Mexico has a taxation system that includes both federal and state taxes. The system is administered by the Servicio de Administración Tributaria (SAT).
Double Taxation Agreements
Mexico has signed double taxation agreements with several countries, including the United States, Canada, and most of the EU member states. These agreements aim to avoid double taxation on income earned in both Mexico and the other country. They also provide relief from withholding taxes on dividends, interest, and royalties.
Main Taxes for Expats
Income Tax
Expats who are considered resident in Mexico for tax purposes are subject to income tax on their worldwide income. The income tax rates for resident individuals are progressive, ranging from 1.92% to 35%.
Non-resident individuals are only taxed on their income earned in Mexico. The income tax rate for non-resident individuals is a flat rate of 30%.
Value Added Tax
Value Added Tax (VAT) is a tax on the sale of goods and services in Mexico. The standard rate of VAT is 16%. However, there are reduced rates of VAT for certain goods and services, such as food and medicine.
Special Tax Breaks for Expats
Retirement Income
Expats who receive retirement income from abroad may be eligible for a tax break in Mexico. The tax break is available under the US-Mexico Social Security Totalization Agreement, and it allows for a portion of the retirement income to be exempt from Mexican income tax.
Maquiladora Program
The Maquiladora Program is a tax incentive scheme that is designed to encourage foreign companies to set up manufacturing operations in Mexico. The program provides a tax exemption on imports of raw materials, machinery, and equipment, as well as a reduced income tax rate for qualifying companies.
Filing a Tax Return in Mexico
Expats who are considered resident in Mexico for tax purposes are required to file a tax return each year. The tax return must be filed by April 30th of the following year.
Expats can file their tax returns online using the SAT’s online portal. To do so, they need to obtain a digital signature, which can be obtained through the SAT’s website.
When filing a tax return, expats need to provide details of their income, deductions, and credits for the relevant tax year. If they have any foreign income or assets, they may also need to declare them on their tax return.
Tax Exit Procedures
Expats who are leaving Mexico to move abroad need to follow certain tax exit procedures. Firstly, they need to notify the SAT of their departure and provide details of their new address abroad. They should also settle any outstanding tax liabilities before leaving Mexico.
If an expat is considered non-resident for tax purposes, they are only liable for Mexican income tax on income earned in Mexico. However, they may still be liable for Mexican tax on any income or gains that arise from Mexican sources, such as rental income or capital gains from the sale of a Mexican property.
Expats who have paid tax in Mexico may be entitled to claim a refund of some of the tax they have paid. To do so, they need to file a tax return for the relevant tax year and claim the refund through the normal tax refund process.
The taxation system in Mexico is relatively straightforward compared to some other countries in the region. Expats in Mexico need to be aware of the main taxes that apply to them, such as income tax and value-added tax, as well as any special tax breaks that may be available. They also need to ensure they file their tax returns on time and follow the tax exit procedures if they are leaving Mexico to move abroad. By understanding the Mexican tax system, expats can ensure they are complying with their tax obligations and maximizing any tax benefits available to them. It’s important for expats to seek professional tax advice to ensure they are fully compliant with the Mexican tax laws and regulations.