Paying 2017-2018 income tax in Mexico? Read this.
Mexico is a popular expat destination - for people looking to work, study, or retire somewhere new. If you’re living in Mexico - or even if you’re not a resident but you earn any income from a job, property or investment in Mexico - you could well have to pay tax to the Mexican authorities.
Tax is complex, and figuring out your responsibilities can be a challenge. However, Mexico’s tax authority, Servicio de Administración Tributaria (SAT, also known as Hacienda)
This overview of the Mexican income tax system should get you started. If you think you might need to pay tax on some or all of your income in Mexico, it might be a good idea to get professional advice to make sure you pay the right amount.
What income is taxable in Mexico?
Exactly what income is taxable in Mexico is somewhat complicated.
All earned income is likely to be taxable, as well as some benefits paid by your employer. So for example, if you’re given a house to live in while you work in a certain role, you could be taxed on that, even if the payment goes directly from your employer to your landlord. Some other forms of income are also taxable, such as rental income, investment and dividend payments, and capital gains - however, the way these types of income are treated depends on the circumstances. Talking to a tax accountant about your own situation is a smart plan.
(Source 18 December 2017)
Who has to pay income tax in Mexico?
To figure out what tax you'll owe in Mexico, you need to know your tax status. In basic terms, you’ll be classified as either:
- A resident taxpayer
- A non-resident taxpayer
When you arrive in Mexico, you’ll need to register with your local tax office and get a RFC – Registro Federal de Contribuyente - number. This number is used to make sure all your taxes are filed against the correct person.
Resident income tax
Many countries classify people as residents for tax purposes, based primarily on how long they stay in the country. Mexico does take residence in this sense into account but also has a couple of other measures to check your status.
If the Mexican tax authorities believe your ‘centre of vital interests’ to be Mexico, then you’re likely to be judged to be a resident taxpayer. That means that you either have a home in Mexico, earn at least 50% of your income there, or classify Mexico as the main place you carry out professional interests.
As a resident taxpayer, you have to pay tax on any income you make anywhere in the world, to Mexican authorities.
Non-resident income tax
If your ‘centre of vital interests’ is not in Mexico, you might be deemed to have non-resident tax status. This means you pay tax in Mexico only on the relevant income you’ve earned in Mexico.
(Source 19 December 2017)
In what instances do Mexican residents working abroad need to pay income tax?
If you’re a Mexican citizen, then you’ll be deemed to have Mexican residence for tax purposes until the point that you take up tax residency in another country. If you’re a Mexican citizen and move to a country considered by the authorities to be a tax haven, then you could continue being deemed a resident taxpayer in Mexico for up to 3 years. If this is the case for you then it’s smart to take some personal advice to make sure you don’t fall foul of the law.
If you’re a foreigner and have become a tax resident in Mexico, and you’re leaving permanently, you have to notify the tax authorities of your intention. You can then settle any tax bill before you move on. If you’re only planning on working abroad for a short while, then the rules above will still apply - what tax you have to pay, where, will depend on your ‘centre of vital interests’.
(Source 18 December)
What are the income tax rates in Mexico in 2017-2018?
Mexico has a pretty complicated, progressive tax system for resident taxpayers. That means a progressively higher tax rate is applied based on how much you earn.
The most up to date rates available for resident taxpayers in Mexico are as follows:
| Income range | Mexico income tax rate (%) 2017 |
|---|---|
| Up to MXN 5,952.84 | 1.92% |
| MXN 5,952.85 - MXN 50,524.92 | 6.40% |
| MXN 50,524.93 - MXN 88,793.04 | 10.88% |
| MXN 88,793.05 - MXN 103,218.00 | 16% |
| MXN 103,218.01 - MXN 123,580.20 | 17.92% |
| MXN 123,580.21 - MXN 249,243.48 | 21.36% |
| MXN 249,243.49 - MXN 392,841.96 | 23.52% |
| MXN 392,841.97 - MXN 750,000.00 | 30% |
| MXN 750,000.01 - MXN 1,000,000.00 | 32% |
| MXN 1,000,000.01 - MXN 3,000,000.00 | 34% |
| Over MXN 3,000,000.01 | 35% |
Non-resident taxpayers are subject to a different tax rate:
| Income range | Mexico income tax rate (%) 2017 |
|---|---|
| Up to MXN 125,900 | 0% |
| MXN 125,900 - MXN 1,000,000 | 15% |
| Over MXN 1,000,000 | 30% |
(Source 19 December 2017)
What are the tax exemptions in Mexico?
Although there’s no standard deduction in Mexico, there are certain costs you can deduct from your gross income before calculating tax, depending on your situation. There’s a cap on these deductions, which means that even if your expenses fall into eligible categories, you can not claim deductions which total more than 15% of your gross income, although there are some exceptions.
Personal deductible items
You can deduct payments made for certain things, such as education costs, charity donations, and the bills for medical, dental and similar care, from your taxable income. Most personal deductions are limited to 15% of your yearly taxable income, but when you make contributions to charities, for instance, the amount you can deduct is limited to 7% of your taxable income from the year before. You can deduct medical expenses over this limit, but then you need a medical certificate that's issued by a government health institution. As this can get quite complicated, seeking some advice from a professional might be a good idea, to make sure you don’t lose out.
Business deductible items
If you’re self-employed you might also be able to claim some deductions based on your business expenses, for things like interest payments on loans. However, the rules around what’s included are complex, so taking advice from a tax accountant will make sure you keep everything straight.
(Source18 December 2017)
What sort of double taxation agreements are there with Mexico?
Double taxation agreements are in place to make sure that people don’t have to pay tax on the same income more than once.
Mexico has double taxation agreements with the following countries:
Mexico double taxation agreements
|---|---|
| Austria | Korea |
| Australia | Kuwait |
| Belgium | Latvia |
| Bahrain | Lithuania |
| Barbados | Luxembourg |
| Brazil | Malta |
| Canada | Netherlands |
| China | New Zealand |
| Colombia | Norway |
| Chile | Panama |
| Czech Republic | Poland |
| Denmark | Portugal |
| Ecuador | Peru |
| Estonia | Qatar |
| Finland | Romania |
| France | Russia |
| Germany | Singapore |
| Greece | Slovakia |
| Hungary | South Africa |
| Hong Kong | Spain |
| Israel | Sweden |
| Indonesia | Switzerland |
| Ireland | Turkey |
| Iceland | Ukraine |
| India | UAE |
| Italy | Uruguay |
| Japan | USA |
(Source 18 December 2017)
How do I pay income tax in Mexico?
Most people have to report their income for tax purposes online. If you have only employment income, from a Mexico based employer then you might find that your tax is withheld at source, through the pay as you earn system. In that case, you might not have anything else to pay when you submit your declaration. In most cases, a tax return has to be filed by 30 April in the year following the tax year. A tax year is the same as the calendar year, so 1 January through to 31 December.
If you’re a non-resident taxpayer things might be a little different depending on your situation. Firstly, your tax year could look different because it could be set to start from the month you arrive in the country, rather than running from January through December. And secondly, if you draw income from an employer based outside of Mexico and therefore don’t have your tax withheld at source, you might be required to file a monthly tax return to make sure all the records are up to date. Take some professional advice to make sure you fulfil your obligations.
(Source 18 December)
Paying income taxes online
If you need to pay tax directly to SAT, you might decide to do so using a bank account held in a different country or currency. That’ll mean you have to do an international money transfer, which can be pricey to arrange.
Make sure you’re clear on the upfront charges, but also the exchange rate used when converting your cash as part of the transfer. Banks and money exchange services don’t necessarily give customers the real, mid-market rate, which you’d find on Google. Instead, they mark up the rate by something like 4-5%. They keep the difference, and you pay more than you should.
A great alternative is to use Wise. Wise works differently to banks. Instead of using the pricey SWIFT system for making bank transfers, their approach to international transfers is fast and secure but also brings down the costs. The service is therefore cheaper than traditional options because the savings are passed on to the customer.
You might be able to pay your taxes directly through Wise. Or, if you don’t already have a bank account in Mexico, you could transfer to someone who does, and still benefit from the saving.
If you often have to move your money between different currencies, a new Wise borderless multi-currency account could save you time and money. You can hold your money in dozens of different currencies, including pesos, all in the same account. And whenever you need to switch between them, you get the real exchange rate with only a small transparent fee for changing from one currency to the other.
Wherever you’re paying your taxes, you don’t want to be out of pocket because of unfair fees added when you change your currency. The good news is that Wise might be able to help you save money on cross-border transactions. See if you can get a better deal from Wiseif you find yourself needing to pay your taxes abroad.
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