Taxes in Mexico for Expats

When the word “taxes” comes up in a conversation or appears in a related article, it attracts plenty of controversies. Most anyone who earns an income will voice their concerns regarding paying income taxes. The average American pays 14% annually in gross taxes and it includes the following:

• Federal and State Income 
• Personal Property 
• Personal Vehicle 
• Other miscellaneous or certain taxes.

The 14% tax rate does not include local or county sales, social security, and medicare payroll taxes

Taxes are also a concern with Canadians as well. In 2016 it was reported that Canadians paid approximately 42 percent in income taxes. Do Canadians receive government assistance with medical, education, and other social benefits? Yes, they do. However, not everyone needs or uses the applicable benefits available.

No matter where your residency happens to be, taxes are a prevalent way of life in your home or country. The real question is, “How much tax will you pay on income made in and out of Mexico?” Mexico could offer some relief, depending on your income. Like any other country, the government needs revenue to sustain its survival and provide a quality of life for its citizens and visitors alike.

But Mexico’s taxation policies could be a possible relief to someone who experiences a much higher tax rate in their home country. The ultimate question is: how taxes work for expats living in Mexico? It depends on several scenarios. The following information is based on people who are classified as a resident or a non-resident or spend more than 183 days in Mexico. Mexico’s SAT, or what we know in the USA as the Internal Revenue Service, must verify your status.

 Living in Mexico, having an income and paying taxes

 Here are a few basic scenarios we will work with.

• If 50 percent of your income comes from a Mexican source.
• If your income comes from a business in or outside of Mexico.

Mexico’s SAT considers you a taxable resident if you work and live in Mexico for a full calendar year. Considering the above criteria, if you earn any income in or outside of Mexico, it is subject to taxes. However, there are tax credits available to eliminate double taxation when you earn foreign income (outside Mexico’s borders) – you will most likely pay taxes in the state where the revenue was generated from, i.e., The United States or Canada.

Note: If you live in the US or Canada and work in Mexico for 30 days and earn an income from a Mexican corporation, you will only pay income taxes on money earned in Mexico.

The difference in tax rates between a fulltime and non-resident 

Non-resident: Americans who generate an income in Mexico and have a Bank Trust (Fideicomiso) or a Mexican Corporation, will pay taxes between 15 to 30 percent. In most cases, Mexico will not impose any taxation on personal income up to $125,900 MXN (pesos) or $7,000.00 USD. In case the non-resident reaches these minimums, the appropriate taxes will be assessed. The percentage levied on income earned will be determined on your personal or corporation status.

Amazing Luxury 3-Bedroom Condo Steps from the Beach

Resident: Again, depending on your status when earning income, your personal tax rate will start at 1.92% up to $5,953 MXN and go up from there. If you are an above-average wage earner according to Mexico standards – say around 750,000 MXN ($39,500 USD), you will pay approximately 30 percent in income taxes. And if you happen to be a higher wage earner – $3,000,001 and above MXN, you should expect to pay somewhere around 35 percent. If you own a Mexican Corporation, your tax rate will be assessed at approximately 30 percent.

Note: The above information is based on 2016, 2017, and 2018 tax information that is readily available. 

Are Mexico Tax Laws Convenient for Expats?

First of all, no matter where you live, there is no way to escape paying taxes. It comes down to how far your net income will go. Expats who are residents of Mexico seem to live better on less money than people in North America. The cost of living in Mexico has been proven time again to be double-digits lower than its neighboring countries. Combine that with lower property taxes and the monetary exchange rate between the US dollar and the peso. You can’t go wrong by applying for residency in Mexico. 

If you have any doubts regarding Mexico real estate please let us know! We’ll be happy to help you.

Remember, at Top Mexico Real Estate… we’ll make it happen!