Internet, blog sites, expat groups and Mexican newspapers are full of information 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 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..
There are three ways to do this and be in full compliance with the laws:
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
III. NON-RESIDENTS of Mexico may appoint a Mexican company to
declare and pay tax on their behalf. Tax collected on the GROSS
income is declared monthly and a set percentage is charged. NO RFC or taxpayer identification number is required. No annual declaration need be filed.
Additionally, under the NON-RESIDENT program, if the foreigner rents only occasionally, it is now possible to file only when income is received and avoid expensive monthly filing fees.
The above is for compliance with the ISR tax (the tax on income) Additionally, on furnished properties, a tax of 16% IVA (added value tax) must be collected (from the tenant) by the owner and declared and paid to tax authorities.
Read more on this subject at www.rentaltaxmexico.com
US TAX. You must report all rental income and expenses on your US tax return also. You can get a deduction or credit for taxes paid in Mexico on that rental which in most situations reduces or elimnates double taxation. Read more about US expatriate and international taxation at www.taxmeless.com This website by a US tax attorney and US CPA firm explains all of the information you need to know about taxes abroad, including special asset reporting, etc. If you need assistance email us at firstname.lastname@example.org
For additional information on paying tax on rental property in
Mexico under any of these three options, please contact: