Mexico has double taxation agreements with 64 countries. In this publication, we will briefly outline the basic principles of applying such agreements when taxing profits in Mexico. To use the rules of the double tax treaty between Russia and Mexico and confirm the payment of taxes in Russia to the Mexican tax authorities (SAT, Tax Administration Service), you need to follow several steps.
A tax paid abroad is considered to be an income tax in nature if it is expressly designated as an income tax and is included in an applicable double tax treaty to which Mexico is a party. It is necessary to confirm not only the fact of payment of income tax in another country, but also the amount of income and tax, and the period for which this tax was accrued.
You should contact the tax office at your place of registration in Russia and obtain a certificate confirming payment of income tax (2-NDFL). The certificate can also be downloaded from State Services. The certificate must be certified by the Russian tax authority. Then you need to make a notarized copy of the certificate, and the notary’s signature must be certified with an apostille stamp in the justice authorities of the Russian Federation on a territorial basis. Once in Mexico, the notarized copy with the apostille must be translated into Spanish by an official Mexican translator.
Confirmation of tax payments in Russia to the Mexican tax authorities will be required each time you file an annual tax return. Each certificate from the Russian tax authorities is valid only for a certain tax period, therefore for each year you will need to request a new certificate about paying taxes in Russia. You need to have time to purchase a fresh 2-NDFL certificate in Russia before filing your annual tax return in Mexico.
When filing a tax return in Mexico, you must indicate that taxes on income have already been paid in another country (Russia), referring to the double tax treaty between the countries, and attach a certificate of payment of taxes in Russia along with its translation. SAT has the right to request additional documentation, such as copies of contracts or other documents confirming the origin of income, bank statements and other financial documents, as well as explanations and sworn statements.
Individuals receiving income from abroad will have to file monthly tax reports with SAT and pay taxes on their income at the rate that applies to their chosen tax regime in Mexico. At the end of the tax year (in Mexico this is also a calendar year), you must submit an annual tax return indicating all income for the year, as well as an annual 2-NDFL certificate from Russia, which confirms that tax on this income or part of it has already been paid in Russia. Then it is possible to request a credit for taxes paid in another country on the basis of a double tax treaty.
Based on the documents provided, the Mexican tax office will recalculate your tax liabilities. Taxes paid in Russia can be offset or you can get back overpaid amounts. If the tax rate in Mexico is higher than that paid in Russia, SAT has the opportunity to demand payment of the difference. However, if the rate in Russia was higher or equal to the Mexican one, no additional payment will be required, but SAT will not reimburse anything.
Consequently, taxes will have to be paid monthly throughout the year, but after filing an annual return and providing a set of documents to justify the avoidance of double taxation, taxes already paid in Russia can be reimbursed or offset.