Expat Taxes in Mexico
In very brief terms, a big part of the savings you can expect from relocating to Mexico will be in terms of Taxes. The following is merely an introduction to the topic.
Property that you purchase in Mexico will be valued by the government for tax purposes. The valuation is called the Catastro and is made by a county official. This valuation for tax purposes bears no relationship to the actual value of the property, but is simply used for an annual taxation known as the Predial, which is very low (at .1% of the assessed value of the property; for example, you will pay $100 for each 100,000 of the property’s assessed value) and which is payable on or soon after January 1st of each year.
IVA (Value Added Tax) (your basic Sales Tax) is not assessed on residential property but is charged on commercial property sales. See Below.
An Acquisition Tax of about 2% is also payable, on either type of property, when it is sold, transferred, donated, subdivided, merged with another property, or placed in trust. Notario fees of about 1.5% of the transaction value will also be assessed. There is also a fee of about US$150 for your sale permit from the Mexican Foreign Office.
Upon selling your property, if your property hasn’t been your primary residence for at least two years, you must pay income tax of either 20% of the gross amount of the sale, or 40% of your net profit from the property. While this sounds like quite a lot of fees, it should amount to about 9-10% of your purchase plus the $150 fee from the Mexican Foreign Office, resulting in a comparatively low rate.
Income Taxes:
If you work in Mexico and receive income from a Mexican-sourced income, you will need to pay personal income tax in Mexico and file a Mexican tax return each year. If you are a United States citizen or a US green-card holder, you must also file a tax return in the United States, if your income (all your income worldwide, not just your US income or Mexican income alone) exceeds a low minimum threshold (see your tax professional or the IRS to find out the threshold for your filing status); however, the United States has agreements with most countries, including Mexico, so that you won’t be liable for double taxation (in other words, you would not pay taxes twice). Also, your first $75,000 should be exempt from US federal income tax.
One further piece of good news: as an expatriate, you will pay no US city or state income tax. The IRS also allows you a tax credit for income tax you’ve paid to the Mexican government. NOTE: Even if you will be exempt from owing tax to the US government, YOU MUST STILL FILE A RETURN. We advise you to consult with your tax advisor on these matters, and preferably with an international tax planner in your home country.
Other taxes:
Sales Tax/Value-added Tax Value-added Tax (IVA, or Impuesto al Valor Agregado): adds 10- 16% to the cost of most goods and services in Mexico. 16% – as of January 2010.
Inheritance & Gift Tax: Mexico does not charge an estate or inheritance tax; however, gifts of real estate, if they are not gifts to your husband, wife, or immediate family, may be taxable, with the tax to be paid by the recipient of the gift. Please consult with your tax advisor before making a gift of your Mexican real estate.
Transfer Tax: Property that’s transferred, sold, donated, subdivided, merged with another property, or placed in trust, is subject to an Acquisition Tax of 2% of the assessed value of the home.
Capital Gains Tax, or ISR (Impuesto Sobre la Renta): When buying property, the seller pays the Capital Gains Tax, or ISR, unless the buyer has agreed to do so. The Mexican Notario Publico, will advise you of the amount. If you sell your Mexican home, you are not liable for Capital Gains Tax provided the home has been your primary residence for at least the past two years. Otherwise, you are liable for Capital Gains Tax at a rate of 20% of the declared value of the transaction, or 40% of the net gain on the sale of the home, less the value of improvements made, commissions paid, and certain other allowable deductions.
Rental Income Tax: If you rent out your property, but reside outside of Mexico, your rental fees are taxable at a rate of 21% in Withholding Tax. If you rent out your property but do reside in Mexico, your rental fees are taxable at regular personal income tax rates.
