La Paz, BCS - Expat blogs, websites and online newspapers are full of information about the growing problem of foreigners who are renting their homes or condominiums and failing to pay Mexican taxes. Not only is this a violation of Mexico's tax law with severe penalties if discovered, but also it violates the terms of most bank trusts (Fideicomisos) and could result in cancellation of the trust.
Foreigners are obligated to pay taxes on income generated in Mexico, no matter where the income is received.
There are three ways to do this and be in full compliance with the laws:
1. Residents in Mexico can obtain their taxpayer identification number, electronic signatures and file taxes monthly using a blind deduction of 35 percent of income and paying tax on the remainder. No receipts are required for this taxpayer status. An annual declaration must be filed in addition to monthly declarations.
2. Residents in Mexico can obtain their taxpayer identification number, electronic signatures and file taxes monthly declaring all income and providing receipts for certain allowable deductions. Tax on a sliding scale is assessed on the profit. Again, an annual declaration must be filed in addition to monthly declarations.
3. Non-Residents of Mexico may appoint a Mexican company to declare and pay tax on their behalf. Tax collected on the GROSS income is declared monthly and a set percentage is charged. no RFC (taxpayer identification number) is required. No annual declaration need be filed.
The above is for compliance with the ISR tax (the tax on income) Additionally, on furnished properties, a tax of 16% IVA (added value tax) must be collected by the owner and declared and paid to tax authorities.
No Double Taxation: Mexico has tax treaties with 32 nations. Taxes paid in Mexico can be taken as credits in taxpayer's native country.
Paying tax on your rental income from Mexican properties is a MUST, whether you live in Mexico or not. Get legal and avoid the consequences of tax evasion!
Related article: Vallarta to Begin Collecting Property Rental Income Tax
John Glaab is Director, International Marketing at The Settlement Company, Mexico's oldest title and escrow company. A Certified International Property Specialist, he is a founding member of AMPI Los Cabos and the new Global Mexico Real Estate Institute. In 2012, John was named the International Real Estate Member of the Year by NAR. For further information, contact John at John.Glaab(at)settlement-co.com.