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Foreign loans into Mexico: interest withholding, thin capitalization, loans treated as dividends and FX gains

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Last verified: 2026-10-26 · Status: Stable

A Mexican company can borrow abroad in dollars without an exchange permit under the rules on this page, but the loan has to be reported to the foreign investment registry when it is with the foreign group, and the tax rules decide what it really costs. Interest paid to a foreign parent or a lender holding more than 10 percent of the votes bears 35 percent withholding under domestic law, against 4.9 to 21 percent for banks and other listed cases, and a treaty can cut it (15 percent under the US treaty for most related party loans). Interest on foreign related party debt above three times equity is not deductible, net interest above 30 percent of adjusted tax profit is capped once group interest passes MXN 20 million, some loans are taxed as dividends, and exchange gains and losses on the debt are taxed as interest.

USD conversions use MXN 18.5026 per US dollar, the US Federal Reserve H.10 noon buying rate in New York for 16 October 2026 (FRED series DEXMXUS), the latest observation available when this page was verified. Legal and tax conversions in Mexico use the Banxico FIX published in the DOF, which differs slightly. Conversions are for orientation only.

Key facts

Withholding on interest to foreign related parties (domestic rate, before treaties)	35 %LISR arts. 152 and 166, section V and last paragraphs, as of 2026-10-26 · in force
Withholding on interest to foreign banks that are the beneficial owners (domestic rate)	10 %LISR art. 166, section I, paragraph a), as of 2026-10-26 · in force
US treaty maximum withholding on interest	4.9 (banks, insurers, traded bonds), 10 (paid by banks, seller credit for machinery), 15 (other) %US and Mexico convention art. 11, as of 2026-10-26 · in force
Argentina treaty maximum withholding on interest	12 %Argentina and Mexico agreement art. 11, approved by Ley 27.334, as of 2026-10-26 · in force
Debt to equity limit for foreign related party debt	3:1 ratioLISR art. 28, section XXVII, as of 2026-10-26 · in force
Net interest cap as share of adjusted tax profit	30 %LISR art. 28, section XXXII, as of 2026-10-26 · in force
Interest amount above which the 30 percent cap applies (group wide)	20000000 MXNLISR art. 28, section XXXII, as of 2026-10-26 · in force
Foreign group loans reportable to the foreign investment registry	Yes, quarterly within 10 business days, above a Commission threshold RLIE art. 38, section II, paragraph c), as of 2026-10-26 · in force
Tax treatment of exchange gains and losses on foreign currency debt	Treated as interest; measured at no less favorable than the DOF FIX of the day LISR art. 8, as of 2026-10-26 · in force

The rule

1. Loan proceeds wired from abroad are paid in the currency sent. Payments in foreign currency that originate in transfers of funds from abroad made through Banco de México or a bank must be fulfilled in the currency transferred, so a dollar loan wired through a bank arrives as dollars. A Mexican company may hold them in a dollar account at a Mexican bank. When the same dollar debt is later repaid in Mexico, the borrower may discharge it in pesos at the FIX unless an exception applies, and that rule cannot be waived (see the FX overview page).
Cost to do it: No regulatory fee; bank wire fees and FX spreads apply.
Example: A US parent lends USD 1,000,000 to its Mexican subsidiary by wire. The subsidiary receives USD 1,000,000 (MXN 18,502,600 at 18.5026) in its dollar account. / USD 1,000,000 borrowed.Ley Monetaria de los Estados Unidos Mexicanos, DOF 27 July 1931 (Chamber of Deputies consolidated text, latest reforms DOF 19 January 2026), Arts. 8 and 9, 1986-01-08 official text · verified 2026-10-26

2. Group loans go into the foreign investment registry's quarterly report. Registered companies must report, within ten business days after each quarter, loans payable to or receivable from the foreign parent, foreign subsidiaries, foreign shareholders and foreign group companies, including bonds, notes, deposits, trade credit and other accounts with maturities over one month, naming the creditors and debtors, when the quarter's flows exceed the amount the Foreign Investment Commission sets by resolution.
Cost to do it: No duty; a missing or late report can be fined 30 to 100 UMA (MXN 3,519.30 to 11,731 in 2026, about USD 190 to 634) under LIE art. 38, section IV.
Example: The USD 1,000,000 intercompany loan drawn in May 2026 is reported in the April to June quarterly report, due ten business days after 30 June, if above the Commission threshold. / USD 1,000,000 loan reported.Reglamento de la Ley de Inversión Extranjera y del Registro Nacional de Inversiones Extranjeras, DOF 8 September 1998 (Chamber of Deputies consolidated text, last reform DOF 17 August 2016), Art. 38, section II, paragraph c) (reformed DOF 31 October 2014), 2014-10-31 official text · verified 2026-10-26

3. Interest withholding depends on who lends. Interest is Mexican source when the capital is placed or invested in Mexico or the payer is a Mexican resident. The payer withholds on the gross interest at: 4.9 percent on interest on publicly traded securities registered as the law requires and on placements through banks or brokers in treaty countries; 10 percent on interest to foreign government lenders, foreign banks (including investment banks) that are the beneficial owners, and entities funded with securities placed abroad, subject to information to SAT; 15 percent to reinsurers; 21 percent on interest paid by Mexican banks to other foreign residents, to foreign sellers of machinery and equipment and on loans financing such purchases or habilitación y avío credit; and in all other cases the top rate of the individual tariff in LISR art. 152, which is 35 percent. The 4.9 and 10 percent rates do not apply when beneficial owners receiving more than 5 percent of the interest hold more than 10 percent of the debtor's voting shares, or are companies more than 20 percent owned by the debtor; then 35 percent applies.
Cost to do it: On USD 80,000 of annual interest to a foreign parent: 35 percent domestic withholding is USD 28,000 (MXN 518,072.80). Treaty relief, if available, lowers it (see the next rule).
Example: A Mexican subsidiary pays MXN 1,480,208 of interest (8 percent on MXN 18,502,600) to its US parent. Without treaty relief it withholds MXN 518,072.80 and remits MXN 962,135.20. / USD 80,000 interest; USD 28,000 withheld at 35 percent; USD 52,000 net.Ley del Impuesto sobre la Renta (LISR), DOF 11 December 2013 (Chamber of Deputies consolidated text, last reform DOF 1 April 2024), Arts. 166 and 152, 2013-12-11 official text · verified 2026-10-26

4. Treaties cut the rate. Under the Mexico and United States income tax convention, interest beneficially owned by a US resident may be taxed in Mexico at no more than 4.9 percent on loans by banks and insurers and on regularly traded bonds, 10 percent on interest paid by banks and on seller credit for machinery and equipment, and 15 percent in all other cases, which covers a typical loan from a US parent; interest on back to back loans is taxed under Mexican domestic law. Under the Mexico and Argentina agreement, in force since 23 August 2017, Mexico may tax interest beneficially owned by an Argentine resident at no more than 12 percent. Treaty benefits require proof of residence and the other conditions in LISR art. 4 (see the tax treaties page). For the Argentine side of a loan from Argentina, see The Argentine Thread guide.
Cost to do it: On USD 80,000 of interest to a US parent: 15 percent is USD 12,000 (MXN 222,031.20) instead of USD 28,000. To an Argentine parent: 12 percent is USD 9,600 (MXN 177,624.96).
Example: The subsidiary in the previous example, holding its US parent's certificate of US residence, withholds MXN 222,031.20 instead of MXN 518,072.80. / USD 12,000 withheld under the US treaty, saving USD 16,000 a year.Convention between the United States of America and the United Mexican States for the avoidance of double taxation, signed 18 September 1992; Agreement between Argentina and Mexico for the elimination of double taxation, signed 4 November 2015, approved by Argentine Ley 27.334 (Boletín Oficial 21 December 2016), US convention art. 11, paragraph 2; Argentina agreement art. 11, paragraph 2, 1992-09-18 official text · verified 2026-10-26

5. Thin capitalization: 3 to 1 on foreign related party debt. Interest on the part of a company's debts that exceeds three times its equity is not deductible to the extent the debts are owed to foreign related parties. The excess is measured as the average annual balance of all interest bearing debts minus three times the average of opening and closing equity; if the foreign related party debt is smaller than that excess, all its interest is non deductible, and if larger, only the proportional part. A separate cap disallows net interest above 30 percent of adjusted tax profit for taxpayers whose interest accrued on debts exceeds MXN 20 million a year, an amount shared across the group in proportion to prior year income; details, exclusions and carryforward are on the thin capitalization page.
Cost to do it: No fee; the cost is lost deductions. At the 30 percent corporate rate, every MXN 1,000,000 of disallowed interest costs MXN 300,000 of extra tax (about USD 16,214).
Example: A subsidiary with average equity of MXN 5,000,000 and average debt of MXN 18,502,600, all owed to its foreign parent, has MXN 3,502,600 above the 3 to 1 limit (18,502,600 minus 15,000,000), so interest on about 18.9 percent of the loan is not deductible. / USD 1,000,000 loan against about USD 270,000 of equity: interest on the debt above about USD 811,000 is not deductible.Ley del Impuesto sobre la Renta (LISR), DOF 11 December 2013 (Chamber of Deputies consolidated text, last reform DOF 1 April 2024), Art. 28, sections XXVII and XXXII, 2013-12-11 official text · verified 2026-10-26

6. Some related party loans are taxed as dividends. Interest on loans from related parties (resident in Mexico or abroad) to Mexican companies or permanent establishments is treated as a dividend when: the debtor gives a written unconditional promise to repay at a date the creditor can set at any time; the interest is not deductible under LISR art. 27, section XIII; the creditor can take part in management on default; the interest depends on or is set by reference to profits; or the loan is back to back, including loans guaranteed with cash, deposits, shares or debt of a related party, and financing without a business reason.
Cost to do it: Recharacterized interest is not deductible as interest and is taxed under the dividend rules instead.
Example: A Mexican subsidiary borrows MXN 18,502,600 from a Mexican bank against a cash deposit by its foreign parent at the bank's branch abroad. The loan is back to back under art. 11, section V, and the interest is treated as a dividend. / USD 1,000,000 back to back loan; interest recharacterized as dividend.Ley del Impuesto sobre la Renta (LISR), DOF 11 December 2013 (Chamber of Deputies consolidated text, last reform DOF 1 April 2024), Art. 11 (last paragraph added DOF 12 November 2021), 2021-11-12 official text · verified 2026-10-26

7. Upstream loans to shareholders can be dividends. Loans from a Mexican company to its shareholders count as distributed dividends unless they arise in the normal course of the company's operations, are agreed for less than a year, carry interest at least equal to the rate the Federal Revenue Law sets for extensions of tax debts, and those conditions are actually met. Mexican companies paying dividends to foreign residents must withhold 10 percent on dividends falling within these rules.
Cost to do it: If recharacterized, 10 percent withholding on the loan amount, plus corporate level tax at 30 percent on the grossed up amount if not paid from CUFIN (LISR art. 10).
Example: A Mexican subsidiary lends MXN 18,502,600 to its foreign parent for three years at no interest. It fails the conditions, so the loan is a dividend: MXN 1,850,260 must be withheld at 10 percent. / USD 1,000,000 upstream loan; USD 100,000 withholding if treated as a dividend.Ley del Impuesto sobre la Renta (LISR), DOF 11 December 2013 (Chamber of Deputies consolidated text, last reform DOF 1 April 2024), Arts. 140, section II, and 164, section I, 2013-12-11 official text · verified 2026-10-26

8. Exchange gains and losses on the debt are taxed as interest. Gains and losses from fluctuations of foreign currency, accrued on principal and interest, are treated as interest for income tax purposes. The gain cannot be lower, and the loss cannot be higher, than the one resulting from the Banxico rate for settling foreign currency obligations payable in Mexico (the FIX) published in the DOF for the day the gain or loss is realized.
Cost to do it: No fee; the gain is taxable at 30 percent and the loss is deductible, subject to the interest limits above.
Example: The subsidiary borrowed USD 1,000,000 when the FIX was an illustrative 19.0000 (MXN 19,000,000) and repays it when the FIX is 18.5026 (MXN 18,502,600). It has an exchange gain of MXN 497,400, taxed as interest income. / Exchange gain of MXN 497,400, about USD 26,883 at 18.5026.Ley del Impuesto sobre la Renta (LISR), DOF 11 December 2013 (Chamber of Deputies consolidated text, last reform DOF 1 April 2024), Art. 8, fourth paragraph from the end (reformed DOF 12 November 2021), 2021-11-12 official text · verified 2026-10-26

Lender	Domestic rate	US treaty limit	Rule
Foreign bank, beneficial owner, not a more than 10 percent shareholder	10%	4.9%	LISR art. 166, section I; US convention art. 11(2)(a)
Holders of publicly traded securities (registered as required)	4.9%	4.9%	LISR art. 166, section II; US convention art. 11(2)(a)
Foreign seller of machinery and equipment	21%	10%	LISR art. 166, section IV; US convention art. 11(2)(b)
Foreign reinsurer	15%	4.9% (insurance companies)	LISR art. 166, section III; US convention art. 11(2)(a)
Foreign parent or other related lender	35%	15% (back to back loans: domestic law)	LISR arts. 152 and 166, section V; US convention art. 11(2)(c)
Any lender resident in Argentina	As above	12% cap under the Argentina agreement	Argentina and Mexico agreement art. 11(2)

Mexican withholding on interest paid abroad, domestic rates and US and Argentina treaty limits, verified 26 October 2026.

Worked example

A US parent lends USD 1,000,000 at 8 percent a year to its Mexican subsidiary, which has average equity of MXN 5,000,000 and no other debt.
Interest for the year is USD 80,000 (MXN 1,480,208 at 18.5026). Domestic withholding would be 35 percent (USD 28,000); with the parent's US residence certificate the subsidiary withholds 15 percent, USD 12,000 (MXN 222,031.20), and remits USD 68,000.
Thin capitalization: the 3 to 1 limit is MXN 15,000,000, so MXN 3,502,600 of the MXN 18,502,600 debt is excess, and interest on about 18.9 percent of the loan (about MXN 280,200, or USD 15,144) is not deductible. Total interest is below MXN 20 million, so the 30 percent cap does not apply.
The loan appears in the RNIE quarterly report of loans with the foreign group if above the Commission threshold.
If the peso strengthens between drawdown and repayment, the subsidiary books an exchange gain taxed as interest; if it weakens, an exchange loss deductible as interest, both measured at the DOF FIX (LISR art. 8).

Step by step

1. Decide debt or equity with the thin capitalization limit in mind: model three times projected average equity against the planned foreign related party debt (LISR art. 28, section XXVII).
2. Write the loan agreement on arm's length terms: fixed maturity, interest not tied to profits, no management rights on default and no guarantees from related party cash or securities, to stay outside LISR art. 11.
3. Before the first interest payment, collect the lender's tax residence certificate and treaty documentation (LISR art. 4).
4. Withhold at the right domestic or treaty rate when the interest becomes due or is paid, whichever comes first, convert dollar amounts to pesos at that moment, and pay the tax to SAT by return (LISR art. 153).
5. File the RNIE quarterly loan report within ten business days after each quarter when above the threshold.
6. Track the FIX on drawdown, interest and repayment dates to compute exchange gains and losses (LISR art. 8).

Common traps

Applying the 4.9 or 10 percent bank rates to a lender that is a more than 10 percent shareholder. The reduced rates in LISR art. 166, sections I and II, switch off and 35 percent applies.
Assuming the US treaty fixes a back to back loan. The US convention leaves interest on back to back loans to Mexican domestic law (art. 11, paragraph 2), and LISR art. 11 can treat it as a dividend.
Ignoring exchange losses in the thin capitalization and interest cap analysis. Exchange differences on debt are interest for LISR purposes (art. 8).
Lending cash up to the parent. An upstream loan that fails the four conditions in LISR art. 140, section II, is a dividend and triggers 10 percent withholding.
Leaving trade payables to group companies off the RNIE report. Trade credit over one month counts as a reportable loan (RLIE art. 38, section II).

Sources

Related: Mexico country profile · live dashboard · central bank and release calendar · our posts on X · where Argentina is involved, see The Argentine Thread guide

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