, not pesos. The equivalent in MXN depends on the current UDI value, which changes daily; you can check it at Banco de México.

The exemption requires that the transaction be carried out before a notary and doesn't apply to the second or subsequent transfers of primary residence. For mid-ticket transactions the cap usually covers the operation; for high tickets, the excess is taxed. There's a regulatory path by which a foreigner could access the exemption by declaring under penalty of perjury their status as a resident in Mexico and stating a domicile; the number of that rule in the Miscellaneous Resolution should be confirmed against the current fiscal year.

Does the treaty to avoid double taxation save me from paying in Mexico?

No. The treaty between Mexico and the United States allows Mexico to tax the gain from transfer of real property located in national territory, even if the transferor is a tax resident in the United States. What the treaty offers is avoiding double taxation—paying twice for the same income—not avoiding Mexican tax. It's the most common wrong expectation: paying in the United States doesn't cancel the obligation in Mexico.

Frequently asked questions

Do I pay taxes in Mexico if I live abroad?

Yes. The sale of a property located in Mexico is taxed in Mexico regardless of where you live, because the source of income is where the asset is. As a foreign resident, article 160 of the LISR gives you two calculation paths: 25% on total income or the rate on profit. Living abroad doesn't exempt you; it determines under which law title you pay tax.

What happens if I received the property as a gift or inheritance and then sell it?

Acquisition free of charge has its own rule in article 160: 25% is taxed on the total value of the property appraisal, without any deduction, and the appraisal must be conducted by a person authorized by the tax authorities. Income received as donations as referred to in article 93, fraction XXIII, subsection a) are excepted. Confirm with a tax specialist how this interacts with your proven cost when you later sell.

What if what I'm selling are real estate participation certificates and not the property itself?

It's the other scenario that enables the profit taxation option. The practical difference is in the representative: the waiver that frees you from naming one applies only to transfers recorded in public deeds. In the sale of non-amortizable real estate participation certificates, the representative in the country remains the way to exercise that option, with the requirements of article 174.

For how long must I keep documentation of the transaction?

When a representative acts in the country, the law requires them to keep documentation at the disposal of tax authorities for five years, per article 174 of the LISR. Regardless of that period, it's wise for you to keep the purchase deed, the tax receipt, and construction and improvement invoices since acquisition: without them you can't substantiate the proven cost or exercise the profit path.

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This guide is informational and doesn't replace professional advice. Before deciding between the two paths or signing, validate your case with an accredited public accountant or tax specialist. At Propyte we can support you and connect you with the right specialist: schedule a review with an advisor.