Information on Taxes in Mexico
As an expat in Mexico, the taxes you’ll pay will depend, in part, on your situation. If you own property in Mexico, you’ll pay property taxes. If you rent out that property or own a business, have a job, or have interest-bearing bank accounts, you’ll owe income tax. Even if you have none of these, you’ll still pay sales tax (known as Value Added Tax or VAT) on most retail goods and services.
If you will be doing business in Mexico or even if you will be employed by a Mexican company, it’s a good idea to meet with an international tax specialist, in your home country, before you move. He or she can advise you how to best minimize your tax obligations, especially if you have significant assets in both Mexico and your home country.
Income tax in Mexico
You will owe income tax in Mexico if you hold a job, run a business, rent out a property you own, or hold an interest-bearing bank account or security in Mexico. Essentially, if you earn income from any Mexican business or investment endeavor, you will almost always need to file a Mexican tax return.
Income tax in Mexico varies greatly. Like the U.S., your tax rate will depend on the amount of your earnings, deductions, and other factors. Mexico’s individual income tax rates range from 1.92% to 35%. Non-residents (those in Mexico on a work visa/permit) pay 15% to 30%. Mexico’s corporate tax rate is a flat 30%.
Property taxes in Mexico
If you purchase real estate in Mexico, you’ll pay three different types of property tax over the term of your ownership. However, unlike the property taxes in the U.S. and Canada, property taxes in Mexico are notoriously low.
Here are the three types of taxes associated with your Mexican property:
1. Acquisition Tax
The first tax, collected at closing, is a 2% acquisition tax. This tax is usually collected on behalf of the local municipality, with some states also retaining a small percentage. Closing costs must be paid in cash (Mexican pesos).
2. Annual Property Tax
Known as Predial, these are owed to the municipality in which the property exists. They are to be paid once a year and must be paid in person at the municipal office. Some regions will send bills each year, but not all, and even if bills are sent, the mail system is notoriously unreliable. Just make a note to pay during January as discounts are often extended for early payment. Payment in cash (pesos) is usually required.
Property tax for an average home or condo may run only a few hundred dollars per year. The rate for each property is set by the municipality of residence in each state. Properties located in rural areas may be assessed at less than $100 per year, for example.
3. Capital Gains Tax
Mexican law requires that Capital Gains tax, or I.S.R. (Impuesto Sobre la Renta), is to be paid upon the sale of your property. It can be calculated two ways and you can pay the more favorable of the two. You must pay either 20% of the declared value of the transaction or 28% to 30% of the net gain, less the improvements made, commissions paid, and other allowable expenses. The formula can be a bit complex and the Notary handling the transaction can assist. (In Mexico, Notaries Public are high level government officials assigned to manage a district. They are skilled lawyers and often have large staffs to assist them).
In Mexico, a Value-Added Tax is applied to the sale of most retail goods and services. This tax is 16% in most of the country and 11% in border areas. You will see this VAT added onto the bottom of sales receipts just as would see sales tax added, north of the border.