Will Mexico make me pay income tax on money I earn in Mexico?
Alfonso Galindo - I Go Yucatan
If you’re a legal resident of Mexico, even as an expat who is a citizen of the US, you are required to pay your Mexican income tax on money you earn in Mexico. I’m not an accountant, but I can report that, in general, you can expect to pay 16% income tax, only on the money you earn in Mexico. Of course, you still have deductions, etc.
(American company, Mars Inc. has a chocolate plant in Mexico, pictured.)
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If you’re a legal resident of Mexico, even as an expat who is a citizen of the US, you are required to pay your Mexican income tax on money you earn in Mexico. I’m not an accountant, but I can report that, in general, you can expect to pay 16% income tax, only on the money you earn in Mexico. Of course, you still have deductions, etc.
(American company, Mars Inc. has a chocolate plant in Mexico, pictured.)
Posted October 2, 2015
Don Nelson - TaxMeLess
Yes, Mexico will make you pay income tax on money you earn inside of Mexico, unless you are there for only a short time on a business trip as set forth in the NAFTA treaty. If you work in Mexico you need the proper visa and tax ID number. Then you must pay taxes on your income if it is above a certain minimum amount and your earnings are not excluded under the NAFTA treaty. As stated above, if you live full time in Mexico, the money you earn is definitely taxable. ...
Yes, Mexico will make you pay income tax on money you earn inside of Mexico, unless you are there for only a short time on a business trip as set forth in the NAFTA treaty. If you work in Mexico you need the proper visa and tax ID number. Then you must pay taxes on your income if it is above a certain minimum amount and your earnings are not excluded under the NAFTA treaty. As stated above, if you live full time in Mexico, the money you earn is definitely taxable. There is a 16% IVA, which is like a sales tax. The income tax rate is in excess of 30%, but you can claim it as a credit against your US tax on same income. Working for a payroll company pagadora might result in lower tax but most experts in Mexico do not believe that is correct rate.
(Beach house rental business in Rocky Point, Mexico, pictured.)
Posted January 27, 2016
Don Nelson - TaxMeLess
The 16% is IVA which is like a sales tax. The income tax rate is in excess of 30%, but you can claim it as a credit against your US tax on same income. Working for a payroll company pagadora might result in lower tax but most experts in Mexico do not believe that is correct rate.
The 16% is IVA which is like a sales tax. The income tax rate is in excess of 30%, but you can claim it as a credit against your US tax on same income. Working for a payroll company pagadora might result in lower tax but most experts in Mexico do not believe that is correct rate.
Posted January 31, 2016
Spencer McMullen - Chapala Law
Yes, according to the law, if you are a tax resident of Mexico and you earn money in Mexico, you have to pay income tax on that money. Many people ask about taxation and this can be a very touchy or a very vague issue. Generally speaking, all countries want people to pay taxes from income that is sourced from that country. So someone earning money in Mexico should pay taxes into Mexico on those earnings. It gets a little muddy if someone is working over...
Yes, according to the law, if you are a tax resident of Mexico and you earn money in Mexico, you have to pay income tax on that money. Many people ask about taxation and this can be a very touchy or a very vague issue. Generally speaking, all countries want people to pay taxes from income that is sourced from that country. So someone earning money in Mexico should pay taxes into Mexico on those earnings. It gets a little muddy if someone is working over the Internet in Mexico and gets paid from the US. Right now, other than the US, countries don’t seem to be demanding payment of taxes that were earned in other countries. The issue is vague. The US wants to tax you on worldwide income. However, if you are a US taxpayer with earned income in Mexico and you’re living here in Mexico and your time in the US is very minimal, then you can apply for an exemption of earned income up to about US $100,000 on your US taxes.
For example, let’s say I live here in Mexico. I can work as an attorney and make roughly $100,000 tax-free of US income tax, so I am not double taxed. If I’ve been in Mexico and haven’t been in the US more than 1 month out of a year, Mexico will tax my earnings here and the Mexican tax rate is higher. I pay from my professional services a 16% sales tax and VAT or IVA, tax plus I pay income tax.
A lot of times people who have investment accounts in Mexico with brokerage houses are paying their earned interest and there’s a withholding on those funds. Those accounts should be declared to the US government under a host of different laws. There’s a $10,000 threshold, there is a $50,000 threshold for the foreign bank account. They can declare the interest or dividends they make but the Mexican withholding rate is generally higher so they can apply the foreign tax credit. In all circumstances, however, the taxpayer still has their reporting requirement.
As another example, if you are an American citizen and in Mexico long enough to become a tax resident of Mexico and you earn money is for work that you did for people who are outside of Mexico, perhaps for IT support for people in the US, Mexico will probably want you to pay tax on the money you earned. However, the current practice that we have seen is they are not enforcing it. If Mexico sees that the income is from a source outside of Mexico and you’re paying taxes in other country with that money, then up to now they haven’t been going after people for the payment of that tax. A strict application of the law, irrespective of whether it’s enforced, is if you are a tax resident of Mexico, you must pay taxes on any income earned, irrespective of source, anywhere in the world.
Part of the reason this hasn’t been enforced by Mexico is that they don’t have much of a way of knowing when people have living in one jurisdiction, earning money from another jurisdiction, and maybe that jurisdiction isn’t necessarily collecting taxes on that income.
In my personal situation, I am a tax resident of Mexico, and I pay Mexican taxes on money sourced from Mexico. I have an SC, which is like a professional corporation. I have to do a monthly and annual tax filing in which I have to declare and pay and withhold income tax and sales tax on my services. In addition, I declare in the US the money that I made here but it’s not taxed because I use the Foreign Earned Income Exemption.
I advise all people to comply with the tax laws and get advice from a competent accountant. In Mexico, I’ve seen people fined 3,000, 6,000, 10,000 pesos for not filing a return even when their tax liability is zero. One way people could get caught is if they’re paid in the US and they withdraw their money at ATMs, the tax agency here in Mexico has been sending invitation letters to people who were depositing more than 15,000 cash in their account saying “You owe taxes on those are undeclared earnings and you need to prove where those earnings are coming from.” We’ve done this for some clients and the Mexican government has said, “Okay, no problem.” Others they have required an insurmountable amount of documentation to prove the deposits weren’t income. People who earn in the US and withdraw from their ATMs in Mexico and depositing in Mexican bank accounts could be on the Mexican tax agency’s radar.
I haven’t seen anyone prosecuted for failure to pay Mexican taxes who was living in Mexico as a tax resident who didn’t declare the money they received from the US, but I’m not a tax law specialist, even though I’m in a place where there’s lots of foreigners and usually things that come across might be asked in the classes I take. My classmates are tax experts and none of them have reported this type of thing happening to foreigners. As of now, it’s not been an issue due to the difficulty for the tax agency to verify and prove non-compliance, but it is possible.
A lot of people feel that if they come back and forth every six months on a tourist visa that they will not be a resident for tax purposes in Mexico. Others may say, “I don’t want to be a permanent resident in Mexico. I’m a snowbird. I might live here 3 months a year.” People need to remember it is their center of life, their center of interest, their source of income and the time they spent in a country that’s going to dictate whether they’re a tax resident or not, as opposed to the name of their immigration document.
(Golf course at Loreto Bay, Baja California, Mexico, pictured.)
Posted February 24, 2016
Jesus Celis - RH Fiscalis
Generally speaking, and according to the Mexican constitution, all people who earn income in Mexico have to pay taxes income taxes to Mexico. Here are more details: - All “tax residents” of Mexico have to pay income taxes to Mexico. You would become a tax resident of Mexico if you spend 183 days in Mexico.
- If you become a temporary resident of Mexico or if you become a permanent resident in Mexico, you would have the status to...
Generally speaking, and according to the Mexican constitution, all people who earn income in Mexico have to pay taxes income taxes to Mexico. Here are more details: - All “tax residents” of Mexico have to pay income taxes to Mexico. You would become a tax resident of Mexico if you spend 183 days in Mexico.
- If you become a temporary resident of Mexico or if you become a permanent resident in Mexico, you would have the status to earn income in Mexico, and have to pay Mexican income tax at the moment you start to earn money, irrespective of how long you have been in Mexico (i.e., the 183 days to become a tax resident does not apply). Permanent and temporary residents of Mexico are able to get a Mexican tax ID.
- If you are on a tourist visa in Mexico, you are not legally allowed to work in Mexico, so the issue of having to pay Mexican income tax is not relevant.
(Statue of the founding of Tenochtitlan, later known as Mexico City, Mexico by the Aztecs,pictured.)
Posted March 23, 2016
Alberto Alvelais - Alvelais & Asociados
Yes, Mexico will make you pay income tax on the money you earn in Mexico at exactly the same rate as a Mexican citizen. In order to have to pay taxes in Mexico, you would have to be a legal resident of Mexico under a temporary or permanent resident permit. You cannot work in Mexico under a tourist visa, so if you are in Mexico under a tourist visa, there is no income to tax.
In order to have a resident’s document, the...
Yes, Mexico will make you pay income tax on the money you earn in Mexico at exactly the same rate as a Mexican citizen. In order to have to pay taxes in Mexico, you would have to be a legal resident of Mexico under a temporary or permanent resident permit. You cannot work in Mexico under a tourist visa, so if you are in Mexico under a tourist visa, there is no income to tax.
In order to have a resident’s document, the person must begin the process outside of Mexico. There’s the first stage done by via the Mexican consulate in any jurisdiction, usually the nearest consulate to the person’s address. The Mexican consulate will receive all the documents required for the procedure, will evaluate and will grant an entrance visa for this person to enter the country. After the person enters Mexico, he or she needs to bring all the documents and that entrance visa to the immigration department and continue with the procedure. This takes approximately seven up to nine weeks. After having all these approvals, then the cost of the authorization and the resident’s document will be issued and after that the person will be able to work. Approval is not automatic. As soon as the card is granted then it is possible for that person to legally work in Mexico, pending other approvals. With their first peso earned, they have to start paying taxes in Mexico.
(Mexican consulate in San Francisco, California, pictured.)
Posted May 20, 2016
SONIA DIAZ - Sonia Diaz
Yes, Mexico will make you pay income tax on money you earn in Mexico. You cannot earn money in Mexico if you are on a visitor visa. You need to have either a temporary visa, permanent visa, or be a citizen. In addition, if you have a temporary or visa, in order to work in Mexico, you will heed to have a work permit. If you are a permanent resident, you do not have to apply for a work permit but you will have to notify immigration...
Yes, Mexico will make you pay income tax on money you earn in Mexico. You cannot earn money in Mexico if you are on a visitor visa. You need to have either a temporary visa, permanent visa, or be a citizen. In addition, if you have a temporary or visa, in order to work in Mexico, you will heed to have a work permit. If you are a permanent resident, you do not have to apply for a work permit but you will have to notify immigration and pay taxes.
If you are in Mexico and working remotely for a foreign corporation, you do not have to pay taxes in Mexico, and you don’t need a work permit. Similarly, if you are working on-line and paid in to a foreign account from foreign sources there is no need to pay taxes to the Mexican government.
If you work for a foreign corporation based in Mexico and go to work every day in Mexico, you do have to pay taxes in Mexico. If you are earning your money from Mexico, you have to pay taxes here.
As an example, let’s say that you’re in Mexico working online with a company located in the U.S. or Canada, in which case, you don’t need to pay taxes. But if you’re working online for a company located in Mexico, you need to pay taxes here and you’ll need a work permit.
(Picture: PARROQUIA in San Miguel de Allende, in the Mexican Highlands.)
Posted March 5, 2018