SAT Clarifies Mexican Income Taxes for Foreigners

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.

Disclaimers:
~ 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”
http://www.sat.gob.mx/english/Paginas/English/tax_treatment_residents_in_mexico.aspx

~  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:

IRS Tax Issues for Americans Living and Working Abroad in Mexico – Master Article


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: “

http://www.sat.gob.mx/english/Paginas/English/residents_in_mexico.aspx

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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:
http://www.sat.gob.mx/english/Paginas/English/how_do_foreigners_pay_taxes.aspx

Income tax calculation  
Tax is paid by applying the rate of 25% on the income obtained, without deduction.

Payment mode 
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.

http://www.sat.gob.mx/english/Paginas/English/residents_abroad.aspx

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**Death & Taxes?  Here’s Yucalandia’s offereing on death:

Preparations & Key Actions for Dealing with the Death of a Loved One in Mexico

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Happy Trails
… and …

Keep doing your best to color inside the lines,

steve

*     *     *     *
Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry

Read-on MacDuff . . .

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4 Responses to SAT Clarifies Mexican Income Taxes for Foreigners

  1. jalpeno says:

    What about residing in Mexico LESS than 183 days make you NOT a tax resident? (regardless of whether you have residency visa)

    • yucalandia says:

      jalpeno,
      You’re on the right track. According to the Mexican ISR (tax law) and SAT website, it is NOT the number of days you spend in Mexico, and it is NOT your visa nor your Mexican citizenship status.

      ~ It’s the % amount of income that you are receiving from Mexican sources or for Mexican activities. ~

      If over 50% of your income (without deduction(s) ) comes from Mexican sources or from Mexican activities, then you are a “resident” for tax purposes.

      Still, our information is only for educational purposes … plus, the ISR is quite dense, so talk with a good Tax attorney or Tax accountant for the final word on your particular situation.

      Happy Trails,
      steve

      • jalpeno says:

        Gracias! thats interesting and good for retirees/expats. Easy to keep most of your assets outside Mexico (just only have the real estate and bank accounts) My MX source income is 0.2% Most countries want to tax you if you live 6 months or more.

  2. jalpeno says:

    Quick question – just opened CiBanco savings account (PRLV) paying 6.5% estimated MXN 10,000 interest income. Will the bank do tax withholding or I have to file return?

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