With the growing number of expats living in Mexico, Biz Latin Hub has decided to take a close look at one of the major challenges foreign residents in Mexico have to face: completing an annual tax registry. Continue reading if you want to learn how to pay your taxes properly in Mexico!
The law is different for expats and Mexican nationals, therefore, this article only concerns those foreigners who have a Mexican visa and who are considered residents.
Annual Tax Registry – Am I a Mexican tax resident?
If you have established your permanent home in Mexico, then you are considered a Mexican resident. If you’re an expat, and you have a permanent residence elsewhere, then your status is defined by where your ‘center of vital interests’ is located. This may seem vague, yet it follows some straightforward criteria. You are considered a resident and will have to pay tax in Mexico if more than 50% of your income is earned in Mexico and if your main professional activities are located in Mexico.
It is important to note that even if you spend less than 183 days a year in Mexico, the SAT (Mexican Tax authorities) may consider you as a Mexican resident if your ‘center of vital interests’ is perceived to be located in Mexico. It is often said that if you’re living and working in Mexico for an entire year, you’re a tax resident.
What is taxable in Mexico?
It is simple – any income you earn from working in Mexico is taxable in Mexico. Even if you’re a resident of Mexico working for a foreign company, you will have to pay tax in Mexico. However, in order to avoid double taxation, if you pay foreign taxes on foreign sources income, you are liable to receive a tax credit, which is a reimbursement, from the SAT.
You do not have to pay for Social Security, as this is paid for by Mexican employers on their employees’ payroll – the same rule applies for estate and inheritance taxes. Mexico does not require you to pay these taxes unless you’re not receiving any income.
When are you expected to complete your annual tax registry?
Like in the United States, the Mexican tax year starts on January the 1st and ends on December the 31st. You have to fill your tax returns by April the 30th of the following year. This is a deadline you should remember since no extensions are possible. Tax returns have to be filled with the ‘Servicio de Administración Tributaria’. You can complete your tax declaration on the SAT user-friendly website.
How much tax are you expected to pay in Mexico?
Below you will find the income tax rates applicable for 2017.
|Mexico Income Tax Rates|
|Earnings in Pesos (Mex$)||Rate Applicable to Income Level (%)|
|0 – 125.900.00||0% – Exempt|
|125.900 – 1.000.000||15%|
|1.000.001 and above||30%|
In addition to income taxes, you will be paying the IVA (Impuesto al Valor Agregado), which is the equivalent of the value-added tax. Today it is 16%.
How to facilitate taxpaying in Mexico:
Many expats living in Mexico find it difficult to keep up with the ever-changing tax regulations and rates. The SAT may often fine you if your annual tax registry is incorrectly filed. This is why some decide to use the help of professional accountants to save time and stress when completing their registry.
At Biz Latin Hub Mexico, our team of accountants often assist expats who want to enjoy their Easter by organizing and submitting their annual tax registries. One of the major reasons our clients are satisfied with our services is because we offer very affordable and competitive prices. If you are interested contact Alex, our country manager in Mexico, here.
Watch this video to learn more about the accounting and finance services Biz Latin Hub offers in Latin America: