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The food, the weather, the lively culture, the low cost of living, the ability to immerse yourself in Spanish… with all of the advantages of living in Mexico, it’s no wonder that more and more Americans are moving there. Along with all of the advantages, though, it can complicate your taxes a bit.
However, as expat tax professionals, we aim to simplify this process for you. Read on to learn everything you need to know about taxes in Mexico for US expats.
Snapshot of Taxes in Mexico
- Primary tax forms: Yes
- Tax deadline: April 30
- Reporting website: Servicio de Administración Tributaria
- Administrative language(s): Spanish
- Tax treaty: Yes
- Totalization agreement: Yes
Taxes for US citizens living in Mexico
Americans living in Mexico must pay taxes to the Mexican government if they earn Mexican-sourced income or if they are a tax resident of the country.
Who qualifies as a tax resident in Mexico?
The Mexican government will consider you to be a tax resident if you spend more than 183 days in Mexico within a year, maintain a residence in Mexico, or if the country is the center of your vital interests.
According to these criteria, US expats with a Mexican visa permitting a stay of over six months are typically deemed tax residents. Some common visas held by US expats include the:
Family Unification Visa
For spouses, children, parents, and siblings of Mexican nationals.
Work Visa
For those who have received a job offer from an employer based in Mexico.
Student Visa
For students who will be enrolled in a course in Mexico for more than 180 days.
Permanent Residence Visa
For those with enough savings and/or income to support themselves indefinitely in Mexico.
How long can you stay in Mexico without a visa?
It used to be easy for Americans to explore Mexico before moving there, as they were automatically allowed to travel in Mexico for up to 180 days without a visa. However, Mexico has recently tightened these regulations.
180 days is the maximum amount of time a US visitor is allowed to stay in Mexico without a visa. But, it’s not necessarily guaranteed. To be granted the full 180-day stay, you might be required to provide evidence of a valid reason for your visit, like accommodation bookings or return flight tickets.
Income tax rates in Mexico
For the 2023 calendar year, the tax rates applicable to Mexican tax residents are as follows. These rates also explain how US citizens are taxed in Mexico, if they are subject to Mexican taxes:
| Income Band (MXN) | Income Band (USD) | Tax |
|---|---|---|
| Up to $8,952.49 | Up to ~$492.79 | 1.92% |
| $8,952.50 – $75,984.55 | ~$492.79 – $4,182.17 | 6.40% |
| $75,984.56 – $133,536.07 | ~$4,182.18 – $7,349.79 | 10.88% |
| $133,536.08 – $155,229.80 | ~$7,349.80 – $8,543.63 | 16% |
| $155,229.81 – $185,852.57 | ~$8,543.63 – $10,229.07 | 17.92% |
| $185,852.58 – $374,837.88 | ~$10,229.08 – $20,630.56 | 21.36% |
| $374,837.89 – $590,795.99 | ~$20,630.57 – $32,505.56 | 23.52% |
| $590,796 – $1,127,926.84 | ~$32,505.57 – $62,062.36 | 30% |
| $1,127,926.85 – $1,503,902.46 | ~$62,062.37 – $82,749.81 | 32% |
| $1,503,902.47 – $4,511,707.37 | ~$82,749.81 – $248,249.43 | 34% |
| $4,511,707.38+ | ~$248,249.44+ | 35% |
The income tax in Mexico for expats who are non-tax residents is slightly different:
| Income Band (MXN) | Income Band (USD) | Tax Rate |
|---|---|---|
| $0 – $125,900 | ~$0 – $6,930.61 | Exempt |
| $125,901 – $1,000,000 | ~$6,930.61 – $55,048.54 | 15% |
| $1,000,001+ | ~$55,048.55+ | 30% |
Property taxes in Mexico
Owning property in Mexico entails several tax implications. These include:
- Acquisition Tax: One-time tax on purchased property ranging from 2% to 4.5%, depending on location
- Annual Property Tax: Annual tax on any property you own, with rates varying based on the value, size, and location of your property — but rarely exceeding $300 USD per year
- Rental Income Tax: A monthly tax, usually 25%, on income from property rentals
- Value Added Tax: A one-time tax of 16% on purchases of newly-constructed commercial property
Capital gains tax in Mexico
Tax residents of Mexico must pay taxes on worldwide capital gains arising from the sale of shares, securities, property, and other assets. The exact rate depends on the asset type, its value, and other factors.
Non-tax residents of Mexico are only required to pay taxes on capital gains arising from the sale of Mexican-based assets. You can choose to pay either a flat rate of 25% of the gross proceeds or 35% of the net gain.
Employer payroll taxes in Mexico
Payroll taxes in Mexico are levied by the state and paid entirely by the employer. They range between 1% and 3% of an employee’s salary, depending on the location of the business.
VAT in Mexico
The value-added tax (VAT) in Mexico, referred to locally as el impuesto al valor agregado (IVA), is the tax levied on goods and services. Typically, the VAT rate in Mexico is 16%; however, there are reduced rates in some situations:
- 8%: For goods and services sold in the northern and southern regions of the country
- 0%: For certain foods & medicines; books, newspapers, & magazines; gold; etc.
Do US expats living in Mexico also have to file US taxes?
Yes. All US citizens and permanent residents must file a federal tax return if they meet the minimum reporting threshold, regardless of their country of residence. They do, however, get an automatic two-month filing extension until June 15th, which can be further extended to October 15th upon request. However, any tax owed is still due on April 15th.
US-Mexico Tax Treaty
There is a US-Mexico double taxation agreement (DTA) that, in theory, prevents US expats from double taxation. However, the treaty’s benefits are limited, and because of this, US expats are often better off claiming one of the tax breaks below.
Note that there is not currently a US-Mexico Totalization Agreement
Although an agreement has been signed and sent to Congress for approval, at present there is no Totalization Agreement between the US and Mexico (7).
Common tax breaks available for expats in Mexico
Foreign Tax Credit (FTC)
The Foreign Tax Credit offers Americans living abroad a dollar-for-dollar credit against US taxes for any legally paid income-based taxes to a foreign government. (This is provided these taxes are in their name.)
Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion allows US expats to exclude up to $120,000 of their earned income from taxation (as of tax year 2023). Those who are eligible for the FEIE can also use the Foreign Housing Exclusion to write off qualified housing expenses.
To qualify for the FEIE, you must meet one of two tests, the Physical Presence Test or the Bona Fide Residence Test.
Child Tax Credit
American parents living in Mexico can claim the Child Tax Credit just as they would in the US, for a partially refundable tax credit (typically up to $1,500 per qualifying child).
Tax implications of renting out your US residence while in Mexico
Many Americans who own property in the US choose to rent it while living abroad in Mexico. If you do so, make sure to report the associated income and expenses on Schedule E.
Which country do I pay taxes to on my rental property income?
It depends on whether you’re a tax resident of Mexico or not. Americans who aren’t tax residents of Mexico would only need to pay taxes on their US-based rental income to the US government. However, Americans who are Mexican tax residents would be subject to taxation by both governments. Fortunately, they can often avoid double taxation on this income by leveraging the FTC.
Becoming compliant with IRS tax filing requirements
Living abroad can trigger some additional reporting requirements. Below, we review two of the most common.
US expats living in Mexico may need to file an FBAR
Should your combined balance across various foreign accounts exceed $10,000, you are required to file a Foreign Bank Account Report (FBAR). And if you have foreign assets whose value exceeds $200,000 by the last day of the tax year — or $300,000 at any point in the tax year — you’ll need to report them on Form 8938.
Catch up on US taxes with the SLP
If you have not filed a US tax return for many years, you may qualify for a voluntary IRS amnesty program called the Streamlined Procedure (SLP). The SLP can help US citizens who were unaware of their previous tax and reporting obligations while abroad get caught up on past returns without penalty.
To qualify, you must not currently be under IRS investigation and take advantage of the program before the IRS notifies you that you’re behind on taxes.
References
- https://www.sat.gob.mx/home
- https://embamex.sre.gob.mx/sudafrica/index.php/english/visa-for-mexico
- https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Mexico.html
- https://www.mexperience.com/changes-to-time-allowed-in-mexico-using-a-visitor-permit/
- Mexico – Individual – Taxes on personal income (pwc.com)
- https://smartasset.com/retirement/how-to-retire-in-mexico
- https://www.ssa.gov/international/Agreement_Texts/mexico.html
