Taxes You May Have to Pay as a Gringo in Mexico

There are some things about Mexican taxes you need to know if you are spending a lot of time anywhere in Mexico.

• If you spend over 183 days in Mexico you are considered a permanent resident under Mexican tax law and are liable for their income taxes on your worldwide income. The enforcement of this rule is lax in many areas of Mexico, but since Mr. Trump is causing Mexico problems they may start to enforce it.  Their tax rate is much higher than the USA.
• If you own property you rent out in Mexico even for a short time when you are no there, you owe VAT tax and income tax on your earnings. You are suppose to collect the VAT tax from the renter and pay income taxes on your rental income.  You can read more about the rules and how to pay these taxes if you do not have a Mexican tax ID number at: www.rentaltaxmexico.com
• If you sell real property in Mexico, it is the notary who handles the transfer that determines the amount of tax you pay on your gain.  How this is calculated does seem to vary.  If you are a permanent resident and you meet the criteria, and the property you are selling is your personal residence, that gain on sale may be exempt from tax.  See you Mexican accountant to learn the exact rules since the specifics as reported seem to be difficult to determine.
• If you have a commercial property or business, and wish to own or operate it in a Mexican Corporation, it is best to use the form of corporation that is a Sociedad de Responsibilidad Limitada (SRL), since you can make certain elections for US tax purposes that make it a flow through entity and thus you will not suffer double taxation on your US tax return and can claim tax credits for the income taxes it must pay in Mexico
• Email us if you need help with your US tax planning for Mexico.  ddnelson@gmail.com

Buying and Selling Real Estate in Mexico - Reality Check on Enforcement of the Contract

When you buy or sell real estate in Mexico brokers and agents sometimes tell you that everything is done differently in Mexico than in the USA.  While in many respects, there are some differences, many parts of the process are remarkably similar to the USA.  Therefore, you should make sure your contract contains the same protective clauses and paragraphs you will find in a US contract of sale.   Using the California Association of Realtors contract as a guide is a good place to start when reviewing the contract given you by the RE agent, and making changes and improvements.

Where their may be some differences in the law, there are hugh differences in the enforceability of the contract.  Why?  The difference arises due to the Mexican legal systems, courts and the extremely long time in many areas of Mexico it takes to get a judgement or decision.  It can easily in some areas of Mexico take 5 or more years to get a judgment and sometimes due to factors not usually encountered in the US, the decision in any lawsuit may not be the correct one.

What is the solution?  Write a good contract and in the event a dispute arises, make certain it contains a mediation and arbitration provision.  The arbitraion laws are excellent in Mexico and if you and the other party agree to arbitrate it is likely you will resolve your dispute within  8 to 12 months.  That decision is then entered into the Court as a judgment.  Most arbitration are binding and cannot be appealled ( unlike most Court judgments in Mexico which are often appealled adding many more years to the final decision).

If you want to learn more about arbitraion or mediation, the clauses to put in your next contract, and how to have a dispute arbitrated or mediated, email us a ddnelson@gmail.com   If all parties agree, you can even remove your case from the Courts and have it decided by arbitration.  It is even legal to have the arbitrator be a US attorney or a panel of US and Mexican attorneys with real estate experience. Due to the speed of the process, you may save a lot of money in costs and attorneys fees.

MEXICO WILL 'IMMEDIATELY' RESPOND TO ANY US BORDER TAX - MINISTER

Reuters Article of the day

By Michael O'Boyle and Frances Kerr

MEXICO CITY (Reuters) - Mexico must be ready to respond immediately with its own tax measures if the incoming administration of President-elect Donald Trump imposes a border tax, the economy minister said on Friday, warning such protectionism may trigger a global recession.
Trump, who takes office on Jan. 20, has promised a "major border tax" on companies that shift jobs outside the United States, and such a measure could hobble Mexico's exports to its top trading partner.
"It is clear we need to be prepared to immediately neutralize the impact of such a measure", Economy Minister Ildefonso Guajardo said in an interview on Mexican television.
"And it is very clear how - take a fiscal action that clearly neutralizes it", he said.
Trump has repeatedly attacked Mexico over trade, jobs and immigration since he first launched his run for the White House in 2015, driving the peso currency to historic lows and unnerving investors, especially in the auto sector.
Guajardo said Trump's proposed tax "was a problem for the entire world" and that it "would have a wave of impacts that could take us into a global recession".
Nonetheless, the minister said he expected foreign direct investment in Mexico this year to total around $25 billion, with investment in the energy and telecommunications sectors expected to more than make up for the loss of a planned $1.6 billion Ford Motor Co. factory that the company said this month it is cancelling. Trump had strongly criticized the plan, but Ford said its decision was not the result of pressure from Trump.
Guajardo also praised the government of Japan and Toyota Motor Corp for their "reasonable" response to Trump's threat to impose a significant border tax if the company does not stop making its Corolla model in Mexico for the U.S. market. Toyota said last week the automaker has no immediate plans to curb production in Mexico.
"Toyota has 10 plants in the United States... and employs more than 130,000 Americans. If I were Mr. Trump, I'd treat them with more respect", Guajardo said.
He added that he expects total foreign direct investment during the six-year term of President Enrique Pena Nieto, which ends in late 2018, to average $30 billion annually.
Guajardo has previously warned that U.S. corporate tax cuts proposed by Trump, as well as the border tax, could undermine foreign investment in Latin America's No. 2 economy.
Mexico slapped a tax on U.S. high fructose corn syrup in the early 2000s after the United States refused to allow free trade in Mexican sugar.