"Whether a property owner or just the occasional
visitor on a beautiful beach in Mexico, everyone pays taxes, natives
and foreigners. Some of the taxes are hidden and others are not. The
purpose of this article is to touch on some of the important taxes
levied and paid in Mexico.
WHO COLLECTS TAXES: The SAT (Servicio de
Administracion Tributaria), also known as Hacienda, is the federal
tax collector. It collects all federal taxes such as the ISR (Income
or Capital Gains) tax, the IVA (Added Value) tax, the IDE (Tax on
Cash Deposits) and the IEPS (Special Tax on Production and
Services). Each state government has its own taxes such as the 2 to
3 percent tax on lodgings and tourism. The municipal governments
assess and levy taxes on real and personal properties.
IVA TAX: This is the Value Added Tax which is
charged on goods and services. The only exemptions are medicines and
food. Often this tax is INCLUDED in the price of food served in a
restaurant, legal services, and the items purchased in a department
or clothing store. The business owner and tax resident is obligated
to file a monthly declaration with Hacienda and pay the tax on
earnings. Credited against this tax are IVA taxes paid on goods and
services acquired.
There is no IVA tax on the sale of vacant land or
on the sale of residential dwellings. The tax is levied on all
commercial construction when it is sold or transferred, at the rate
of 16% of the value of construction, regardless of where the
property is located. IVA tax is charged on lodgings, hotel rooms and
furnished homes which are rented. The IVA tax is 16% in the interior
of the country and 11% in the border zones EXCEPT for commercial
construction which is charged at the rate of 16% throughout the
entire country.
IEPS TAX: This is the Special Tax on Products and
Services which is a new tax for 2010. It will cover certain internet
and cable TV services, alcohol, cigarettes, and gaming.
IETU TAX: The Unique Rate Business Tax (Impuesto
Empresarial de Tasa Unica) is a tax on income obtained for the
transfer of goods, independent services and for granting the use or
temporal benefit of goods. The rate is currently 16.5%of income,
less deductions.
PROPERTY TAX; This is a municipal tax with
assessments on properties generally being made annually. The tax can
be paid in six installments (every two months) but probably should
be paid in full within the first two months of the calendar year to
obtain a discount. Rates vary from area to area but are often far
lower than U.S. or Canadian property taxes.
ISR TAX; Literally the Tax on Rents has been
described as both an income tax and a capital gains tax. It is
complex and a subject of confusion.
ON INCOME. Any income generated from sources
within Mexico, is taxable. From business or salary, the rates are
variable depending upon the amount of income received.
ON THE SALE OF A PRIMARY RESIDENCE No primary
residence is exempt from tax UNLESS the taxpayer has resided in the
home for the previous five years. Proof of residency is in the form
of taxpayer identification number (RFC), voter’s registration with
the property address, bank statements and utility bills.
For those who have sold or transferred a primary
residence within the past five years and have not declared an
exemption previously, an exemption of up to 1,500 UDIs or
approximately 6,500,000. Mexican pesos, is available.
This applies to nationals and to those foreigners
who have established a tax residency in Mexico (obtained their tax
identification numbers) and make declarations on world wide income.
They must also provide documents that the property being transferred
is a primary residence.
ON THE SALE OF A VACATION OR SECOND HOME OR A
RENTAL PROPERTY
No exemptions are permitted. The tax on
non-exempted transactions is 30% of the difference between the value
declared in the deed and the value of the new sale, less allowable
deductions or 25% of the entire amount of the transaction, whichever
is less. It is very important when acquiring property to insist upon
having the full amount of the sale declared in the deed, in order to
avoid overpaying taxes upon sale.
Enforcement of the ISR tax on transfers is the
obligation of the Notary Public formalizing the transfer. He has the
obligation to enter the seller’s name and data on the internet and
to check status of prior transfers.
ON RENTAL INCOME: There are several ways to
calculate tax on rental income:
1. The blind deduction of 35% of total income,
without deductions with tax of 35% paid on the remaining amount;
2. A 30% tax on income, less allowable deductions
which include property tax, maintenance, interest on loans for
construction expenses, insurance, salaries of employees and
commissions paid to rental agents and property managers.
3. A 25% tax on the gross income, no deductions.
Hacienda is paying more attention to internet
advertising and is beginning to inquire into the income of those who
are renting their homes. It makes sense to become legal since
penalties for non-compliance can be considerable. Methods one and
two above require the RFC (taxpayer identification number) which can
be challenging for a foreigner to obtain. Method three outlined
above does not require residency or official status.
IDE TAX This is a Tax on Cash deposited into
banks. In the year 2009, it was applicable on any combination of
deposits made in a month totaling 25,000.00 pesos, or more. Tax was
2% of the excess. Now the tax is triggered by monthly cash deposits
in excess of $15,000. pesos and the tax is 3%. This tax is thought
to discourage the informal economy (the street vendors).
STATE HOSPITALITY TAX. This is charged by hotels
and on furnished short-term rentals. Money generated from this tax
is used for promotion of tourism in the state and varies from state
to state but is generally two to three percent of the per night cost
of lodging.
It is important to understand the difference
between Tax Resident and Non-resident for tax purposes.
The Tax Resident is the person, citizen or
non-citizen, who has acquired his Federal Taxpayer Identification
Number and who files and declares taxes in Mexico on his world-wide
income. Any party receiving income from Mexican sources, such as
from rental or from the sale of real properties, or from business
activities, is required to file. No distinction is made between
citizens of Mexico and non-citizens as to tax rates.
Tax authorities in the U.S., Canada and Mexico
are working together and share information. Everyday there is more
cooperation between the countries due to tax treaties. It is no
longer possible to own a property in one country, enjoy income from
that property, and not report it in BOTH the country where the
property is located, and the country where the owner lives. Failure
to comply means the owner is subject to double taxation and heavy
penalties when the omission to file and declare is discovered.
DIGITAL FISCAL INVOICES. As of January 2011,
taxpayers must use invoices produced by Hacienda (SAT) on internet.
Hopefully this will simplify the “factura” situation which at
present is challenging for the tax payer attempting to obtain
receipts for deductible items. .
This is an overview of the tax situation in
Mexico and may vary in individual cases. For additional information
and consultations, please contact the author. "
ABOUT THE AUTHOR:
This article was sighted in the
www.BajaInsider.com. Linda
Neil is the founder of the Settlement Company™. is a partner
in Linda Neil Properties and founder of The Settlement Company, the
first escrow company in Mexico, which is dedicated to processing the
trusts and title transfers of Mexican real estate for foreign buyers
and sellers for properties located ANYWHERE in Mexico. Ms. Neil is
also licensed as a Real Estate Broker in California, is an
Accredited Buyer Representative through NAR, and has over thirty
five years of hands on experience in all aspects of Mexican real
estate. She holds membership in AMPI, NAR and FIABCI and PROFECO
Certificate 00063/96
