RESICO: Mexico's Simplified Tax Regime for Cabo Rental Income

Mexico's RESICO regime lets you pay as little as 1% tax on Cabo rental income — but only if you are a Mexican tax resident. Everyone else pays 25% flat. Here is how each path works and which one applies to you.

What Is RESICO?

RESICO stands for Régimen Simplificado de Confianza — Mexico's simplified trust-based tax regime introduced in 2022. It was designed to bring small businesses and individual earners into the formal tax system by offering drastically lower rates in exchange for giving up deductions.

For rental property owners, RESICO means paying a fraction of what the traditional regime charges. Instead of a progressive rate that climbs to 35%, you pay between 1% and 2.5% on every peso of gross rental income. The catch: you cannot deduct anything. Not maintenance, not management fees, not insurance, not depreciation. The low rate is the benefit.

I tell my clients to think of it as the "easy button" for Mexican rental taxes. Small bill, zero paperwork beyond issuing invoices (facturas) and filing monthly returns. But it is only available to one group: Mexican tax residents.

Who Qualifies for RESICO?

This is where most Cabo property owners get tripped up. RESICO eligibility has nothing to do with your nationality or citizenship. It is entirely about your tax residency status under Mexican law.

You are a Mexican tax resident if:

• You have established your primary home (casa habitación) in Mexico — this is the primary test under Article 9 of Mexico's Income Tax Law (LISR)
• You spend 183+ days per calendar year in Mexico — the secondary test, though the SAT weighs the "center of vital interests" more heavily
• Your center of vital interests is in Mexico — meaning more than 50% of your income originates from Mexican sources, or your primary professional activity is based here

If none of those apply — if you are a snowbird who spends four months in Cabo and eight in the US, with your primary home and income stateside — you are a non-resident for Mexican tax purposes. And non-residents cannot use RESICO.

The RESICO Rate Structure

RESICO uses a tiered rate structure based on total annual income from all RESICO-eligible activities. Here is the current schedule according to Mexico's SAT:

Let me make this concrete. If your Palmilla condo generates MX$600,000 per year in rental income (roughly $34,000 USD), your total RESICO tax bill is MX$6,600 — about $375 USD. Compare that to the regular regime, where the same income could face an effective rate of 15–20% after deductions, or the non-resident flat rate of 25% ($8,500 USD). The difference is not subtle.

The Non-Resident Alternative: 25% Flat

If you are not a Mexican tax resident — and most American and Canadian Cabo property owners are not — your rental income is taxed at a flat 25% of gross receipts. No deductions. No exceptions. No negotiation.

This rate is established under Article 145 of the LISR (Mexico's Income Tax Law). Here is how it works in practice:

• Your property manager or tenant is legally required to withhold 25% of every rental payment and remit it to the SAT
• The withholding is considered your final tax — no annual return is required for this income
• You cannot deduct property management fees, maintenance, HOA dues, insurance, or depreciation
• The 25% applies to the gross amount, not net — before any expenses

On a property in Cabo San Lucas that generates $60,000 USD in annual rental income, that is $15,000 in Mexican tax. You can claim a foreign tax credit on your US return under the US-Mexico tax treaty, so you are not paying double — but the rate still stings compared to RESICO's 1–2.5%.

RESICO vs. the Regular Regime: Side-by-Side

If you are a Mexican tax resident, you have a choice: RESICO or the Régimen General (regular regime). Here is how they compare for rental income:

The math usually favors RESICO for Cabo vacation rentals. Here is why: most vacation properties in El Medano or San Jose del Cabo have relatively predictable expenses — property management (20–30% of gross), HOA fees, insurance, and occasional maintenance. Even with all deductions, the effective rate under the regular regime rarely drops below 10–15% of gross income. RESICO's 1–2.5% wins by a wide margin.

The regular regime only makes sense when your deductible expenses are exceptionally high — a major renovation year, for example, where depreciation and repair costs could push your taxable income close to zero.

Getting Your RFC: The First Step

Regardless of which regime applies to you, earning rental income in Mexico requires an RFC — Registro Federal de Contribuyentes, Mexico's taxpayer identification number. Think of it as Mexico's equivalent of a Social Security number for tax purposes.

The registration process:

1. Get a CURP first — Mexico's population registry number for foreigners. Available at INM (immigration) offices or Mexican consulates
2. Book a SAT appointment — online at sat.gob.mx or by calling the SAT help line. Wait times for appointments can be 2–4 weeks in Los Cabos
3. Bring documentation — passport, proof of Mexican address (utility bill or bank statement), CURP, and your immigration card (FM2, FM3, or residente temporal/permanente)
4. Complete in-person registration — the SAT agent will process your application, take biometric data for your e.firma (electronic signature), and issue your RFC on the spot

The RFC itself is free. The entire process takes 1–2 hours at the office. I recommend using a local contador (accountant) to accompany you — they know the SAT staff, speak the language, and can ensure your tax profile is set up correctly from day one. Expect to pay $100–$200 USD for this service.

The Worldwide Income Trap

Here is the conversation I have with every client who hears "1% tax rate" and immediately wants to become a Mexican tax resident: Mexico taxes residents on worldwide income.

That means if you establish tax residency in Mexico to access RESICO, the SAT can tax:

• Your US Social Security benefits
• US pension and 401(k) distributions
• Investment income from US brokerage accounts
• Rental income from US properties
• Capital gains on US stock sales
• Any other global income

The US-Mexico tax treaty prevents double taxation through foreign tax credits, but navigating dual-country compliance is complex and expensive. A good cross-border tax advisor charges $3,000–$5,000 per year for the additional filings.

For most American snowbirds who spend 3–5 months per year in Cabo, the 25% non-resident rate on rental income is actually the simpler and sometimes cheaper path when you factor in the compliance costs of Mexican tax residency. Do the full calculation before chasing the low rate.

Practical Example: A Cabo Condo Earning $48,000 Per Year

Let me run the numbers on a typical scenario — a two-bedroom condo in the Corridor generating $48,000 USD in annual rental income (roughly MX$840,000 at current exchange rates):

Scenario A: Non-Resident (25% Flat)

• Gross rental income: $48,000
• Mexican tax (25%): $12,000
• US foreign tax credit: $12,000
• Net US tax impact: reduced by the credit
• Compliance cost: $500–$1,000/year (Mexican accountant for withholding verification)

Scenario B: Tax Resident Under RESICO (1.5% Rate)

• Gross rental income: $48,000 (MX$840,000)
• Mexican tax (1.5%): $720
• US foreign tax credit: $720
• Additional Mexican tax on US income: varies widely
• Compliance cost: $3,000–$5,000/year (dual-country tax preparation)

The RESICO tax bill is $11,280 lower. But the compliance cost is $2,000–$4,000 higher, and you are now exposing all US income to Mexican taxation. For someone with significant US-based retirement income, the net could easily be negative. For a younger buyer whose primary income comes from Mexico-based activities, RESICO is almost always the better deal.

Common Mistakes I See

After years of advising Cabo rental property buyers, these are the errors that cost people the most:

1. Assuming RESICO applies automatically — you must actively register for it at the SAT. Without registration, the SAT defaults you to the regular regime
2. Ignoring the withholding requirement — your property manager must withhold and remit taxes monthly, whether you are a resident or not. Failure to withhold triggers penalties on the manager and the owner
3. Not issuing facturas — both RESICO and regular regime require you to issue electronic invoices (CFDI) for every rental payment received. This is non-negotiable
4. Confusing tax residency with immigration status — having a residente temporal card does not automatically make you a tax resident. Tax residency is determined by the "center of vital interests" test, not your visa type
5. Forgetting about IVA — rental income in Mexico is also subject to 16% IVA (value-added tax), though residential rentals are exempt. Short-term vacation rentals may not qualify for the exemption depending on how they are structured

How to Set This Up Right

Here is my recommended sequence for any Cabo property owner who plans to generate rental income:

1. Determine your tax residency status — be honest about where your center of vital interests lies. This decision drives everything else
2. Hire a Mexican contador — not a generalist accountant, but one who specializes in foreign property owners. In Los Cabos, expect to pay $1,500–$3,000 per year for ongoing tax compliance
3. Register for your RFC — do this before your first rental payment is received
4. Choose your regime — RESICO or regular, based on the math for your specific situation
5. Set up your property manager's withholding — ensure they are withholding the correct percentage and remitting it monthly
6. Coordinate with your US tax advisor — make sure foreign tax credits are being claimed properly to avoid double taxation

The tax setup is not glamorous, but it is the difference between a Cabo investment that works and one that leaks money through unnecessary tax exposure. Get it right from the start.