Visit any Mexico Expat Facebook group and you’ll see that taxes are a hot topic! Do I have to pay them? Which ones do I have to pay? How much and when do I have to pay? There is a lot of misinformation flying around these groups and we know there are a lot of questions so we will break it down for you as simply as possible. We will focus on the taxes that most expats are generally impacted by. Please keep in mind, by no means this is an exhaustive list of taxes or tax obligations. Always consult with a tax expert directly if you have any questions about your obligations.
Do I have to file taxes in Mexico?
There are a couple things to consider when trying to determine whether or not you are liable for taxes in Mexico such as:
- Do you own property in Mexico?
- Do you work in Mexico (even if your clients are in another country)?
- Do you work in Mexico via a work permit?
- Do you have any commercial activity in México?
If you answered yes to any of those questions, then chances are you should be paying one or more taxes here.
What are the three types of taxes in Mexico?
In Mexico, there are three types of taxes: Federal, State, and Municipal. The most common taxes that may apply to expats are:
- ISR (Income Tax) – This tax is applied to any individuals or legal entities who earn money within Mexico. For individuals this tax rate can be as high as 35% and for legal entities is fixed at 30%tax on taxable income. This tax is applied to any individuals or entities based in Mexico or earning money in Mexico.
- IVA (VAT Tax) – In most states, the VAT tax is 16% and built into the cost of items you purchase. In some border cities it is considerably lower. It can range from non-taxable, 0% or 8% in those border cities.
- Hosting Services for Property Rentals (Lodging Tax) – Companies like Airbnb and VRBO must collect a lodging tax for all rentals. The amount paid varies by state.
- Vehicle Ownership Tax – A vehicle tax may or may not be due depending on the state your live in.
- Property Acquisition or Transfer of Domain Tax – If you recently purchased a property, you will know that one of the payments you made was a fairly significant tax payment. This is a surprise to many new real estate clients but on the plus side, your annual property taxes will be significantly lower than you are used to.
- Predial (Annual Property Tax) – Due in January (generally with considerable discounts if paid during the fourth quarter of the previous year), the annual property taxes in Mexico will range depending on the municipality your property is located in and what it is valued at.
How Does an Expat Pay Taxes?
As mentioned above, if you are a property owner, you pay your annual property tax to your municipality in January each year, and if you don’t have any commercial activity in Mexico, this is likely the only tax you will be responsible for. There is no need to file monthly or annual returns with SAT, Mexico’s tax authority, like you may have to do in your home country.
If you are not a resident but own property in Mexico through a fideicomiso, you are not required to have a Mexican tax ID known as an RFC. Your property taxes will have a generic RFC that is used for foreigners who do not have residency. However, if you rent your property for profit, you should consult a Mexican tax expert as to what your tax liabilities are and how to pay them.
If you are a foreigner with residency in Mexico, you must be registered with SAT, Mexico’s tax authority. Once registered, you will receive an RFC which is a federal tax ID that is used for all things tax related. In fact, you may be required to give you RFC for things you never considered, like your electric bill, water bill, or even Mexican health insurance. But if you don’t have any commercial activity your RFC number can be register as “No obligations” status, meaning that you don’t have to file any monthly or annual return.
If you are employed, you are required to pay income tax. Normally, this is done monthly. How much you pay depends on what tax plan you are registered with SAT as. It is highly recommended that you seek assistance from a professional and qualified tax expert to be sure you are registered in the appropriate tax plan for your income and your profession.