Important Information on Taxes in Mexico
As a retiree, tourist, or expat in Mexico you will find yourself paying taxes, its inevitable. As every situation is different, thus are the taxes that each individual will face. As Ben Franklin famously said, “In this world nothing can be said to be certain, except death and taxes.” Though living in Mexico might help add years to your life, it won’t allow you to escape paying your fair share of taxes. Mexico tax rates may however be lower than what you are used to paying back home.
Income tax in Mexico
If you generate income, you will likely owe an income tax in Mexico. This income could come from:
- Bank accounts (interest-earning)
- Owning a business
- Rental property
- Working (as an employee of another business)
Income tax is paid to SAT (Servicio de Administración Tributaria or Hacienda), which is Mexico’s Federal Tax Collection department. Most situations will require you to file a Mexican tax return.
Rental income is subject to a 21% withholding tax if you rent out the property while residing outside of Mexico. Otherwise, residents are taxed at the normal income tax rate.
Property taxes in Mexico
If you buy real estate in Mexico you will have property taxes. There are three (3) types of tax that you will face for residential property involving the buying, owning, and selling process.
1. Transfer Tax
There is a 2% acquisition tax when you purchase the property. The buyer typically pays this tax, unless negotiated otherwise.
2. Property Tax
Each year you will owe annual property taxes (impuestos predial). These taxes are quite reasonable compared to the U.S and other first world nations. Property is a taxed at a local level in Mexico. Although technically illegal, it is common practice for using an “assessed” value, rather than the actual value from the point of sale. This assessment can be anywhere from 60% to 70% less than the actual market value.
For example, on a home with a market value of $200,000 you could have an official assessment that values the home at $75,000. This would put your transfer tax for acquiring the property at $1500 and annual property taxes around $100 to $200.
3. Capital Gains Tax
Finally, once you have sold the property you will have to pay a capital gains tax. There are a few different ways Mexico allows you to calculate your capital gains. Your first option is to pay 25% of the declared value. Second, you can use the net value and pay 35%. Net value uses the assessed value from purchase and sale, figuring the difference, with consideration of any miscellaneous contributions over the course of ownership. There are other instances where it is possible to not have any capital gains tax. This would be based on the type of ownership, property, and other factors. A primary residence can be exempt from the tax on the gain after five years. It’s important to have a knowledgeable attorney when buying and selling real estate in Mexico.
Value-added tax in Mexico
The value-added or sales tax in Mexico is charged on most goods and services.
How much: 16%, however some bordering areas of Mexico tax at 11%.
Foreigners traveling in Mexico can also obtain a tax refund on purchases of merchandise or other commerce in Mexico, if the following requirements are met:
- You are returning home by air or sea.
- You possess the receipts from your purchases.
- You take the merchandise with you when departing the country.
- Minimum purchase amount: MXN$1,200.00 per business.
- Business must participate in “tax refund for foreign tourists” program.
- Purchases must be made electronically if over MXN$3000.00 (credit card, debit or bank transfer).
More information available through the SAT.
Special taxes in Mexico
There are special items that now receive taxation in Mexico, including alcohol and cigarettes.