If you currently own property in Mexico or are interested in buying some Mexican real estate in the future, there are a few questions that often come up. Some are related to the ins and outs of buying property in Mexico, some are related to international visa requirements, and some are related to living expenses and overall costs.
One of the most common subjects on the issue of costs will undoubtedly be related to property taxes. To be clear, in Mexico, you will be responsible for paying some form of taxes.
This is true if you own residential property, rent your property and earn income, or if you sell your property in Mexico. You may even be responsible for paying income tax if you work from Mexico.
First, let's cover some of the basic information so you'll be better prepared when confronted with any issues related to tax in Mexico.
Who Collects Taxes in Mexico?
The SAT, which stands for Servicio de Administración Tributaria, collects all Federal taxes in Mexico.
What Taxes Must I Pay in Mexico?
There are several taxes that may apply to you once you acquire property in Mexico. They are:
- Acquisition Tax (when buying property)
- Annual Property Tax (for all property holders)
- Rental Income Tax (if applicable)
- Value Added Tax (if applicable)
- Capital Gains Tax (when selling a property)
- Income Tax (if applicable)
The Acquisition Tax is paid for any property you purchase. The level of tax is different in each Mexican state, and the rates range from under 2% up to 4.5% of the assessed value of the property at the time of purchase.
The Annual Property Tax is actually quite low. Also known as the predial, this annual tax is always due in January, and the amount of tax you will pay will depend on both the size and location of your property. One of the most interesting things about this tax is that if you pay it in advance (in December) the government will give you a 25% discount. And if you pay the tax right away in January, they will still give you a 20% discount!
The Rental Income Tax only applies to you if you rent out your property for profit. In Spanish this tax is called the impuesto sobre la renta, and if you are collecting any form of rent it counts as a form of income, meaning you must pay the tax. These taxes are supposed to be paid monthly to the SAT, which can be done electronically.
The Value Added Tax, also known as the IVA, is a goods and services tax set at 16%. An acronym for the Spanish term impuesto al valor agregado, it is only necessary to pay the IVA when you buy commercial property, but not if you buy residential property. It is also only applicable for new purchases not used property. For most goods and services in Mexico, the IVA is included in the sticker price.
The Capital Gains Tax is only necessary to pay when you sell real estate in Mexico. The amount owed will be determined based on a number of factors, including how much profit you made from the sale, how long you lived in the home prior to the sale, and some other factors. For advice on any matter related to capital gains tax, it is always best to speak with an attorney well-versed in Mexican tax law. However, in general the tax is equal to approximately 25% of the profit you made on the transaction.
Finally, paying Income Taxes is required for anyone employed in Mexico. While Mexican employers usually withhold and submit the payment to the SAT on your behalf, if they do not, the tax is usually around 25% of your gross income. this number may change based on any deductions that are made.
Does Paying Tax in Mexico Affect My Canadian or U.S. Taxes?
You are expected to report all income and taxes paid to your home country. However, Mexico, Canada and the United States have existing agreements in place not only to exchange information related to taxes for any citizens living or doing in business in more than one country, but also to help them avoid double-taxation.
For more information on how exactly any property taxes will affect the amount paid in your home country, speak to a professional in the tax field or a government representative in order to get the most accurate information.
Are There Consequences for Not Paying Taxes in Mexico?
Just like anywhere else, if you neglect to pay your property tax (or any other tax), you may face criminal charges, financial penalties, or even have trouble traveling back and forth between countries.
Because the Mexican tax system is sometimes fluid and can change from year to year, it is imperative that you stay in close contact with someone that knows the law inside and out. Having a once yearly consultation with a Mexican tax attorney is an investment that is well worth it, just to stay on the safe side.
Real Estate in Mexico: A Great Value
Now is a great time to buy property south of the border. If you're interested in buying a vacation home in Mexico, there's lots to think about!If you have questions, or if you need expert advice, your best bet is always to reach out and speak with an expert that knows the property market, the law, and more importantly, that has experience helping foreigners get comfortable with the idea of buying property in Mexico. Zisla is among the best, so get in touch with them today!