For any Mexican investor looking north in search of opportunities, understanding the double taxation agreement with the United States is not optional, but an absolute necessity.
If you buy a property in Miami and earn rental income, or decide to sell it and generate a capital gain, you’re probably wondering: Where do you pay taxes? In Mexico? In the United States? Or both? The idea of paying taxes twice on the same income is frightening. Also, in some cases, it drives investors away from the U.S. market.
This bilateral treaty exists precisely to avoid this double tax burden. Its purpose is to promote safe international investment. In the same way, it reduces financial risk and improves net returns for those who diversify their portfolios outside of Mexico. For Mexican investors, it is the key to accessing the U.S. market without unpleasant tax surprises.
What is the double taxation agreement with the United States?
First, let’s clarify what the double taxation agreement with the United States is. It is a tax agreement signed between Mexico and the United States with the following essential purposes:
- Avoid having the same income taxed twice, that is, paying taxes in both Mexico and the U.S. on the same income.
- Establish which country has priority for taxing each type of income, depending on its origin.
- Allowing tax deductions or credits in the country of residence for taxes already paid in the other country.
For example, suppose you own property in the U.S. and earn rental income. In that case, the agreement determines whether you only pay taxes in the United States or whether you must also file taxes in Mexico, but with a credit for what you’ve already paid.
The key lies in the criteria for tax residency, source of income, and type of income. Thanks to the agreement, it’s possible to structure your investments legally and efficiently, minimizing your total tax burden and avoiding the trap of double taxation.
Double taxation agreement with the United States: protected income
Now, what income is protected under this agreement? Let’s look at the main ones and how they impact Mexican investors:
Income from the rental of real estate
If you buy a property in the United States and rent it out, you generate income that, in principle, must be taxed there. The treaty allows you to pay the corresponding tax in the United States and then credit that amount in Mexico, avoiding a second tax on the same income.
For example, if you pay 30% income tax in the U.S. on your property, you can deduct that amount from your taxes in Mexico, according to tax credit rules.
Double taxation agreement with the United States: capital gains
One of the biggest concerns for investors is what happens when they sell a property in the U.S. and make a profit. Under the double taxation agreement with the United States, this profit is generally taxed only in the country where the property is located, i.e., the U.S.
This is vital because it prevents a scenario in which Mexico would also want to tax that profit, increasing the fiscal cost of your operation.
Interest and dividends
Another key point of the agreement is how it regulates taxes on interest on bank accounts, financial investments, or dividends. For Mexican investors:
- Interest: The agreement limits the withholding rates the U.S. can apply to interest paid to Mexican residents, preventing excessive withholdings.
- Dividends: The same applies to dividends from U.S. companies; there is a maximum withholding limit, lower than would be used without a treaty.
Thus, passive income derived from financial investments in the U.S. is more tax-efficient.
Business revenue
If you decide to open an LLC or operate a business in the United States, the double taxation agreement with the United States establishes clear rules for determining whether your profits are taxed only there or if Mexico can also tax them.
In general, if you don’t have a permanent establishment in the U.S., your business income may be exempt from federal tax there. However, each case should be analyzed individually by an expert. Knowing these rules allows you to structure your investments to pay only what is necessary and avoid errors that lead to penalties or double tax burdens.
Benefits of a double taxation agreement with the United States
Why is the double taxation agreement with the United States so valuable for Mexican investors? Because it’s not just a technical or legal document; it’s a fundamental tool for protecting and optimizing your income when you decide to expand your assets into one of the largest and most dynamic markets in the world. Let’s look at its most essential benefits in detail:
Avoid double taxation
The central benefit of the double taxation agreement with the United States is to eliminate double taxation. That is, to prevent income from being taxed in both Mexico and the United States at the same time.
Without this agreement, you could face scenarios where:
- The real estate income you earn in the U.S. is taxed there and again in Mexico, reducing your profit margin.
- Capital gains from the sale of property or other assets are subject to tax in both countries, making your investments less attractive.
- The interest or dividends you collect from bank accounts, investments, or stocks in the U.S. are subject to excessive withholding. They are also included in your annual tax return in Mexico.
Thanks to the agreement, these earnings are taxed in either country, and what you pay in the U.S. can be credited to Mexico, reducing or eliminating your tax burden here. This is essential to protecting the real returns on your investments.
Facilitates tax planning
One of the biggest challenges of investing abroad is tax uncertainty. Not knowing how much or where you’ll pay taxes can paralyze projects or increase financial risk. Thus, the double taxation agreement with the United States provides:
- Legal clarity: Precisely defines what types of income are taxed in the U.S., what types are taxed in Mexico, and how the tax burden is offset between the two countries.
- Projection capabilities: Allows you to create realistic and fundamental tax projections to help you decide which sectors to invest in, which structures to use (individual or LLC, for example), and the actual net return on your investments.
- Tax optimization: Thanks to the provisions of the treaty, it’s possible to design legal strategies that reduce your overall tax liability. For example, you could prefer certain types of income (rentals vs. dividends) or take advantage of the reduced withholding rates established in the treaty.
In short, the agreement saves you taxes and allows you to plan with confidence, which is invaluable in the world of international investments.
Improves net profitability
The direct impact of avoiding double taxation is to improve your net profitability. Every peso you save in taxes is a peso that increases your profits. Imagine this scenario: You buy an apartment in Miami and rent it for U.S.D 3,000 per month. You’ll then pay U.S. taxes on that income. Thanks to the agreement, you can credit that payment to the SAT, preventing Mexico from charging you full taxes on the same income again.
This means you don’t double your tax burden, which translates into more net money for you. Furthermore, in large transactions (such as the sale of real estate or business interests), the difference can represent hundreds of thousands of dollars in tax savings, completely changing the profitability of your investment.
Minor risks with a double taxation agreement with the United States
Investing in a foreign country always carries risks. Among them, one of the most feared is tax or legal risk: not knowing the rules and ending up paying more taxes than expected or, worse yet, facing penalties. Thus, the double taxation agreement with the United States:
- Provides a solid, bilateral legal framework that protects Mexican investors.
- Gives you the peace of mind of knowing that there is an agreement between governments that avoids arbitrary or unilateral interpretations.
- Minimizes the risk of tax disputes, as the SAT and the IRS must adhere to the treaty’s provisions.
- Offers dispute resolution mechanisms in the event of tax discrepancies between the two countries.
This legal security framework fosters confidence in investing in the U.S., which is key for any Mexican who wants to internationalize their assets without fear of tax or legal surprises.
Facilitates the internationalization of heritage
Beyond the fiscal aspect, the agreement also opens the door to the orderly internationalization of Mexican assets. For those looking to diversify risks, access higher-yield markets, including real estate in dynamic cities (Miami, Houston, Los Angeles), or even protect their family assets long-term, the treaty is a strategic tool.
It allows Mexican investors to operate in the United States, knowing that their money won’t be taxed twice. In fact, they can fulfill their tax obligations in both countries transparently and efficiently.
A double taxation agreement with the United States sets you apart
Many international investors do not have a similar agreement between their countries and the U.S. This means that Mexicans have a comparative advantage that allows them to:
- Optimize your tax burden.
- Structure businesses or real estate investments more profitably.
- Access reduced withholding rates for certain income.
In a highly competitive global market, where every percentage point of profitability counts, this can make a big difference.
Double taxation agreement with the United States: best practices
Understanding this agreement is only the first step. To benefit from it, you must apply it correctly. Here are some basic recommendations:
Double taxation agreement with the United States: choose an expert
Simply reading the treaty isn’t enough. Its application is complex, as it depends on factors such as tax residency, source of income, and corporate structure. Always consult an accountant or advisor specializing in international taxation to avoid costly mistakes.
Declare your income in both countries
Although the agreement avoids double taxation, you must declare your income in both Mexico and the U.S. This demonstrates transparency and avoids problems with the SAT or the IRS.
By the way, if you’re wondering what is the IRS, it’s the federal agency responsible for collecting taxes in the United States and enforcing the country’s tax laws.
Learn about the double taxation agreement with the United States
Both the treaty and the tax laws of both countries can change. Inform yourself regularly and adjust your strategy when necessary. A change in the treaty or tax rates could directly impact your profitability.
Keep tax receipts
If you pay taxes in the U.S., keep all documents that prove how much you paid. You’ll need these receipts to prove your taxes in Mexico and avoid paying twice.
Evaluate the structure of your investment
Sometimes it may be better to invest as an individual; other times, it may be better to do so through entities such as an LLC. Each arrangement has different tax implications in the U.S. and Mexico. Always consult an advisor to optimize your tax burden.
Double taxation agreement with the United States for investment
For Mexican investors, the double taxation agreement with the United States opens the door to investing in real estate with greater confidence. States like Florida, Texas, and California are popular destinations due to their economic dynamism and potential for appreciation.
With the treaty, it is possible to:
- Receive income from real estate and avoid paying duplicate taxes.
- Selling property with gains subject to taxation in the U.S. only.
- Investing in real estate developments through efficient corporate structures.
This significantly reduces tax risk and makes real estate investment in the U.S. much more attractive. For internationally oriented investors, the treaty is a strategic tool that can make the difference between a profitable investment and a costly one.
Take advantage: double taxation agreement with the United States
Suppose you are a Mexican investor interested in acquiring property in the United States, at PFS Realty Group. In that case, we offer the expert support you need to navigate the U.S. market with legal and tax support.
We have a team specialized in international transactions and partnerships with tax experts to help you make the most of the double taxation agreement with the United States. Furthermore, we help you protect your income, structure your investments legally, and maximize your profitability.
In addition, we offer comprehensive accounting and legal advice services to help you with U.S. and Mexican regulations, and to help you avoid tax risks and unexpected penalties. Invest smart with PFS Realty Group!
References
- Arenas, M. (2025, January 31st). Doble tributación: todo lo que tu empresa debe saber. Deel.
- IRS. (2025, January 3rd). United States income tax treaties – A to Z.
- Napolitano Pompa, G. (2024, August 21st). Convenio de doble tributación México-EUA: aplicación del Acuerdo mutuo. Veritas.