Things can get tricky if you are new to Mexico and plan on living and working here. As foreigners, you need to know what rules to follow, especially when it comes to taxes. Expats living and investing in Mexico will be responsible for paying tax for any property they own. Also, if you earn an income from renting your property to others or from any kind of business, you will be required to pay taxes. Of course, after you sell your property or investments in Mexico, you will also need to cover the taxes for that.
What Taxes Do I Have to Pay and Who Do I Pay Them To?
According to Mexlaw, the SAT (Servicio de Administración Tributaria), also known as Hacienda, collects all federal taxes in Mexico. The SAT will oblige you to pay an acquistion tax and an annual property tax when you purchase a property in Mexico.
Government calculates the acquistion tax at 2% of the assesed value of the property at the time of purchase. The annual property tax is known as predial. Property taxes in Mexico are very low. They are based on the location and size of your property. The tax is calculated at a fraction of what your property is worth. You have to pay the property tax every January. Officials offer substantial discounts if your predial is paid in advance. For instance, you will receive a 25% discount by paying in December, before it’s due and a 20% discount if you pay in January. Homeowners having financial difficulties can also have arrangements made with Hacienda. The SAT allows monthly installments to cover for the predial. But given that it really amounts to 0.01% of the property value, it is rather uncommon for anyone to look for financing options.
Rental Income Tax
Then there is the rental income or impuesto sobre la renta (ISR) and the VAT (IVA in Spanish). Authorities in Mexico consider it an active income when you rent out your property. Because of this, it is subject to tax. Whether your property is held in a trust (fideicomiso) or Mexican corporation, any rental revenue and expenses are reported in the same manner. Failure to pay these taxes can result in substantial fines, legal action and even deportation.
The SAT collects these taxes monthly, which you can file electronically. You may wish to hire an accountant or property manager to take care of your rental administration and to file the tax each month.
What Taxes to Pay When You Sell Your Home
Authorities asses the capital gains tax when you decide to sell your property. This tax is based on the profit you gain from selling your asset. Considerations as to how long you lived in the home will help determine the amount of tax owed. There are certain exemptions to this tax, however, in order to be eligible for exemptions it has to have been your primary home. A tax law attorney in Mexico can advise you on deductibles and help you reduce the capital gains tax.
Regardless of the income you make in Mexico, you must still report all the income you have benefited from to your home country. Don’t worry, though. There is a law in effect to protect you from double taxation. Mexico put forward a treaty in effect between the United States and Canada. It protects their residents living in both countries. Since the treaty is in effect, these countries converse and report all the income made. So, it is authoritative to report all your taxes in both countries.
Always Seek Advice from Experts
Above all, we recommend you get one-on-one advice from an expert at law and taxes in Mexico to help you in your taxation journey. If you are ready to make the move to the beautiful beaches of the Riviera Maya, we highly recommend you take a look at all the new developments in Tulum. They can be your forever home until you’re ready to sell and purchase something new.
And remember, at Top Mexico Real Estate…we make it happen!
