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Wednesday, July 6, 2016

Pay Your Mexican Taxes on Your Mexican Rental Income

Under Mexican law,  all income generated from properties located within Mexican territory is subject to taxation, even if the owners are foreigners and even if all funds are collected in accounts located outside Mexico.   For many years it has been a major issue for both Mexican tax authorities and individuals attempting to comply.  For years a Federal Taxpayer ID was required to file and pay the tax.   In order to obtain this tax ID one needed to be a resident of Mexico.    This was lose-lose for both the authorities and the foreigners who were willing to pay but baffled by the issues involved to “get legitimate”.

After more than five years of Settlement Company® dialogue with Mexican tax officials, a resolution was made in which the foreign property owner could appoint a Mexican company to pay his or her taxes and dispense with all other formalities.  This has become reality!   Mexican authorities are now looking seriously to collect this long-neglected source of tax revenue and foreigners not only are lining up to pay but also to receive the receipts for payment of the taxes which can then be credited against taxes paid in their native country under the terms of the NAFTA treaty.  Remember! no double taxation is permitted under the terms of the treaty!

If you have a rental property in Mexico contact us for details.

Wednesday, June 8, 2016

Taxes on Real Estate Rental Income in Mexico / Frequently Asked Questions


I read an article on the internet about your services.  We have spoken to an accountant in PV about paying taxes on our rental income.  One accountant has told me I need to get my temp visa. This seems like a hassle when I am using the condo only a short time each year.   What is your take on this?
Ronnie from Puerto Vallarta
Hi Ronnie:
Thanks for your email.  Per Articles 158 and 159 of the Tax Code, a visa, other than a tourist visa when you visit Mexico, is NOT necessary.    As a non-resident you may rent your property and pay taxes in compliance with Mexican law.   Additionally, due to treaties, there is no double taxation and expenses of your property can be deducted in your country of residence
I have been told that the standard bank trust wording for foreign individuals does not permit the rental of residential property at all.   How can you offer to pay taxes on income on a prohibited activity?
Jim from Playa del Carmen
Hi Jim.   I have seen only one trust document that prohibited the rental of trust Property and that was declared illegal. The foreign investment law specifically permits the beneficiary (foreigner) to rent, sell, modify their properties and to collect the profits therefrom.      Many trusts state that the bank must pay the taxes, but we know that will not happen.   It has been our experience that if the foreigner pays his/her taxes on rental income and has the receipts to prove it there is absolutely no quarrel with Mexican officials.  
            What can happen, however, is that your condominium administration may prohibit rentals in the complex, in order to satisfy owners who do not want a whole lot of rental traffic.   This is legal if the owners agree to put this clause into their own HOA rules.
Marilyn from Cozumel
Hi Marilyn.   Thanks for your question!  We have copies of your documents translated and authorizations prepared in the name of the LLC and signed by the legal representative.  With this we can pay your taxes and provide you with receipts which will be accepted by the tax authorities in your country of residence.
June from Michigan with property in Ixtapa.
Yes, the
 Fideicomiso to hold property in the restricted zone of Mexico is both a contract with the Mexican bank to hold your title as trustee, and also is the deed to your rights in the property.
 John from Puerto Penasco

Yes.   Definitely failure to pay taxes on income is a violation of the Mexican law and property can be attached and sold as payment for past due taxes after a procedure similar to those used by the US and Canada tax authorities.  To date the Mexican tax authorities have not aggressively pursued violators, but this is changing as they have access to internet and rental promotion programs.


Wednesday, May 11, 2016

Rental Tax Owners Can Now Easily Pay Taxes Owed on Their Rental Properties
Mexico Rental Property Owners Must Pay Mexican Taxes
John K. Glaab - The Settlement Company
May 6, 2016
The Settlement Company® has developed a simple and easy procedure which will allow you to be tax compliant on your Mexico property rental income. For more information, visit
La Paz, BCS - Mexican newspapers are full of headlines about the growing problem of foreigners who are renting their homes or condominiums and failing to pay Mexican taxes. Not only is this a violation of the terms of most bank trusts (Fideicomisos), but also it is a violation of Mexican tax law and reprisals are severe.
If you own rental property anywhere in Mexico you are required to pay the following Mexican taxes:
• Mexico Income Tax
• Mexico Value Added Taxes - IVA (16%) - if the unit is furnished
IVA is paid by tenant but collected and declared by the owner.
Many non-residents of Mexico have never paid any taxes on their rental income from properties owned in Mexico. This is a violation of Mexican tax law. The Mexico tax code clearly states that these Mexican taxes must be paid on rental income from apartments, houses, and commercial property. Failure to do so can result (and has resulted) in substantial penalties and legal problems with the Mexican tax authorities.
It is now easy for you to pay these taxes and avoid problems - even if you do not have a Mexican tax identification number. The Settlement Company® has developed a simple and easy procedure which will allow you to be tax compliant on your rental income. You do not have to suffer the consequences of failing to pay. Email or call us now at 52-612-123-5056 Ext 0 to learn more and to get started.
The Good News: The IVA you pay in Mexico is deductible on your US tax return and the income taxes you pay in Mexico can offset your US taxes on the same income dollar for dollar. You will not be double taxed.
For additional information, please email us at rentaltaxmexico(at), call us at 52-612-123-5056 Ext 0, or visit


Tuesday, April 19, 2016

Baja Sur to Amend Constitution and Judiciary Act to Allow Alternative Dispute Resolutions (mediation and arbitration)

At a press conference, Governor Carlos Mendoza Davis, presented three initiatives sent to the State Congress on the issue of justice, with that said, it intends to reform the State Constitution to create the Council of the Judiciary Act Alternative mechanisms for dispute resolution and amendments to the Code of Civil Procedure to facilitate and expedite the enforcement of judgments.
He also said that these initiatives seek an orderly development, offering a state with legal certainty where no one is above the law or beyond.
He said the proposal for the creation of the Judicial Council of State seeking to have a dedicated and professional body of the judiciary, to address management tasks, security and judicial discipline inspection work.
He also stressed that the initiative presented also proposes reforms to the procedures for enforcement of sentences to give greater flexibility to the end of a trial, "to remove obstacles to who hopes, a slow justice is no longer fair," he said .
The state executive mentioned among the initiatives presented to the legislature, is the Law of Alternative Mechanisms of Dispute Resolution of the State of Baja California Sur, a document that seeks to have a viable tool for resolving conflicts efficiently and effective, through a system which establishes the general basis for mediation as an alternative dispute resolution mechanism between individuals, on rights in civil, commercial and family matters.
This is fantastic news for everyone due to the huge 5 to 10 year backlog of lawsuits in the Baja Sur Courts.  Mediation and Arbitration will allow legal disputes to be resolved in six months to a year and signficiantly reduce the cost of dispute resolution from those for Court actions.

Monday, March 28, 2016

US Expats Must Make Required Distributions From IRA, 401K and Pensions or Pay Substantial Penalites

WASHINGTON — The Internal Revenue Service today reminded taxpayers who turned 70½ during 2015 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Friday, April 1, 2016.

The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.
The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, a taxpayer who turned 70½ in 2015 (born after June 30, 1944 and before July 1, 1945) and receives the first required distribution (for 2015) on April 1, 2016, for example, must still receive the second RMD by Dec. 31, 2016
Affected taxpayers who turned 70½ during 2015 must figure the RMD for the first year using the life expectancy as of their birthday in 2015 and their account balance on Dec. 31, 2014. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B.
The penalty for failing to withdraw the minimum required distribution by the required deadline is 50% of the shortfall. Therefore if the required minimum distribution were $20,000 and you failed to meet the deadline you will owe a 50% excise tax for your delay of $10,000.  There may be a way to get this waived if you have a reasonable excuse but do not count on that rules since the IRS can be tough.

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulation  inPublication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

Have questions. Email us at 

Thursday, March 3, 2016

Taxes on Rental Properties in Mexico – Your Questions Answered

What are the taxes you must pay on your rental income in Mexico?

  1. Value Added Tax IVA (excise tax)                         
  2. Income Taxes paid to SAT on a monthly basis
When are these taxes payable?
  • Monthly  filed electronically
What happens if you fail to pay these taxes on your rental income?
  • Serious penalties and interest can be assessed by the SAT and other tax agencies as well criminal charges might be filed.  If you manage the property for the owner, you as the manager may have liability for failing to file and pay these taxes.
How can I pay these taxes as a nonresident of Mexico on my income from my Mexican real property?
  • If you are a tax resident of Mexico you can use your resident tax ID number and you have your Mexican accountant use your taxpayer identification number (RFC) to file and pay these taxes. However, if you are a nonresident of Mexico it is necessary to contact a Mexican professional or Organization (such as the Settlement Company) to file and  pay these taxes. The Settlement Company in Baja Sur Mexico has developed  legal method where these taxes can be paid by nonresidents.
How are these taxes treated on my US tax return?
  • You must report your rental income and expenses on your US tax return on Schedule E (if you are an individual taxpayer).  A Mexican rental is treated the same as US rental in most respects. You can as a rental expense deduct the  IVA tax and local lodging taxes. You can claim the Mexican income tax paid on your rental income as as credit directly offsetting your US tax on the same rental income dollar for dollar. You do not get double taxed on your US tax return
If you need assistance paying your Mexican income and value added taxes (IVA) on your Mexican rental property go to for more information and assistance.
We can help you with you US tax planning and return filing requirements for your rental property in Mexico. If you fail to follow the best procedure and in many cases make a special US tax election, it can have adverse tax consequences.  Email us at for more.