Tuesday, October 16, 2018

Better Pay your Mexico Taxes on Your Mexico Rental Property or Else

The Facts:

Bill and his wife Sarah rent out their  condominium in San Jose Del Cabo for 5-6 months out of the year on a

weekly or monthly basis to tourists.  They never paid any Mexico rental taxes. Their neighbors have told them not to worry, since no one ever pays taxes on vacation rental income in Mexico and probably do not have to.    
Is it True that you do not have to pay Mexico Taxes on your Rental Income?  No!  Definitely not!   Bill and his wife must pay taxes on their income which is generated in Mexico!
If Bill and Sarah are NON-RESIDENTS of Mexico:
What kind of taxes should they be paying and how much?.  They must pay the ISR tax, a type of income tax, in the amount of 25% of the gross rents and, if the unit is furnished,  a 16% Value Added Tax (IVA).
An important point  The ISR TAX they pay can become a tax credit in the US, so double taxation is avoided.   The 16% IVA tax is generally paid by the tenant and is simply declared by the landlord.
What are the penalties, interest, etc. they might incur?  The penalty for not being enrolled as a taxpayer is 2,740. to 8,230 pesos.   The penalty for not making declarations as required range from 1,100. pesos to 13,720. pesos per month in addition to interest for not paying on time and as required is 1.13% per month.
Are there any other possible legal consequences for failing to pay taxes on rental income from their condominium?   If the tax authorities have not discovered the illegal rental income and notified the landlords, back interest and penalties may be waived..   It is important, however,  to begin declaring and paying prior to discovery.
And  what about Phil? …………..another NON-RESIDENT with property in Mexico.
Phil owns a home in Cabo San Lucas.   He leases it to a Timeshare salesperson on a yearly basis.  The renter pays the monthly rent directly to Phil's US bank account and no money is paid in Mexico. 
Does Phil have to pay taxes on that income in Mexico?. Absolutely!  Phil has an obligation to pay taxes on any income generated on property located in Mexico.
What are the taxes and when are they due?.  Phil must pay the ISR tax, a type of income tax, in the amount of 25% of the gross rents and, if the unit is furnished,  a 16% Value Added Tax (IVA).
What are the consequences of failing to report the rental income in Mexico? Much the same as Bill and his wife in the example above, Phil will be liable for not being enrolled as a taxpayer which can cost him 2,740. to 8,230 pesos.   The penalty for not making declarations as required range from 1,100. pesos to 13,720. pesos per month in addition to interest for not paying on time and as required is 1.13% per month.  The amount of the penalty may depend upon whether or not this is a first violation for Phil.
Should he go back and pay in those taxes for past years when he failed to pay the taxes?   If the Mexico tax authorities have not notified Phil he is in violation of the tax code, he probably will not need to file back taxes.   The important point is to begin and to be consistent in the future.
Since Phil is a nonresident and does not have a factura number, how can he pay taxes?  Phil must appoint a Mexican company or an individual to be responsible for the retention and the filing of these taxes.    His official representative will issue the correct invoice or factura as required..
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 receipts 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 receipts 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.
NO DOUBLE TAXATION:  Income taxes paid in Mexico are eligible for US tax credits against the US income tax on the same income. That is a dollar for dollar offset.  You can deduct IVA as an expense on your US tax return.

US TAXES ARE ALSO DUE:  Many Americans do not report their rental property on their US tax return.  It must be reported or you will incur severe penalties.  You may also have to file special forms if you have a foreign bank account , have a foreign corporation, or have significant foreign financial assets. The penalties for not filing these special foreign reporting forms are also large. Often $10,000 or more. There are techniques available to surface with the IRS with your Mexican property and other foreign assets and avoid penalties. We can help.

Want to learn more about paying rental taxes in Mexico and handling the rental on your US tax return. Contact us a ddnelson@gmail.com or phone US 949-480-1235.

Thursday, August 16, 2018

AIRBNB TAXES IS NOW WITHHOLDING LODGING TAX IN SOME PARTS OF MEXICO - The Hacienda will collect income taxes and IVA next.

On August 6th the Gringo Gazette published an article by Doris Open regarding the impact of the Airbnb rentals in Mexico.    In Baja California Sur alone there are 2,400 owners registered with Airbnb!
    Now  owners renting properties through Airbnb in some parts of Mexico will be paying the 3% lodging tax to the municipal authorities.  This will be taken out of rental income BEFORE it goes to the owner!!

   Rental owners of property in Mexico also owe Federal Income Tax Mexico and IVA Tax. Failure to pay these taxes on rental income can result in severe penalties.

    One to these two taxes is the Impuesto Sobre la Renta (ISR) is the owner’s tax on income.    The other, the Impuesto al Valor Agregado (IVA) tax is a sales tax which must be paid by the tenant but collected by the owner and delivered to the Mexican authorities.

    These taxes must be declared MONTHLY and paid each month to SAT, the federal tax authority.
Many tax authorities and accountants do not believe the 3% hospitality tax is an obligation of the owner of one or two units who rents only occasionally.  This issue has yet to be determined with any certainty.

    No tax expert disputes the legitimacy of the two federal Federal taxes.    With all this publicity however, federal tax authorities will be looking more closely at the Airbnb websites and will be visiting those owners to check their compliance with federal tax laws.  They have already done so in some towns located on the Mexican mainland.

    It is strongly suggested you get legal  with the Mexican tax authorities BEFORE they knock on your door!

If you have questions on IVA and Income Tax owed on your Mexican rental property either in Mexico or in the USA (if you are a US taxpayer), contact us at ddnelson@gmail.com.  Visits our website at www.taxmeless.com.  We have been assisting US taxpayers living in Mexico with their US taxes for over 20 years.

To learn more about the details of these Mexican rental taxes  and Mexico real estate rental tax law visit www.rentaltaxmexico.com 
The Settlement Company® has developed three options for meeting your obligations on income from rental properties located in Mexico.   For additional information; info@settlement-co.com


Friday, May 25, 2018

Excellent Mexican Tax and Accounting Professionals in Los Cabos

L and S Accounting and Tax Consulting is a full service accounting, tax and auditing family
firm based in Cabo San Lucas, Mexico with decades of US and Mexico experience in
accounting and taxation.The partners are Sarahi Niederhaus a licensed Contadora Publica
(Mexico CPA) with ten years experience and Lance Niederhaus an inactive California
CPA with Big Six firm, cross the border, and multinational experience for over 25 years.

The Firm provides  the following Mexico services at competitive rates for individuals,
partnerships, corporations, etc:

- Accounting Services
- Fiscal Compliance Filing
- Annual tax  Declarations
- Bank Account Opening and Management
- Operational Performance Reporting
- Administrative Services
- Consulting Services (including mini consultations)
- Projections, Estimates and other Business Analysis
- Coordination with local attorneys, notaries, etc.

Unlike many Mexico accounting firms L & S understands US taxation and accounting
and can coordinate with the US rules very efficiently.

Contact them for further information and with questions at:

Mex Cell (L): +52 (624) 147-5149
Mex Cell (S): +52 (624) 128-3700
US Google Voice: +1 (949) 436-7737
Skype: cabolance

Our US CPA firm has worked closing with L & S with our clients in Mexico and the clients have benefited tremendously. If you have US tax question on expatriate, international or nonresident taxes please email us at: ddnelson@gmail.com. Visit our website awww.taxmeless.com

Monday, April 30, 2018

What Are the Closing Costs on Sale of Real Estate in Mexico

Purchasing real estate in Mexico is a little more costly than the USA.  The various closing costs and fees  are high. The Settlement Company has a calulator on their website which will help you calculate a projection of your estimated closing costs.  See how much they will be HERE

Buyer and selling real property be it your home or a rental or business property does have significant US tax income tax and reporting consequences as well as Mexican tax ramifications. If you wish to learn mroe please contact Don D. Nelson, International Tax Attorney at ddnelson@gmail.com. His US number is 949-480-1235 and his Mexico number is 52-624-131-5228.  Planning for costs, taxes and legal matters ahead of your purchase or sale can save you money.

Friday, April 13, 2018

Estate Planning for US Expatriates Living In Mexico for US assets

Most do not realize that the US legal system does not work well when it comes to transferring assets to deceased owners.  Probate in most states takes one to two years and costs a lot of money in attorneys fees. It also is cumbersome and all information about your estate is public.

If you have assets in the US you should set up a Living Trust which will pass your assets without probate and keep your bequests and value of your estate absolutely confidential.   Without a living trust most states require probate if your US assets values exceed certain minimal amounts.  Living trusts do not required court supervision and keep attorneys fees at a minimum.

Also you cannot count on your Mexican will since it will require probate in the US and may cause other problems and even not be recognized by some states.

A living trust is a document that during your lifetime gives you total control of your US based assets. Upon your death a successor trustee takes over and distributes the assets in any manner you have stated in the Trust. The successor trustee can be a bank or family members or other individuals whether US residents or foreign citizens.

Though you are living in Mexico, if you do have valuable US assets, setting up a US Living Trust is the only solution for fast and inexpensive transfer upon your death. Living trusts used to be used to reduce estate taxes, but now that US estate taxes only apply if the value of each individuals estate exceeds 11 million dollars that is not a consideration.

Want to learn more about living trusts, and US estate planning including US wills, US powers of attorney (much different than those used in Mexico) and health care directives email Don D . Nelson, Attorney at Law at ddnelson@gmail.com and visit our website at www.taxmeless.com 

Monday, March 26, 2018


Though in Mexico you need a factura in order to get a deduction for most business expenses, that is not the rule for your US tax return.  If you get a valid  provable receipt from the vendor or service provider, you can still deduct the expense on your US tax return thought not allowed on your Mexico return.  The IRS does not require facturas though the SAT does.

Want more information on US or Mexican taxes, email us at ddnelson@gmail.com. We work closely with several Mexican accountants who can help you achieve the best results here in Mexico. Often by coordinating the Mexican  tax rules with the US rules you can achieve the best result.