Property Taxes in Mexico: A Simple and Concise Guide
If you are a property owner in Mexico or have an interest in purchasing Mexican real estate, you may have questions regarding various aspects of property ownership, international visa requirements, and living expenses. Among these concerns, property taxes often take center stage. It’s important to note that owning residential property, generating rental income, selling property, or working in Mexico may all entail tax obligations. This article aims to provide you with a formal overview of property taxes in Mexico, enabling you to better navigate tax-related matters.
Understanding Taxation in Mexico
When it comes to tax collection in Mexico, the Servicio de Administración Tributaria (SAT) is responsible for collecting all federal taxes throughout the country. It is crucial to comprehend the taxes that might be applicable to you as a property owner in Mexico. The following taxes are commonly associated with property ownership:
Acquisition Tax: This tax is applicable when purchasing property in Mexico. The specific rate varies among Mexican states, ranging from under 2% to 4.5% of the assessed value of the property at the time of purchase. You can read more about this specific tax clicking here.
Annual Property Tax: Commonly referred to as “predial,” this tax is due each year in January. The amount you pay depends on factors such as the size and location of your property. It is worth noting that, at the time we are writing this post, paying this tax in advance (in December) entitles you to a 25% discount, while paying it promptly in January provides a 20% discount.
Rental Income Tax: If you generate rental income from your property, is considered taxable income, and monthly payments are to be made to the SAT, which can be done electronically.
Value Added Tax: Also known as IVA (Impuesto al Valor Agregado), this goods and services tax is set at 16%. It is solely applicable when purchasing commercial property, exempting residential property purchases. Moreover, the IVA is only imposed on new purchases, not on used properties. In Mexico, the IVA is typically included in the sticker price for most goods and services.
Capital Gains Tax: When selling real estate in Mexico, you must pay capital gains tax. The amount owed is determined based on factors such as the profit made from the sale, the duration of your residence in the property, and other relevant considerations. It is advisable to seek advice from an attorney well-versed in Mexican tax law for personalized guidance. Generally, the tax amounts to approximately 25% of the profit gained from the transaction.
Income Tax: Known as “impuesto sobre la renta” in Spanish. If you are employed in Mexico, paying income tax is mandatory. Typically, Mexican employers withhold and submit the payment to the SAT on behalf of their employees. However, in cases where this is not done, the tax amounts to approximately 25% of your gross income, subject to deductions. If you are not an employee but generate income in Mexico, you have to file this tax returns yourself.
International Tax Considerations
It is essential to understand the implications of Mexican property taxes on your tax obligations in your home country, especially if you are a resident or taxpayer in Canada or the United States. Mexico, Canada, and the United States have established agreements to exchange tax-related information and prevent double taxation for individuals living or conducting business in multiple countries. To gain accurate and specific insights on how property taxes in Mexico may affect your home country’s tax liabilities, consulting a tax professional or government representative experienced in international taxation is recommended. (pro tip: send us an email at online@roelatam.com and we can point you in the right direction)
Consequences of Non-Payment
Similar to any jurisdiction, failure to pay property taxes or other taxes in Mexico can lead to criminal charges, financial penalties, and potential travel restrictions. Due to the fluid nature of the Mexican tax system, which can undergo changes from year to year, it is crucial to maintain close communication with a knowledgeable individual who is well-versed in Mexican tax laws. Scheduling an annual consultation with a Mexican tax attorney is an investment that ensures compliance and peace of mind.
Presently, the real estate market in Mexico offers excellent value for those considering property investments. If you are interested in purchasing a vacation home or any real estate in Mexico, there are numerous factors to consider. To address any queries or receive expert guidance, it is advisable to seek assistance from reputable professionals well-versed in the Mexican property market, legal regulations, and the unique requirements of foreigners. For reliable advice and personalized assistance, reach out to ROE Latam at online@roelatam.com today!
You can read more about the property acquisition tax here: Compare Property Taxes In Mexico VS USA. Avoid the Pain!
And you can read more about the legal framework of Real Estate in Mexico here:
- Top 8 risks when buying Real Estate in Mexico
- What’s a Restricted Zone Trust (Fideicomiso de Zona Restringida)?
- How To Purchase Real Estate In Mexico: Consice Key Points
- Expert Advice: What You Need To Know When Buying Real Estate Outside Mexico’s Restricted Zone
Or perhaps you want to open a business in Mexico, you can start reading some of these:
- First Steps to Start a Business In Mexico
- How to Incorporate an NGO in Mexico
- Employee Profit Share in Mexico
- Fast Business Establishment in Mexico: A Legal Perspective on Shelf Companies
We address many other subjects in this Blog, but if you do not find what you are looking for, please send us an email a online@roeltam.com and we will write a post on that subject.