Do Expats Pay Taxes in Mexico?
Yes, if you are employed in Mexico by a Mexican company your employer will withhold and submit your income tax payment to SAT, the tax office in Mexico.
it is your responsibility to pay the income tax if your employer does not do so.
The tax is based on 25% of your gross income with no deductions.
If you are an American citizen you pay taxes to the US as well no matter where in the world you live or where the money is generated, it’s almost like a tax on being American.
If you’re a resident of Mexico, income earned in a foreign corporation or from work performed outside of Mexico is also taxable in Mexico, but if you paid foreign taxes on that foreign-sourced income, you will receive a tax credit.
It is your duty to report all income and taxes paid in Mexico to the IRS in the US or your home country,
There is an agreement between the USA, Canada, and Mexico to protect you from being double-taxed.
According to the NAFTA agreement, these three countries exchange information, so you need to file your taxes in both Mexico and your home country.
failure to pay taxes may lead to criminal charges, as it would in your home country, penalties include high-interest charges and put your property and your ability to visit or live in Mexico at risk.
What are the different types of taxes in Mexico?
Just as any other country in the world Mexico has different taxes, and just as anywhere else, it’s your obligation to know and pay in time and form.
Here some things you should know regarding the different types of taxes in Mexico, let’s begin by enlisting the different taxes applicable.
- Income Tax (ISR)
- Rates of Income Tax (ISR):
- Value Added Tax (IVA)
- Special Tax on Production and Services (IEPS)
- Tenencia (Car ownership)
- Tax on entertainment and public events
- Tax on the provision of Hosting Services
- The city tax or municipal tax includes the property tax and tax imposed on the acquisition of property or transfer of Domain.
Now let’s talk about them in more detail.
Federal Income Tax or Impuesto Sobre la Renta (ISR)
This is the tax that derives from the income of an individual and or an entity, except for donations and inheritances. It is directly applied to an individual’s or an entity’s income.
The rate of ISR varies at 30% for entities and up to 35% for individuals.
The Income tax is levied on the residents of Mexico and legal entities as well as individuals who reside abroad but receive income from Mexico.
Impuesto al Valor Agregado or Value Added Tax (IVA)
(IVA) is a tax that is transferred or collected by a third party and applies to everyone in Mexico, resident or not.
When you purchase any product from a shop, for example, you pay 16% tax on that product and it’s charged to you, withheld, and transferred to SAT by the shop directly on your behalf.
The rates for border cities will be different than those in the rest of the country, they can be 8%, 0%, and even non-taxable in the Free Zones (Zona Libre).
Impuesto Especial sobre Producción y Servicios or Special Tax on Production and Services (IEPS)
The Special Tax on Production and Services, IEPS, is a tax that is paid for the production and sale or importation of alcohol, beer, gasoline, and tobacco. It is indirect like the Value Added Tax, IVA, that is, taxpayers don’t pay it directly, but transfer it or charge it to their clients
Each state charges its own individual taxes and these are not the same across the country.
For example, the tax on vehicle ownership (Tenencia) is applicable in some states but not in all states of Mexico.
Tax on entertainment and public events
The natural or legal persons who obtain income from the shows are obliged to pay this tax.
Public entities that organize, exploit or sponsor public events by which they are not obliged to the payment of the Value Added Tax (IVA).
Any act, function, amusement, or entertainment that has public access and charges for an entrance fee, donation, cooperation, or any other concept,
either directly or by a third party.
Tax on the provision of Hosting Services Impuesto Sobre Hospedaje (ISH)
The Lodging Tax (ISH) is one tax that only some state governments charge to hotels and lodging applications such as Airbnb
The taxes mentioned above are some of the most common types of taxes you will encounter. However, the rates for each and every tax may be different depending on certain conditions and circumstances, like if this is the case of an individual or an entity, or if this is a legal resident or a non-resident person.
When do you pay taxes in Mexico?
- When you earn an income in Mexico
- When you own property in Mexico
- When you earn an income from renting your property in Mexico (Airbnb)
- When you sell your property in Mexico