Understanding Expat Tax While Living in Mexico

Mexico is a firm favorite when it comes to places to retire or move to. With a low cost of living, vibrant yet easy-going locals, and agreeable weather, it's no wonder it regularly features as one of the best places to choose.

While you'll escape the hustle and bustle to trade it for a carefree expat experience, there's no way to abscond and not pay taxes. This article looks into what you need to know about tax while living, working, or investing in Mexico.

Leisure

With the extremely affordable cost of living in Mexico, you may either retire or quit your nine to five and still enjoy a comfortable lifestyle. When it comes to taxes for expats, it depends on your unique situation.

As a consumer, you'll pay value-added tax, which is applied as an indirect tax to items you buy in shops. It may vary depending on your location, and you'll be able to calculate it by looking at receipts from stores.

Business

Suppose you plan to work or earn an income while in Mexico, it's advisable to look at this site and get input from a tax lawyer before you set off. Planning prevents panic, and with a tax plan listing your obligations, you'll be able to navigate the day to day operations and avert a liability crisis.

Keep in mind that you're still obliged to declare and pay taxes on your assets or passive income in your home country too. US and Canadian citizens may get credits on home-country tax returns, for some taxes already settled in Mexico.

If you run a business or get revenue by renting out a property that you bought, these will be subject to a rental income tax of 25%. Property taxes are applicable too, and we'll cover that in the next section on investing.

Investing

Foreigners are allowed to own property in Mexico. In addition to the sheer beauty, it's affordable, making it a sound and profitable investment.

Keep in mind that some restrictions are in place regarding the proximity of the building to the shoreline and international borders. Your tax practitioner will be able to advise if it's best to hold the property in your name, or a 'fideicomiso,' a bank trust agreement.

If you own residential property, there are three kinds of tax to consider. You need to pay an acquisition tax of two percent when you complete the transaction, and you're liable for annual property taxes. Take note of the assessed versus the property's commercial value as you'll need these numbers to calculate your taxes due.

If you decide to sell the property, you'll pay capital gains tax. This is currently set at either 25% of the sales transaction's value or 5% more, at 30% of the net amount.

The net value is determined by tallying up the difference between the value at the time of purchase compared to its worth when it's sold. You'll also have to take improvements or other expenses, like a commission paid, into account to get to the final evaluation.

The Bottom Line

Living in Mexico is affordable and even profitable if you're investing in property. It's important to understand that you're still required to pay your taxes, both at home and while living or working in your new spot as an expat.

Seek professional guidance to ensure you understand what your tax obligations are under new circumstances. This is imperative if you plan to do business or invest in property.

Prevention is better than cure, and you'll enjoy an easy-going existence when all the tax query boxes are ticked.