IF YOU OR YOUR FOREIGN CLIENTS OWN RENTAL PROPERTY ANYWHERE IN MEXICO - THESE MEXICAN TAXES MUST BE PAID

• Mexico Income Taxes

• Mexico Value Added Taxes – IVA (16%)*

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• Many nonresidents of Mexico have never paid any taxes on their rental income from properties they own in Mexico.  This is against 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 to pay these taxes and avoid problems  even if you or your foreign non-resident clients do not have a Mexican tax identification number (RFC).   The Settlement Company® has developed a simple and easy procedure which will allow you to be tax compliant on rental income. You do not have to suffer the consequences of failing to pay. Email us now to learn more and to get started. rentaltaxmexico@settlement-co.com

the settlement company®

(serving the Mexico real estate community since 1991)

www.settlement-co.com

www.rentaltaxmexico.com

rentaltaxmexico@settlement-co.com

Mañana is not  your best answer. Email us today so we can help you get started.

Visit our website for more information and to learn  the rules at: www.RentalTaxMexico.com

Note: We work with all property managers. the settlement company®  does not manage any properties.

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 taxes.

*IVA is paid by tenant but collected and declared by owner.  Applies to furnished residential properties only.

If you need assistance with the US tax aspects of rental property in Mexico or any other country, or estate planning with respect to your US assets please contact  Don D. Nelson at ddnelson@gmail.com or US 949 480-1235.  We can help you plan out the  US tax consequences of your Mexican real estate transactions and advise you on how to hold title for the best US tax results.

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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 RentalTaxMexico.com. 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)settlement-co.com, call us at 52-612-123-5056 Ext 0, or visit RentalTaxMexico.com. J

Mexican Taxes on Rental Income - What are those taxes? What are the penalties if you fail to pay those taxes?

If you rent your real estate in Mexico full time or part time when not using it the income you make is subject to several rental taxes in Mexico. This applies to owners who are residents and nonresidents. These taxes also apply to rental of your timeshare.  Failure to pay all applicable taxes can result in severe penalties. The following examples explain the taxes and penalties you will incur for ignoring Mexican tax laws:

Example 1.  Bill and his wife Sarah rent out their  condominium in San Jose for 5-6 months out of the year on a weekly or monthly basis to tourists.  Though they report their rental income and expenses on their US tax return, they have never paid any taxes on that rental income to the Mexican tax authorities.  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 this actually true?  No!  Definitely not!   Bill and his wife must pay taxes on their income which is generated in 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.

Example 2.  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.

Example 3.  The Smiths normally do not rent out their home in Todos Santos.  But since they are taking a 2 month tour of Europe they are renting it out for $3500 per month for two months.

Do they have an obligation to report this rental income to the SAT?  Yes, they have an obligation to report and pay taxes on any income generated from property located in Mexico.  

.  They are permanent residents of Mexico, and Canadian Citizens.  They also do not report any of their other income earned in Canada in Mexico.  It is now a year later and they have learned that rental income must be reported and taxes must be paid on it. 

How much tax will they owe?     Technically they owe $875. USD, plus 16% IVA.

What will be the penalties for failing to report that income on a timely basis?

Penalties could be as listed above.   

Want to know more about rental taxes in Mexico or locate an experienced rental tax service to handle those taxes for you? The Settlement Company in La Paz offers a service which files and pays these rental taxes for nonresidents on their Mexican rental income. Read more at www.rentaltaxmexico.com

Taxes in Mexico on Rental Properties - How to Get Into Compliance?

If you own a rental property in Mexico, the income and expenses from that property are reportable on your US tax return and in Mexico.  The tax reporting in the US is very much the same as a rental property located in the US, but you must depreciate the property over a 40 year period.

Over one-half of the Canadians and Americans who rent their Mexican properties are not paying their Mexican taxes on that income. What are those taxes you owe?

• IVA which is 16 % of your gross rental income (deductible on US return)
• Local Lodging Taxes (if it applies) in the City where the property is located (deductible on US return)
• Mexican income tax on rental income (can be credited against US tax on this income)

These Mexican taxes must be reported and paid monthly to the Hacienda and other applicable local taxing agencies.  Most of this is done on line on the internet.  Failure to do so can result in penalties and potential criminal prosecution.

In some areas of Mexico the taxing agencies search the internet for properties for rent, locate the properties and check to see if the taxes are all being paid on the rental income.  This technique is likely to spread to other areas of Mexico as time passes.

If you are not a resident of Mexico, there are additional rules and complications paying these taxes. If you wish to get into compliance, please email us at ddnelson@gmail.com and we can guide  you to an excellent service the will file all tax report and pay the taxes for you.  Best to get into compliance with these Mexican tax laws before it is too late!  Further delay may be costly.

The Settlement Company offers the service of filing and paying rental taxes on Mexican rentals for nonresident owners. Read more at www.RentalTax Mexico.com