Questions and Answers for Those Who Have a Federal Taxpayer Identification Number (RFC) and Who Have Official Immigration Status as Residents Of Mexico

BY: LINDA JONES NEIL

All foreign persons who receive income from rental properties located in Mexico are obligated to declare and pay tax on that income no matter where the income is received. The settlement company® of Mexico, founded in 1991, provides essential services for the payment of these required taxes for both residents and non-residents. Some important considerations: RATE OF EXCHANGE Please remember all taxes are calculated and paid in PESOS, even if the owner collects the rental amount in U.S. or Canadian dollars or any other currency. The rate of exchange is quoted at Banorte on the date the tax payment is made.

DEDUCTIONS PERMITTED WHEN A RESIDENT:  OPTION ONE. Property Tax, then a blind deduction of 35 percent of all income after property tax. NO INVOICES (FACTURAS) needs to be presented. An annual declaration must be made in addition to the monthly declaration.

DEDUCTIONS PERMITTED WHEN A RESIDENT:  OPTION TWO. Property Tax, Maintenance Costs, Water, Salaries, Commissions and Service Fees, Insurance, Investment in Constructions and improvements, Paper goods and Office items, Tools and equipment required to care for the property. INVOICES (FACTURAS) MUST be obtained for each and every expense in order to be deductible. An annual declaration must be made in addition to the monthly declaration.

IVA TAX (ADDED VALUE TAX) must be charged on all FURNISHED rentals. This is generally a tenant expense. The owner MUST collect or declare and pay the tax. However, in some areas, the property owners choose to declare the IVA included in the total rental amount, without separating it out. In such case, the owner/Settlement Company® will break it out of the total collected and the income tax (ISR) will be calculated on the amount after IVA. 

example: 1000. total rent including IVA. 862.07 rent + 137.93 IVA=1,000.  ISR tax is calculated on 862.07 ISR TAX (INCOME TAX) is declared on the amount received less IVA.

ANSWERS TO OTHER QUESTIONS: I collect all income in the U.S., I pay U.S. taxes on the income. Therefore I shouldn’t have to pay tax in Mexico. Correct? NO! NOT CORRECT! Income received from a property located in Mexico MUST be declared first in Mexico and paid in Mexico, no matter where the payment is received. The good news: taxes paid in Mexico are a CREDIT against income in the U.S., Canada, or any one of 32 other countries that have tax treaties with Mexico. NO DOUBLE TAXATION!

I understand the Mexican tax authorities are pretty lax about collecting tax. NOT TRUE! More and more they are reviewing internet offerings and penalizing those who are not paying. Fines range from about 200 to 750 USD per month, with interest on unpaid penalties accumulating at the rate of 1.13 percent per month. If penalties and taxes are not paid the property can be attached and sold for non-payment. Not a laughing matter!

Paying tax on your rental income from Mexican properties is a must, whether you live in Mexico or not. Get legal and avoid the consequences of tax evasion! For additional information, please contact: the settlement company® info@settlement-co.com, rentaltaxmexico@settlement-co.com, www.settlement-co.com