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How much taxes do you have to pay as expats in Mexico?

When it comes to taxing its residents, Mexico has got to be one of the more aggressive Latin American countries. It taxes residents on their worldwide income, and even non-residents on Mexican-source income. Every year, expats living in Mexico are audited by the SAT (Tax Administration Service or Servicio de Administración Tributaria). Whether you’re applying for permanent residency or working in Mexico, you should get to know the taxes you’re required to pay. In this Pacific Prime Latin America article, we’ll go through who is taxable, how much taxes you have to pay, and the types of taxes available in Mexico.

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Who is required to pay taxes in Mexico?

In most cases, you’re a tax resident if you’re living and working in Mexico for an entire year. That being said, any income earned for work performed in Mexico is taxable here. See below for categories of people who are required to pay tax to the Mexican government.

  • If you are a resident, Mexico is your primary home (or home base), and you have spent more than 183 days in the country.
  • If you are a resident, and you have spent less than 183 days in the country. However, the SAT considers Mexico your “center of vital interests**”.
  • If you’re not a resident, you’ll only pay tax on your Mexican sourced income. Non-residents pay 15% or 30% tax on their Mexican sourced income. The first MXN 125,901 (USD $7,000) is exempt in most cases.

**For Mexico to be considered your “center of vital interests”, it must meet the following requirements:

  1. 50% of your total income received during the calendar year are from Mexican sources
  2. Your main center of professional activities is located in Mexico

Note that even if neither of the above is true, the SAT may take your overall circumstances into consideration, and still find you a resident.

What if my income comes from overseas?

Again, Mexico taxes all residents on their worldwide income. However, you can pay foreign taxes only for your foreign-sourced income. In this case, you’ll receive a tax credit from the SAT, which is the amount of money you can deduct directly from taxes owed to the Mexican government. This way, double taxation is avoided.

Types of taxes in Mexico

In this section, you’ll see a rundown of the most common types of taxes for expats in Mexico.

1. Income taxes

You are required to pay income taxes if you rent out a property, own a business, have a job, or have interest-bearing bank accounts in Mexico.

Are you an US citizen? The United States also taxes citizens and permanent residents on their worldwide income. Remember to declare any income earned in Mexico on your tax return. You’ll receive tax credit in your home country for any taxes paid in Mexico. Check out our 12 tips on moving to Mexico from the US.

Important update:

On January 11, 2021, the Annex 8 of the Miscellaneous Tax Resolution for 2021 was published. It states the new rates for calculating individuals’ income tax since Mexico’s inflation rate is exceeding 11.42%. Also, the deadline for filing and paying personal income tax for the year 2020 has been pushed back to May 17, 2021.

Tax rate depends on your earnings, deductions, and other factors. It ranges from 1.92% and all the way up to 35%. Non-residents (i.e. those who are on work visas or permits) pay 15-30%. Last but not least, the corporate tax rate is a flat 30%.

See below for the most updated 2021 personal tax rates for expats in Mexico, based on your monthly earnings in Mexican Peso:

Lower limit Upper limit Fixed fee Rate to be applied on the surplus of the lower limit
$0.01 $644.58 1.92%
$644.59 $5,470.92 $12.38 6.40%
$58,922.28 $9,614.66 $321.26 10.88%
$9,614.66 $11,176.62 $722.10 16.00%
$11,176.62 $13,381.47 $1,022.01 17.92%
$13,381.47 $26,988.50 $1,417.12 21.36%
$26,988.50 $42,537.58 $4,323.58 23.52%
$42,537.58 $81,211.25 $7,980.73 30.00%
$81,211.25 $108,281.67 $19,582.83 32.00%
$108,281.67 $324,845.01 $28,245.36 34.00%
$324,845.01 Onwards $101,876.90 35.00%

 

Here is a list of a few personal expenses you can deduct from your income:

    • school transportation for their children, only in specific cases
    • medical and dental fees, including hospital expenses for the taxpayer, spouse, descendants
    • funeral expenses for the persons mentioned under the above point
    • donations to authorized organizations
    • contributions for employee retirement
    • medical insurance premiums

2. Property/Real Estate taxes

You’ll have to pay three types of taxes for residential property over the years that you own. It’s common to use a property’s “assessed” value in Mexico as the basis for these taxes.

  1. A 2% acquisition tax when you buy the property
  2. Predial or annual property taxes, which tend to be very low and rarely run higher than about $300.
  3. Capital gains tax* when you sell the property.

Capital gains tax can be paid in two ways:

  • You can pay 25% of the declared value of the transaction, or
  • You can pay 30% of the net value—the difference in the assessed values from the time you bought the property to when you sell it, how long the property was held, any improvements made, any commissions paid, and other allowable expenses

Remember to calculate your capital gains tax both ways, preferably with the help of an international tax specialist. This way, you have the option to pay the less costly one.

3. Value Added Tax (VAT)

The VAT is the sales tax on most retail goods and services. It’s 16% in most of the country, and 11% in border areas. As with most sales tax, you’ll see this VAT added to the bottom of your sales receipts.

Secure expat medical insurance in Mexico

Whether you’re a resident or non-resident in Mexico, you are required to pay all applicable taxes. Given that, you don’t want to add one more bill to the list. While healthcare is generally quite affordable in Mexico, you’d want the best treatments at top medical facilities for when accidents happen.

Protect yourself with expat medical insurance today! Alternatively, secure insurance for your expat family in Mexico now.

With 20 years of experience in the insurance brokers industry, Pacific Prime Latin America is happy to help. By leveraging our partnerships with top insurers, we’ll find the best plans that balance your budget with your needs. Get a free quote now with our online quotation system! Talk to our team of expert insurance advisors today for a free plan comparison!

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