Sept. 16, 2017 Update
Taxes and death are the two things most people want to avoid, but here at Yucalandia we suffer from a peculiar malady of grimacing and facing-off with distasteful-but-necessary issues. We recently addressed Death** , so, now it’s time for taxes.
~ As with all legal issues, it’s BEST to talk with a talented expert about the details of how to comply with Mexican law, and the information offered on Yucalandia is solely for educational & informational purposes. This is especially true for taxes, because the Mexican ISR is particularly dense, yet the ISR incudes some surprising exemptions & exceptions.
Still, it’s also really helpful to get a sense of the basic principles of our responsibilities, to know when to go see that good tax attorney &/or accountant. That’s the purpose of this short article. In April, 2017, SAT put up a helpful website, in English, describing foreigner’s specific tax responsibilities, and that website is the basis for this article:
“TAX TREATMENT OF FOREIGN RESIDENTS RECEIVING INCOME IN MEXICO”
~ Note that if you are a resident of either Canada or the USA, Mexico has tax treaties with each, and those tax treaties provisions take precedent over Hacienda~SAT’s ISR rules.
For USA-nians, Yucalandia offers detailed analyses of our responsibilities both in the USA & Mexico under the 1993 USA Mexico Tax Convention at:
“WHO ARE CONSIDERED RESIDENTS IN MEXICO
Tax legislation considers residents in Mexico the following persons:
- To individuals, nationals and foreigners, who have their residence address in Mexico. When they also have a living place in another country they are considered to be resident in Mexico, if they are in the following cases:
– When more than 50% of their annual income is obtained in Mexico.
– When the center of its professional activities is located in national territory.
- Individuals who are State officials or Mexican national workers, even if the headquarters of their business is abroad.
- Legal entities (companies, associations and civil societies, among others) that have established in Mexico their business headquarters or main offices.
Individuals of Mexican nationality are considered residents of Mexico, unless they prove they have a residence status in another country.
Individuals who according to the foregoing are Mexico´s resident, regardless of being a foreign nationality, are taxed as any national individual resident in Mexico. to know how you should be taxed, you may consult the main tax regimes, if you fall in this category.
Individuals who are residents of Mexico will be taxed according to their activity or corporate purpose in any of the following regimes: “
Mexican Taxes on Foreigner’s Real Estate Income
KISS … Keeping it simple: Foreigners who own real estate & rent it out owe 25% taxes (“without deduction”) on the rental income:
“ Income tax calculation
Tax is paid by applying the rate of 25% on the income obtained, without deduction.
People who make payments, calculate the tax and make the withholding and whole or payment corresponding to the Tax Administration Service (SAT).
When the individual who makes payments is resident abroad, taxpayer who obtains the income must calculate and pay the tax by means of a declaration, which he presents either by Internet or bank teller, within 15 days after obtaining the income.
Obligation to issue an electronic invoice for the income or revenue collected
Tenants must issue electronic invoices for the income received, which must have tax requirements.
When the rent is paid to a trust, the trustee must issue tax receipts and make the withholding and the corresponding amount. ”
Caveat: The good attorney Spencer McMullen also noted that the furnishings of a furnished apartment can trigger the IVA (16.5%), but as this advice was published several years ago, talk with your tax attorney / accountant.
Interest Income for Foreign Residents of Mexico
There are multiple levels of interest rates depending on the source of the income, ranging from 4.9% to 35%. e.g. 21% interest is owed on income “paid by banking institutions“.
“HOW FOREIGN(er) WHO RESIDES IN MEXICO SHOULD BE TAXED
Foreigners who reside and receive income in Mexico must meet the tax obligations imposed on them, like any national, the scheme for which they receive their income.”
This includes income from leasing or subleasing of real estate owned by the foreigner.
Foreigners who own property in Mexico ” are considered nonresidents if their main business location is not in this country, that is to say, if more than 50% of their annual income does not proceed from a wealth source located in Mexico, or if the center of their professional activities is not located in national territory, among other reasons. ”