International Taxation for Foreigners in Mexico
International Tax
Mexico has one of the most developed international tax systems in Latin America. The increasing flow of investment, foreign trade and foreign residency has driven this tax sophistication. Understanding international tax obligations is essential for both companies and individuals.
Major Taxes
The main taxes that apply to foreign sources are:
- Income Tax (ISR) on foreign-source income.
- Value Added Tax (VAT) on imports and services provided by non-residents.
- Flat Rate Business Tax (IETU) on income obtained in Mexico by foreigners without a permanent establishment.
Taxes on dividends, interest, capital gains, royalties, technical assistance and other cross-border payments.Mexico has entered into more than 60 bilateral tax treaties regulating tax rates, double taxation and other special provisions with trading partners.
Tax Residency
Tax residency determines in which country an individual must pay taxes. In Mexico, residency is based on length of stay and family ties. Resident foreigners are taxed on their global income, while non-residents are only taxed on their local income.
Double Taxation Agreements
Mexico has agreements with many countries to avoid double taxation. These agreements specify how income and assets will be taxed, offering some protection to foreign investors.
Tax Obligations
Foreigners who own property in Mexico face tax obligations, such as the payment of income and capital gains taxes. It is essential to comply with these requirements to avoid penalties.
Tax Planning
International tax planning allows foreigners to structure their assets efficiently to minimize the tax burden. This may include the use of trusts and other legal strategies.
Withholding at Source
Foreigners working in Mexico may be subject to withholding taxes. Understanding these rules is essential to avoid surprises on your tax return.
Legal Advice
Since tax laws can be complicated, it is advisable to seek specialized legal and accounting advice to ensure compliance and take advantage of legal tax opportunities.
Tax residency rules
The following are considered tax residents in Mexico:
- Mexicans by birth who reside in another country less than 183 days per year.
- Foreigners with permanent resident status.
- Foreigners who stay in Mexico more than 183 days in a year.
Residents accrue and pay taxes on worldwide income. Non-residents only on Mexican source income.
Income Tax
Non-residents without a permanent establishment pay an ISR rate of 25% on income such as:
- Salaries for services rendered in Mexico.
- Fees for technical advice provided from abroad.
- Royalties for use of patents and trademarks in Mexico.
- Interest paid by Mexican residents.
- Income from real estate located in Mexico.
The withholding is made by the company or person paying in Mexico, who has the obligation to pay the tax to the SAT.
Value Added Tax
VAT is levied at 16%:
Importation of tangible goods.
Provision of services by non-residents without an establishment in Mexico to Mexican recipients.
It is paid at customs for imports. The recipient withholds and pays the full amount when contracting services from a non-resident.
Flat Rate Business Tax
IETU is paid when the ISR is less than the IETU payable on gross income for the year. The rate is 17.5%. It applies to income of foreigners without a permanent establishment in Mexico from activities such as transportation, delivery of goods and amounts of guarantees.
Tax returns and representation
Non-residents with income in Mexico must:
- Obtain Federal Taxpayer Registration.
- File periodic tax returns.
- Have a legal representative in Mexico for tax purposes.
Tax treaties and the experience of international tax advisors are key to comply correctly with the rules and avoid double taxation. Knowing the obligations guarantees to operate with certainty in Mexico.
Lawyers in los Cabos
Taxes for foreigners in Mexico can be a confusing and complex issue. At Law In Cabo, we have lawyers who are experts in international taxation that can assist you with:
- Advice on your obligations and compliance with tax provisions in Mexico according to your particular situation as an expatriate or foreign investor.
- Obtaining RFC code, filing of periodic income tax and VAT returns and compliance with formal obligations before the SAT.
- Planning of corporate structures and application of tax treaties to minimize the tax burden.
- Representation in case of tax audits and controversies before the SAT.
- Review of international contracts and transactions to identify tax impacts.
- Compliance with obligations in your country of origin and mitigation of double taxation.
- Support in the refund of taxes paid in excess.
- Preventive audits to detect international tax risks.
We have extensive experience advising foreign clients on their tax obligations and implications in Los Cabos. Request an initial consultation to evaluate your situation.
Foreign Investment
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