Mexican Property Tax Facts for Expats

As an expat living and investing in Mexico, you will be responsible for taxes if:

• You own property in Mexico
• You earn an income from renting your home to others in Mexico
• You earn an income in Mexico
• You sell your investment property in Mexico

Living and investing between two countries can be complicated, it is best to consult an international tax law attorney in Mexico to guide you through the tax system.

Who collects the Taxes in Mexico?

SAT Servicio de Administración Tributaria also known as The Hacienda collects all Federal taxes in Mexico.

When you acquire property in Mexico you will be obligated to pay:

• Acquisition Tax is calculated at 2% of the assessed value of the property at the time of purchase

• Annual property taxes are known as predial. Property taxes in Mexico are very low; the taxes are based on the location and size of your property. The tax is calculated at a fraction of what your property is worth. Property tax is due every January, and the government offers substantial discounts if your predial is paid in advance. For instance, you will receive a 25% discount by paying your predial in December before it is due, and 20% discount if you pay in January.

•  Arrangements can be made if a property owner is having financial difficulties.

• Rental Income Impuesto sobre la renta and IVA (Value Added Tax), if you rent out your property for any amount of time it will be considered income and subject to tax. Whether your property is held in trust, Fideicomiso or solely in your name, any rental revenue and expenses are reported in the same manner. Failure to pay these taxes can result in substantial fines, legal action, and even deportation. These taxes are to be paid monthly to SAT Servicio de Administración Tributaria and can be electronically filed. You may have an accountant or property manager taking care of your rental and filing the tax each month.

• Capital Gains tax will be assessed when you sell your property. A tax based on your profit from selling the property. Considerations as to how long you lived in the home will help determine the amount of tax owed. A tax law attorney in Mexico can advise you on deductibles and help you reduce the capital gains tax.

Other Mexican Tax Laws to Consider:

Income Tax

In general, if you are employed in Mexico, your employer will withhold and submit your income tax payment. If your employer does not do so, it is your responsibility to pay the income tax. The tax is based on 25% of your gross income with no deductions.

IVA

A Value added tax called IVA, is a general goods and services tax. In Mexico, it is calculated at 16% and will be charged on almost any product you purchase, hotels, or other services. The tax is typically included in the sticker price.

This tax also applies when buying commercial property, but the residential property is exempt.

How Do Mexican Tax Laws Affect Your Income Taxes Back Home?

You must report all income and taxes paid in Mexico to your home country, but there is an agreement in place to protect you from being double taxed. Mexico has a treaty with the U.S. and Canada regarding taxation of residents living in both countries.

These NAFTA countries exchange information, so it is imperative to file your taxes in both countries. The treaties state that the Americans and Canadians who are residents in Mexico will be subject to Mexican tax laws.

As in any other country, failure to pay taxes may lead to criminal charges, high-interest charges and put your property and your ability to visit or live in Mexico at risk.  

The Mexican tax system is constantly changing we highly recommend consulting a tax law attorney in Mexico before you buy, invest in, rent or sell a property.