Here’s some good news for expats in Mexico: Buying and keeping a car there has just gotten a little cheaper. Mexican President Felipe Calderón, making good on a campaign promise, recently signed a bill to phase out a decades-old luxury tax on cars and trucks. The phase-out began last month; the tax is to be totally eliminated by the end of 2011.
The measure aims to please Calderón’s Mexican constituents and give a boost to the Mexican auto industry, hard hit by the recession. But it also helps the country’s million-plus expats.
The annual luxury tax, called tenencia, is levied on all cars and trucks with Mexican license plates. It ranges from about $50 a year for pick-ups to $800 or more for large SUVs. The government is phasing out tenencia gradually, starting with new vehicle purchases. For now, individuals who buy new cars and trucks selling for less than 250,000 pesos (roughly $20,000) will not pay tenencia on them. Many models of compact and sub-compact cars sold in Mexico fall below this price point.
The tax is not levied on foreign-plated vehicles. U.S. expats and tourists, who have long been allowed to bring their U.S.-plated cars and trucks with them to Mexico, don’t pay tenencia on them. For expats who bring their U.S. cars down permanently, the savings adds up.
However, having a foreign-plated car is not all smooth sailing. For instance, vehicles’ warranties may be valid only in the country where they were purchased—creating issues for expats who need repairs in Mexico. Over time, many long-term U.S. expats buy Mexican-plated cars and trucks…and pay tenencia on them. So do the thousands of European and Asian expats who don’t bring a vehicle with them when they relocate.
The tenencia tax was created in 1962 to raise money for the 1968 Mexico City Olympics. Though it was meant to be temporary, the tax has never been taken off the books. Not surprisingly, it’s been unpopular with consumers. During his campaign for president, Calderón promised to get rid of the tax…and is finally making good on that pledge.
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