by Linda Jones Neil, Director, the settlement company®
Internet, blog sites, expat groups and Mexican newspapers are full of information and misinformation about foreigners who are renting their homes or condominiums and failing to pay Mexican taxes. Not only is this a violation of Mexican 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 trusts.
FOREIGNERS ARE OBLIGATED TO PAY TAXES ON INCOME GENERATED IN MEXICO no matter where the income is received..
And, many foreigners have found that the best and most direct form to obtain renters for their vacation properties is through the internet…….. think VRBO, Air BnB, HomeAway and many others! These are the tech platforms.
On June 1 of this year new procedures and regulations came into effect for these tech platforms which aids the Mexican tax authorities in the collection of taxes. Now all tech platforms must collect, and pay to the authorities, the 16% IVA tax. This is collected from the renters on the amount charged for the rental. For the non-residents who cannot provide a tax id number, the tech platform must retain and pay 20% of the gross rental amount to the tax collector.
The Mexican government plans to oversee and catch up with all the tax income that slipped through the holes for so many years!
Because of the pandemic and reduced travel a whole lot of these procedural issues were set aside and not resolved.
Now with property owners looking to rent again, many questions are arising as to how to legally minimize the taxable amount on this income.
It all comes down to the owner’s immigration status. In a nutshell:
IF YOU ARE A RESIDENT OF MEXICO: There are two options:
I. RESIDENTS in MEXICO can obtain their taxpayer identification number, electronic signatures and file taxes monthly using a blind deduction of 35% of income and paying tax on the remainder. No official receipts (facturas) are required for this tax payer status. An annual declaration must be filed in addition to monthly declarations.
II. . RESIDENTS in MEXICO can obtain their taxpayer identification number, electronic signatures and file taxes monthly declaring all income and providing official receipts (facturas) for certain allowable deductions. Tax on a sliding scale is assessed on the profit. . An annual declaration must be filed in addition to monthly declarations.
Unless you are bi-lingual and familiar with tax terms it will probably be worthwhile to contract with a Mexican company to assist you in these calculations and payments, even though you are a resident.
FOR THE NON-RESIDENT. Many owners, however, are NOT residents and, for many reasons, are not able or do not wish to become residents. Obtaining either temporary or permanent residency is a lengthy process which involves requirements including proving sufficient MINIMUM INCOME to be self-sustaining in Mexico. Additionally the party considering residency must commit to a MINIMUM STAY in Mexico of 180 days per annum.
As a non-resident who rents exclusively through the tech platform a flat 20% of all income will be deducted and sent to the authorities, in addition to 16% IVA deducted from his renters as Added Value Tax. The tech platforms must report and pay this income to the tax authorities. NO RFC or taxpayer identification number is required. No annual declaration need be filed.
Now, however, the non-resident may find it financially worthwhile to consider entering a program to pay the tax on rental income at the same rate as a Mexican company and with many of the normal expenses being deductible, limiting the non-resident Mexican tax obligation without affecting the tax payers right to tax credits and deductions in his/her home country.
NO DOUBLE TAXATION: Mexico has tax treaties with 32 nations. Taxes paid in Mexico can be taken as credits in taxpayer’s native country.
Since each party’s situation may differ, an analysis of individual income and outgo makes sense. A no cost and no obligation confidential consultation regarding individual circumstances, can be obtained by requesting same from the email addresses listed below.
For additional information on paying tax on rental property in Mexico as a resident or non-resident, for a copy of the confidential consultation questionnaire, please contact: firstname.lastname@example.org, email@example.com
ABOUT THE AUTHOR:
Linda Jones Neil founded The Settlement Company® in 1991. It is the original escrow company in Mexico and has successfully processed thousands of trusts and title transfers of Mexican real estate. Mrs. Neil, a real estate broker licensed in both Baja California Sur and in the state of California, USA, has spent more than forty years in Mexico in the development of real estate and tax related activities. She frequently presents seminars on both sides of the border on the subject of real estate ownership in Mexico and is a member of AMPI, NAR and FIABCI. She holds PROFECO Certificate 00065/96,