SAT is Verifying Compliance with Tax Requirements on Rental Income.

SAT, the Secretary of Attention to Taxpayers, the equivalent of the US – IRS, Internal Revenue Service, and Canada’s CRA Canadian Revenue Agency, is reviewing social media sites, including Air BnB and VRBO, to determine who is offering property for rent and who is receiving unreported income.


Evasion of tax is a criminal offense. Articles 150 to 178 of the Fiscal Code provide for imprisonment of up to six years for evasion of taxes. Not only is it a criminal offense but the taxpayer must pay the past due taxes and very substantial interest penalties which amount to 1.3% per month, compounded. Unless taxes and accrued penalties are paid in a timely manner the property can be seized and put up for auction. Additionally, in a reform of Article 118 of the Fiscal Code, no landlord may demand payment of past due rent in the courts without submitting proof of tax compliance.


The Mexican government has decreed that income generated from the rent of a Mexican property is due and payable in Mexico, regardless of where the income is received. And it is getting very serious in its efforts to collect this tax and to punish those who evade payment, whether through intention or ignorance. SAT has determined ignorance is not a legitimate excuse. This growing issue and omission now represents a glaring 1% of Mexico’s Gross Domestic Product. Mexican authorities are anxious to correct this shortfall.


There are programs in place for both Residents in Mexico and Non-Residents of Mexico, to declare and pay the lawful taxes which include both the tax on income (ISR) and, in the case of a unfurnished rental, the 16% added value tax (IVA). Realistically there is no way to legally avoid declaring and payment of these taxes. To continue to evade this responsibility will put the affected property at risk.


And the good news, due to Mexico’s tax treaties with 32 countries, double taxation is never an issue.

For details on how to clean up your tax obligation and proceed, please contact rentaltaxmexico@settlement-co.com Read more about the Mexican income and iva taxes on rental income at www.rentaltaxmexico.com If you wish to discuss your situation and how to resolve it with a US Attorney with expertise in Mexico taxes EMAIL US TAX ATTORNEY

Everything You Wanted To Know about Buying, Selling, Owning, Renting and Occupying Real Property in Mexico from MLS Baja

The list of articles on this link includes almost everything you need to know about real estate law, taxes and ownership in Mexico . It is put together by the Baja Sur MLS and is a great compilation of knowledge from the experts.  SEE INDEX OF AVAILABLE ARTICLES HERE.

If you need help with US taxes in Mexico or rental taxes on Mexico properties, email us at ddnelson@gmail.com

CONSEQUENCES FOR AMERICANS AND CANADIANS FAILURE TO PAY TAXES ON RENTAL INCOME ON MEXICAN PROPERTY

What are the consequences of failing to report the rental income in Mexico? You will be liable for not being enrolled as a taxpayer which can cost you from 2,740. to 8,230 pesos when assessed by the SAT.   The penalty for not making rental tax 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 your first violation.

Should you go back and pay in those taxes for past years when you failed to pay the rental income and VAT taxes?   If the Mexico tax authorities have not notified you are in violation of the tax code, you probably will not need to file back taxes (but there are no guarantees).   The important point is to begin paying now on your rental income from your Mexican properties and to be consistent in the future.

target="_ Remember also to pay your US taxes on that rental income. You can then claim a credit or deduction for the taxes you paid in Mexico on the same income so you are not double taxed. Have questions? Email us at ddnelson@gmail.com

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

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%)*

SI QUIERE LEER ESTO EN ESPANOL, FAVOR DE VER EL ANEXO.

•  
• 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.

Attachments area

MAKE CERTAIN TO PAY YOUR TAXES ON RENTAL INCOME IN MEXICO OR ELSE

NOT EVERYONE RENTS THEIR MEXICO PROPERTY DURING THE SUMMER MONTHS………….

            HOWEVER, IF YOU ARE CONSIDERING RENTAL INCOME FOR THOSE “HIGH SEASON” MONTHS,

DO IT NOW!    ENROLL in the program, get the documents in order so no time is lost when you begin collecting the rents!

Pay only the set up fee and 4^th quarter fee now,  and begin your tax payment program on October 1, 2016!

Why declare and pay taxes on Mexico rental revenues?

            FOREIGNERS ARE OBLIGATED TO PAY TAXES ON INCOME GENERATED IN MEXICO.  Mexico’s tax law is patterned after those of the United States and Canada (world rental system) which states in the First Article::

Article One: Physical persons (individuals) and legal persons (companies) are obligated to pay an income tax in the following cases:

I           Residents of Mexico, must report and pay on all income no matter where the source is located;

II.         Those with residence in a foreign country with a property in Mexico must report and pay on all income generated from that Mexican property.

            If you own a property in Mexico and rent it often or only occasionally,  ENJOY your rental income and SLEEP EASILY KNOWING YOU HAVE COMPLIED WITH MEXICAN TAX LAWS!

            The Settlement Company® with many years of experience in the transfer of titles and resolution of problems related to title, is able to assist you in receiving your funds in an escrow account, complying with your fiscal obligations in Mexico, providing you with the overage and the documents you require in your country of residence to avoid double taxation!

for additional information, contact  the Settlement Company today!

info@settlement-co.com   or rentaltaxmexioco@settlement-co.com

www.rentaltaxmexico.com                                                  www.settlement-co.com

Rentaltaxmexico@settlement-co.com

THE SETTLEMENT COMPANY®

www.settlement-co.com

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.  ddnelson@hgmail.com

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

FAQ..................,RENTAL TAXES- PAY THEM and BE LEGAL IN MEXICO OR FACE CONSEQUENCES

IS A TEMPORARY VISA REQUIRED?

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

 

IS RENTING MEXICAN PROPERTY PROHIBITED?

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.

 

 

OUR PROPERTY TITLE IS IN AN LLC.   HOW CAN WE PAY TAXES ON THE INCOME?

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.

 

IS THE FIDEICOMISO THE PROPERTY DEED?   

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.

 

WE HAVE HEARD THAT OUR PROPERTY CAN BE SEIZED BY THE GOVERNMENT IF TAXES ARE NOT PAID MONTHLY.   IS THIS TRUE?

 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.

 

PAYING TAX ON YOUR RENTAL INCOME FROM MEXICAN PROPERTIES IS A MUST, WHETHER YOU LIVE IN MEXICO OR NOT.  GET LEGAL and AVOID THE CONSEQUENCES OF TAX EVASION!

 

FOR ADDITIONAL INFORMATION, PLEASE CONTACT GO TO WWW.RENTALTAXMEXICO.COM 

Or Email to    info@settlement-co.com     rentaltaxmexico@settlement-co.com

 

 

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 www.rentaltaxmexico.com 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 ddnelson@gmail.com for more.

EIGHT LITTLE KNOWN US TAX FACTS FOR GRINGOS IN MEXICO

By. Don D. Nelson, International Tax Attorney

• Though most foreign assets are reportable on various specialized forms filed with your US tax return,. If you own foreign real estate and title is in your own name (or a Fideicomiso) and do not rent out the property, there is no reporting required on your US tax return or for that matter any other reporting due the US Government.

• Foreign mutual funds (and most foreign money market funds) require filing of another special form with your tax return. If you do not file this form and make elections to report the income each year, you are penalized with higher taxes and interest when you finally sell your foreign mutual fund. These rules were put in many years when Congress was convinced by US Mutual Fund companies that there business would be hurt unless investment in foreign mutual funds was made unfavorable for tax purposes.

• The 2015 the $100,800 US foreign earned income exclusion applies to earned income (wages or self employment) income earned abroad if you meed the physical presence test or bonafide resident test. You can see if you qualify in IRS Publication 54. It is not automatic and can only be claimed on your US tax return. The IRS can deny this exclusion if you file your return more than 18 months late. This exclusion does not apply to rental income, dividends, interest or capital gains or any income other than earned income.

• You must report your rental net income in Mexico from your Mexican real estate on your US return and you also owe taxes on it in Mexico even if you are not a resident. In Mexico you must pay Mexican income taxes on it and also pay IVA tax. (read more on these rules at www.rentaltaxmexico.com )  If you are renting for only a short time, you may also owe local lodging excise taxes. The Mexican income tax can be claimed as a credit directly offseting any US income tax you owe on the rental income. The IVA and lodging taxes can be deducted on your US tax return as rental expenses.

• If you own 10% or more of a Mexican corporation you may have to file form 5471 with your US tax return if required by the rules governing that form. Failure to file that form in a timely manner may result in the IRS assessing a $10,000 US penalty for failure to file even if you owe no taxes.

• The US has a tax treaty with Mexico. It also has in the past year entered into an OECD agreement where the two countries have agreed to exchange income tax information with the other. At some point in the future what you do in Mexico will not stay in Mexico and visa versa.

• If as a US Citizen you have lived and worked in Mexico for a while and not filed your US tax return, the IRS currently has a “streamlined program” that may allow you to catch up by filing only the past 3 years US tax returns and past six year FBAR (foreign bank account reports). They will not penalize you under that program for failing to file FBAR forms or other foreign reporting forms. They have stated they may discontinue this program at any time. Now is the time to surface with the IRS and avoid potentially huge penalties.

• FBAR (foreign bank account reporting forms) must be filed each year with US Treasury if at any time during the calendar year your combined highest balances in your foreign financial accounts exceeds $10,000 US. This form must be filed on line. Foreign accounts include foreign pension plans, cash surrender value in foreign insurance, foreign brokers accounts, and even gold if held for you in a foreign country a custodian. Failure to file this form or filing it late can result in penalties of $10,000 US or more.

Don D. Nelson is a US tax attorney who has been assisting Americans in Mexico for over 25 years with their US tax returns and tax planning. He is also a partner in Kauffman Nelson LLP, Certified Public Accountants. His website is located at www.TaxMeLess.com. He has 2 tax blogs with the lastest tax developments of interest to those in Mexico located at www.usexpatrate.blogspot.com and www.us-mexicotax.blogspot.com His email address is ddnelson@gmail.com. He can be reached at his US phone number 949-480-1235.   Don spends about 7 months a year in Baja Sur, Mexico.