Income Tax Liabilities in Mexico

Expats’ tax liabilities for work performed online or over-the-phone in Mexico comes up over and over on forums across the web. The situation becomes even more interesting if they live here full-time, doing on-line work for a non-Mexican company, and receive their pay in foreign (non-Mexican) accounts. This ball was most recently kicked-around at length on a Mexconnect thread. “Tax Liabilities in Mexico”

At first glance there appears to be a conundrum between: Hacienda’s policy that worldwide income must be reported by expats whose principal place of activity is Mexico and INMs policy for (not?) giving visas to expats work online and live in Mexico, who do not work for Mexican employers and receive their pay outside of Mexico.

Here’s one more perspective on the issue: I spoke with a Merida INM supervisor today about these specific issues, and she made a phone call to her manager to check on her understandings. She then said that:
1. INM would issue this person a “No Inmigrante Visitante Otros – No Lucrativa” – “FM3” – visa/permit.
2. No taxes are owed to Mexico.
3. The expat should not register with Hacienda.

She then gave me the following written instructions for an INM application for the “No Inmigrante Visitante Otros – No Lucrativa” visa/permit.
~ ~ ~ ~ Register your INM application online at the “Solicitudes de Tramite” website.
~ ~ ~ ~ Choose “FORMATO MIGRATORIO PARA TRAMITES DE ESTANCIA
~ ~ ~ ~ Under “QUE DESEA HACER“: Choose “Realiza actividades diferentes a las autorizades
~ ~ ~ ~ Complete the online application, and bring a copy of the printed final form that shows your Pieza Number, to your INM Office.
~ ~ ~ ~ Bring passport & copies.
~ ~ ~ ~ Bring a comprabante & copies of your residence (CFE or JAPAY bill), your original “forma migratoria vigente“, your “comprabante de pago de derechos por recepcion, examen y esudio de las solicitud, si las caracteristica del extranjero es la de turistica … $491.00” for expats who have just entered Mexico on a tourist visa.
~ ~ ~ ~ Bring “El pago de derechos correspondiente al otorgamiento de la nueva caracteristica por adquirir debera realizarse al momento de tramitar la expedicion de la forma migratoria. Comprabante de pago de derechos. Actividades No Lucrativas: $1.294.00, con fundamento en el Articulo 8, fraccion II, B) de la LFD
~ ~ ~ ~ and: “Las cartas deberan estar bien especificadas que su salario lo recibira en Estados Unidos.

The supervisor said they would gladly issue an “No Inmigrante Visitante Otros – No Lucrativa” – “FM3” – visa/permit to a foreigner who met these requirements.

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If you liked this article, you might also check out our growing body of articles on tax issues for expats in Mexico:
~ Yucalandia’s Master Tax Article

~ Capital Gains Taxes on Mexican Properties
~ Income Tax Liabilities in Mexico
~ Fideicomisos and FATCA: US – Mexico Agreement on FATCA Reporting Requirements

~ IRS Reporting Requirements for Mexico: Fideicomisos / Mexican Land trusts
~ FBAR’s and Fideicomisos: To File or Not to File, That is the Question ,
~ US Income Tax Filing Information for Ex-Pats
~ Tax Issues for Americans and Other Expats Living in Mexico
~ Updated 2011 IRS Requirements: Foreign Account Tax Compliance Act (FATCA)
~ Summaries of US Tax Laws Affecting Citzens Living Abroad

~ Comparing Tax Rates and Tax Policies for US Earned Income and Mexican Earned Income
~ Tax Issues for Americans Living and Working in Mexico – A Redux for 2013
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Disclaimer: This information is not meant as legal advice. It is for educational and informational purposes only. Government policies vary between States and offices, and Mexican Government officials have broad discretion in how they individually enforce policies, so, your personal experiences may vary. See a professional for advice on important issues.

Please Continue to Make Comments and Replies to Help Keep This Information Current!
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Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry

Read-on MacDuff . . .

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20 Responses to Income Tax Liabilities in Mexico

  1. Pingback: Income Tax Liabilities in Mexico | Surviving Yucatan

  2. Pingback: IRS Reporting Requirements for Fideicomisos / Mexican Land trusts | Surviving Yucatan

  3. John Garvin says:

    Steve thanks for sharing. I wonder what would be Hacienda’s perspective from a tax perspective. In having been to a presentation organized by the US consulate rep here in SMA in which a Hacienda rep answered questions, that person indicated a tax liability in the situation you describe.

  4. ph1tx says:

    Does anyone have any suggestions on where to go on line or telephone to get English information for someone with a new FM2 that will be good for 11 months more, to apply for citizenship ? Does anyone know a good lawyer that facilitates these things ? I’m in Puerto Vallarta.

  5. Pingback: Fideicomisos and FATCA: US – Mexico Agreement on FATCA Reporting Requirements | Surviving Yucatan

  6. Pingback: Tax Issues for Americans Living and Working in Mexico – A Redux for 2012 | Surviving Yucatan

  7. Pingback: TAX TIME 2013 ! ~ Summaries of US Tax Laws Affecting Citzens Living Abroad | Surviving Yucatan

  8. Pingback: Summaries of US Tax Laws Affecting Citzens Living Abroad by yucalandia » Jaltemba Jalapeño

  9. viktoria says:

    As a person retired in the 15% tax bracket, do I still have to file every year?

  10. Michael says:

    I have an opportunity to do as the article describes: perform my job in New Jersey while visiting my vacation home in Puerto Vallarta. With the new tax laws and visa types, is this information still correct? Also, is a tourist visa enough, or do I need a “rentista”? (I rent, not own, my place in PV.) Thanks for any info.

    • yucalandia says:

      Hi Michael,
      “Rentista” translates as rentier in English (one who gets their income from investments, bonds, profits, – earned without working) and has nothing to do with renting property.

      I can only repeat what INM told me in the past about this (the same information published above) – and real current tax advice should come from a professional. Check with a Mexican tax professional or at your PV Hacienda/SAT office.

      The US-Mexico tax treaty rules still hold – which means that any taxes you pay on that income back in the USA are credited against what you would owe here – and Mexican tax rates are very low on small amounts of income (2% – 14% => much lower than US rates). If you are in Mexico on a typical non-working “visitante”, then doing internet/phone work through your employer back in Jersey, being paid in Jersey, and paying US taxes in Jersey, would sure seem to mean you would not owe taxes here.
      steve

  11. Jorge says:

    Thanks for the info. I’m in a similar situation and just can’t seem to find enough information to satisfy my questions. I’m a US citizen, living in Mexico. I work remotely for a US based software company. I get paid in US dollars to my US based account. According to what I’ve read from the IRS, Mexico qualifies as my tax home and I pass the bona fide residence test. I travel to Mexico on a 180 day tourist visa, returning to the US for family visits 2-3 times a year.

    Now, my question is, who do I pay taxes to? Some places seem to indicate not to Mexico as I work online and get paid to my US bank account. Other places claim that I would qualify for the US foreign earned income exclusion, meaning that I would be able to exclude a large amount from my income. Do I pay taxes to Mexico, the US, both, neither?

  12. Andrew from Canada says:

    Hi Steve: Some while ago you answered a question on tax liability in Mexico for residents whose only income is pensions received from foreign countries. Your answer was that pension income paid abroad and received in Mexico is not taxable in Mexico. I believe that Mexico taxes residents on world-wide income. I might mis-remember your comment (perhaps on a different thread?), but if I’ve remembered it correctly, can you point me to a source?

    Andrew

    • yucalandia says:

      Hi Andrew,
      Those earlier comments are from our main article on Taxes for US Citizens living in Mexico.

      As a Canadian, the US citizen rules do not apply to you at all – because the US citizen tax rules come from the 1993 USA-Mexico tax treaty. As a Canadian, you need to check out the Mexico-Canada tax agreement.

      If your pension income is not taxable in Canada: Look for a blanket provision that says that Mexico recognizes all taxes and exemptions (deductions) of Canadian law.
      Happy Trails,
      steve

    • yucalandia says:

      Hi Andrew,
      Did you check out the Canada Mexico tax treaty?
      http://www.fin.gc.ca/treaties-conventions/mexico_1-eng.asp

      This clause may help:

      Article 17
      Pensions and Annuities

      1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

      2. Pensions arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise, and according to the law of that State. However, in the case of periodic pension payments, the tax so charged shall not exceed the lesser of:

      a) 15 per cent of the gross amount of the payment; and

      b) the rate determined by reference to the amount of tax that the recipient of the payment would otherwise be required to pay for the year on the total amount of the periodic pension payments received by that individual in the year, if that individual were a resident of the Contracting State in which the payment arises.

      There are also prescriptions against double taxation:
      Article 21
      Elimination of Double Taxation

      1. In the case of Canada, double taxation shall be avoided as follows:

      a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions – which shall not affect the general principle hereof – and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Mexico on profits, income or gains arising in Mexico shall be deducted from any Canadian tax payable in respect of such profits, income or gains;

      b) subject to the existing provisions of the law of Canada regarding the allowance as a credit against Canadian tax of tax payable in a territory outside Canada and to any subsequent modification of those provisions – which shall not affect the general principle hereof – where a company that is a resident of Mexico pays a dividend to a company that is a resident of Canada which controls directly or indirectly at least 10 per cent of the voting power in the first-mentioned company, the credit shall take into account the tax payable in Mexico by that first-mentioned company in respect of the profits out of which such dividend is paid; and

      c) where, in accordance with any provision of the Convention, income derived by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income, take into account the exempted income.

      2. In the case of Mexico, double taxation shall be avoided as follows:

      a) residents of Mexico may credit against the Mexican tax on income arising in Canada the income tax paid in Canada in any amount not exceeding the tax payable in Mexico on such income; and

      b) subject to the existing provisions of the law of Mexico, companies which are residents of Mexico may also credit against Mexican tax on dividends paid by companies that are residents of Canada the income tax paid in Canada on the profits out of which the dividends are paid.

      3. For the purposes of this Article, profits, income or gains of a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other State.

  13. Brian says:

    If I am a permanent resident in Mexico with a center of vital interests outside of mexico, and I become a Mexican Citizen, will the Mexican Tax Office try to tax my income from abroad after I am a citizen?

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