Mexico does NOT have a digital nomad visa like several countries around the world. Mexico has a visa based on economic viability, which also requires proof of income. It does not matter how the income was received — remotely or not remotely, but it is essential to document the source of income and the payment of taxes on it. The latter is most often unavailable to digital nomads.
In recent years, Mexico has become a short-term refuge for foreigners working for companies outside of Mexico. In addition to the millions of travelers who come to Mexico each year to winter and work, there has been a significant increase in the number of those who have settled in Mexico but continue to receive income from outside, as well as American and Canadian retirees who have created famous retirement enclaves such as Lake Ajijic in the state of Jalisco.
The influx of non-poor foreigners whose income is derived mainly or entirely from non-Mexican sources cannot be considered to have met with unequivocal approval by the Mexican state. While it's now fairly easy to gain residency in Mexico simply based on, say, having previously visited the country, there's also the question of whether digital nomads are required to pay (more) Mexican taxes based on their non-Mexican income.
Mexico is no stranger to foreigners, and they immediately understand this as soon as they enter the country. Digital nomads may assume that if their income is entirely derived from foreign sources, they have no obligations to the Mexican tax authorities. This is both true and untrue at the same time.
Mexico's immigration laws are quite flexible and allow you to stay in the country for up to 6 months as a tourist. And most tourists receive their allowed 180 days upon entry. And for most digital nomads visiting Mexico, these months are truly enough. Then they move to another country or return to their homeland. If you are one of them, consider that you have no tax liability to Mexico. However, very general legal definitions of what it means to “work in Mexico” have the potential to create problems for those conducting business while ostensibly relaxing on the beach.
In general, if you have been in Mexico for less than six months and have no «vital interests» in the country, such as business or investment, you can sleep peacefully. However, there is a possibility that the tax office will still determine that you are a «tax resident». And it can determine this by the time you spent in Mexico (regardless of immigration status), and, more importantly, by whether your economic activity is connected with Mexico. This actually means several things. To legally stay in Mexico for more than 180 consecutive days, you must become a resident. Once you become a resident, you are required to register with the Service for Tax Administration (SAT) and purchase an RFC tax number. If you haven't received an RFC, nothing bad will happen, but, say, you won't be able to open a bank account or sell a car. You should not sell your goods or services in Mexican territory and should not deposit income received from outside Mexico into Mexican bank accounts, otherwise you risk being subject to taxation.
Guests of the state do not have the right to engage in commercial activities in Mexico, residents — only if their residence is with a work permit. In fact, many foreigners who are located in Mexico as a guest of the state run various small businesses. And although neither the migration nor the tax service is hunting for them, such activity is illegal and is fraught with deportation.
At the beginning of the publication, we mentioned the visa based on economic viability. The residence obtained on its basis also does not include a work permit. No matter how strange it may sound, a resident is required to register with the tax authority, but at the same time does not have the right to conduct commercial activities in Mexico. Once the SAT suspects income derived from Mexican territory, the resident will receive both taxes and a penalty.
But these are all horror stories. The Mexican government's options to obtain or even verify a resident's financial information are very limited. SAT itself admits that it monitors no more than 11% of taxpayers in Mexico, and these are mainly large companies.
It is controversial whether a resident is required to pay taxes on income earned abroad. According to the law — Yes, he should, but in addition he has the right to apply double taxation avoidance procedures. But Mexico has no mechanisms to force foreign employers or nomad banks to provide financial materials. Residents — Digital nomads simply don't report their income abroad and won't be harassed simply for not reporting. It is important that profits earned abroad are not deposited in Mexico into Mexican bank accounts or that such bank transfers appear to be transfers to oneself. In the situation with transfers to an account in Mexico from foreign third parties or companies, the fear is not so much of taxes as of blocking the account by the bank and finding out the origin of the proceeds. At the same time, the matter most likely will not even reach the tax authorities.
All this, of course, does not mean that reporting and paying Mexican taxes should be avoided at all costs. If your business activities do involve Mexico, there are mechanisms for attaching a work permit to your residence, which will allow you to officially do business in the country. If you have a significant or complex income, it makes sense to engage an accountant (or even a lawyer) to optimize any taxes you will be required to pay. Mexico is not a tax offshore, however, taxes here are far from draconian. The income tax scale is progressive, the rate ranges from 1.92 to 35% based on the size of the annual profit. Earnings can be administered by subtracting allowed deductions from gross annual income.
You can find the current ISR (Impuesto Sobre la Renta) income tax rates in thispublications.
Explanation of the rate tables. Fixed quota (Cuota fija) — It is a fixed amount of tax that a taxpayer must pay on a certain range of income. It is used together with the interest rate to calculate the total tax on income. Once the income range is determined, a fixed amount is first added and then an interest rate is applied to all income above the lower end of the range. So, the tax is calculated as the sum of a fixed quota and a variable part, depending on the percentage. The tax base (income range) is calculated after subtracting various expenses and deductions.
There is also a simplified RESICO tax system for those whose annual income is less than 3.5 million pesos. Tax rates in this tax regime range from 1 to 2.5%, however, there are restrictions on the types of activities.
You can read about the tax regimes for individuals in Mexico here.publications.
Probably in the next year — Mexico's digital nomad policy will not change. However, in the longer term, changes are inevitable. From 2023, all foreign residents are required to have an RFC tax number, even without using it. The Tax Administration Service (SAT) has launched an official website in English. The digitization of the reporting system and the obligation for banks to provide information on customer transactions gives SAT the tools to monitor the financial transactions of foreigners. And sooner or later SAT will begin to use these tools.
Please note: SAT requires banks to provide information on receipt of cash in customer accounts in the amount of more than 15,000 pesos per month. Therefore, SAT wants to know whether such receipts are a means of tax evasion. SAT does not yet actively monitor and analyze all reports received from banks. But it has legislative and technical mechanisms to control the circulation of cash. So if you're a digital nomad, your income is not in Mexico, and you don't feel the need to pay taxes in Mexico, don't put yourself at risk by taking significant amounts of cash into your Mexican bank account.