Mexican tax law determines that taxes must be paid by citizens and visitors who receive any income in the country, and in addition to income from sources in Mexico. Like many other countries, Mexico considers a tax resident to be someone who lives in the country for more than 183 days a year.orhas a center of vital interests here, namely the main place of work or business, the location of family, or receives more than 50% of his income from sources in Mexico. As a tax resident, you must pay taxes on all your income, including income earned outside of Mexico.
Tax non-residents must pay taxes on income from the rental of Mexican real estate, on payments for services to be consumed in the country, on sales of real estate or shares of Mexican companies, on dividends, etc.
For foreigners, in addition, you need to take into account the availability of a work permit, or more precisely, to carry out paid activities. All permanent residents have such permission (here the term “resident” is used from the point of view of migration, not tax legislation, in other words, we are talking about a residence permit) and some temporary residents. Foreigners without residence in the country, including tourists or “visitors,” as the migration service calls them, are not able to obtain work permits in Mexico.
In fact, this entire complex structure can be reduced to several simpler principles.
1. Any foreigner who has a residence permit in Mexico is considered a tax resident of Mexico.
A tax resident who has a work permit is required to pay taxes. No one will count how many days a year you live in Mexico or what %% of your income you earn in Mexico. Taxes must be paid on any income earned in Mexican territory. The IRS does not have the ability or resources to track the income of tax residents outside of Mexico. But the receipt of money into a Mexican account from commercial activities outside Mexico will in addition be considered income (otherwise you will have to prove that this is a transfer of personal funds and not a commercial activity).
If a non-resident is also a tax resident of another state and pays taxes in that jurisdiction, he is entitled to apply the provisions of the double tax treaty. In this case, he must first pay the tax in full and then claim a refund for the amount of tax already paid in another jurisdiction. We talked about the application of the double taxation avoidance mechanism for individuals in Mexico in thispublications.
It is possible not to pay taxes (and not to file an annual return) if the annual income does not exceed 20,000 MXN. We are talking about confirmed income, that is, the existence of which can be proven.
A tax resident who does not have a work permit does not have the right to engage in commercial activities at all. There is no question of taxation of income received as a result of illegal commercial activities. Therefore, one should not assume that if there is no work permit, one can avoid paying taxes or that paying taxes on such income will legalize it. There are obligations under the law, and there is the prospect of avoiding fulfillment of these obligations due to the lack of resources for control by the tax service. But this does not mean that if you violate your obligations, the tax office will not come to you.
There are exceptions. For example, renting or selling real estate or selling a car do not require a work permit and require payment of taxes. But the sale of a home used as a primary residence may be exempt from taxation if certain conditions are met.
Every resident (holder of a residence permit in Mexico) is required to register with the Tax Administration Service (SAT), regardless of whether he has a work permit or not. In this case, a tax number (RFC) and tax regime are assigned. Basic taxation regime for individuals «without tax obligations» does not mean that taxes should not be paid. It means that a special tax regime has not been selected and, subject to the emergence of legal income, the standard tax scale will be applied.incomeindividuals (ISR), from 1.92% to 35%, based on the amount of annual income.
To put it even more simply, if you have a residence permit and income in Mexico, get ready for the fact that sooner or later you will have to pay taxes.
2. Any foreign citizen who does not have a residence permit in Mexico is considered a tax non-resident of Mexico.
Tax non-residents pay taxes only on the rental or sale of real estate, on the sale of shares or on contracts for the provision of services to Mexican companies — this is not a complete list. Most income, such as the sale of assets, rent or services, is subject to a flat income tax rate of 25%, dividends — 10%, and in addition VAT at full rate without deductions, if applicable. Tax non-residents do not have the right to receive income from other types of commercial activities.
Mexico seeks to have tax on the income of a tax non-resident withheld by the withholding agent (employer, tenant, customer, etc.). For example, if a foreign citizen sells real estate in Mexico, the tax is withheld either by the buyer or by the notary who formalizes the transaction. If a non-resident provides services to a Mexican company, the tax on the remuneration is withheld by the contracting company. A tax non-resident receives his income after deducting these taxes.
If you don't have Mexican residency but do have income in Mexico, be prepared to have fairly high tax rates on your income.