Cross-Border Investors: Do You Need to Report Income from U.S. or Mexican Assets?

Federico Daniel Villaseñor Hernández
Aug 28
2 min read

For foreign investors holding assets in *Mexico and the United States**, tax obligations can quickly become complex. Real estate rentals, stock sales, and cross-border flows of income often trigger rules in more than one jurisdiction.*

The key question: Where should you pay tax, and how do you avoid being taxed twice?

Capital Gains from U.S. or Mexican Shares

Under the Mexico–U.S. Tax Treaty, capital gains are generally taxed in the country of residence of the investor. However:

If you hold more than 25% of a U.S. or Mexican company for at least 12 months, that country may retain taxing rights on the sale.
For minority investments (less than 25%), taxation usually shifts to your country of residence.

👉 In practice, this means foreign investors selling Mexican shares may face Mexican withholding tax, unless treaty relief applies. Similarly, U.S. stock sales by non-U.S. residents may fall outside U.S. tax but remain taxable at home.

Rental Income from Real Estate in Mexico

The treaty framework is clear: rental income is taxable where the property is located.

If you own property in Mexico, rental income is subject to Mexican income tax.
Your home country may still require you to report that income, typically allowing a foreign tax credit for taxes already paid in Mexico.

Risks of Non-Compliance

Failing to disclose Mexican or U.S. income in your country of residence can create:

Double taxation if treaty benefits are not claimed properly.
Penalties and surcharges from underreporting.
Increased audit exposure, especially under FATCA, CRS, and bilateral tax exchange agreements.

Even if income never leaves the country of origin, international transparency makes it harder to “hide” cross-border flows.

Practical Scenarios for Foreign Investors

Selling U.S. shares as a Mexican or Colombian resident – usually taxed in Mexico/Colombia, not the U.S.
Receiving rental income from Mexican property as a U.S. or European resident – taxable in Mexico, reportable at home.

Owning investments in both markets – requires careful use of tax treaties to eliminate double taxation.

Key Takeaways for Cross-Border Investors

Always check treaty protections – they reduce but don’t eliminate reporting obligations.
Real estate is taxed where it is located – no exceptions.
Capital gains rules differ for major vs. minority shareholders – 25% is the critical threshold.
Plan before you sell – restructuring or timing can optimize tax outcomes.