Understanding Mexican taxes is essential for expats who own property, work, or conduct business in Mexico. This comprehensive guide covers all major tax obligations for foreigners living in or earning income from Mexico in 2025.
Overview of Tax Obligations for Expats
Expats in Mexico may be subject to various taxes depending on their activities:
- Property taxes if you own real estate
- Income taxes if you work, run a business, rent property, or have interest-bearing bank accounts
- Value Added Tax (VAT/IVA) on purchases and services
- Capital gains taxes when selling property
If you have significant assets in both Mexico and your home country, consider consulting an international tax specialist to minimize your overall tax obligations.
Tax Residency in Mexico
Determining Tax Residency
You're considered a Mexican tax resident if:
- You spend more than 183 days in Mexico during a calendar year (days don't need to be consecutive)
- Mexico is your center of vital interests - meaning more than 50% of your income comes from Mexican sources, or Mexico is your primary place of professional activities
- You own property in Mexico (for tax purposes)
Worldwide Income Taxation
Important: Like the United States, Mexico taxes residents on their worldwide income. This means Mexican tax residents must declare income from all sources globally, not just Mexican income.
However, Mexico traditionally has a lenient approach toward enforcing worldwide income taxation for expats, though this policy could change in the future.
Property Taxes in Mexico
1. Property Acquisition Tax (2-5%)
When purchasing property, you pay a one-time acquisition tax of 2-5% of the property's assessed value. The good news is that Mexico typically uses "assessed" values that are significantly lower than market values (often 40-70% less).
Example: A $100,000 property might have an assessed value of $40,000, resulting in an $800-2,000 acquisition tax instead of $2,000-5,000.
2. Annual Property Tax (Predial) - Very Low!
Mexico has one of the world's lowest property taxes:
- Rate: 0.05% to 0.3% of assessed value (typically around 0.1-0.4%)
- Due date: By March 31st each year
- Early payment discount: 6-25% discount if paid in January-February
- No bills mailed: You must remember to pay annually
Example: On a property with $40,000 assessed value, annual property tax might be only $40-160 per year.
3. Capital Gains Tax on Property Sales
When selling property, you have two calculation options:
- 25% of gross sales price (no deductions allowed)
- 1.92% to 35% of net capital gain (with allowable deductions)
Net gain calculation includes deductions for:
- Original purchase costs
- Documented improvements (with official receipts/facturas)
- Real estate commissions
- Notary and legal fees
- Inflation adjustments
Capital Gains Tax Exemptions
- Mexican residents with permanent residency status may qualify for capital gains exemption on primary residence sales
- Temporary residents: Some notaries accept this status for exemptions, others require permanent residency
- Non-residents: Must pay capital gains tax with limited deduction options
Income Tax in Mexico
2025 Tax Rates for Residents
Mexico uses progressive tax brackets with rates ranging from 1.92% to 35%:
- Maximum rate: 35% (top marginal rate for 2025)
- Corporate rate: 30%
- Non-resident rates: 15% to 30% depending on income level
Non-Resident Tax Rules
- First MXN 125,900 (~$6,300) of employment income in a 12-month period is tax-exempt
- Withholding tax rates vary from 0% to 35% depending on income type
Employment Income
- Residents: Taxed at progressive rates (1.92% to 35%)
- Non-residents: 15-30% depending on income level
- Employment subsidy: Available as a tax credit subtracted from monthly tax due
Rental Income Taxation
For Residents - Two Options:
Option 1: Documented Deductions (Up to 30% tax rate)
Allowed deductions include:
- Property taxes and local assessments
- Maintenance expenses (not repairs/improvements)
- Mortgage interest
- Employee wages for property-related work
- Property insurance premiums
- Construction investments (5% annual depreciation on construction, 10% on improvements)
Requirements: Must have official receipts (facturas) for all deductions
Option 2: "Blind" Deduction (Up to 35% tax rate)
- No documented deductions allowed
- No facturas required
- Tax rate: up to 35% depending on monthly income
- Monthly provisional payments: 17.5% of expected income
For Non-Residents
- Fixed tax rate: 25% of rental income
- Must use Mexican agent/realtor to collect taxes and issue receipts
- 2% tourist tax may apply
- 16% VAT must be collected from tenants
VAT on Rentals
- 16% VAT charged to tenants
- Can be offset against VAT paid on property expenses
- Monthly reporting required by 17th of following month
Value Added Tax (IVA/VAT) - 2025
Standard Rates
- Standard rate: 16% (most goods and services)
- Reduced rate: 8% in border regions with special tax stimulus
- Zero rate: 0% for exports and certain items (books, basic foods, medicines)
VAT Exemptions
- Residential land and buildings
- Medical services
- Education services
- Interest from banks
- Securities transactions
- Basic foodstuffs and medicines
Digital Services Tax
Foreign companies providing digital services to Mexican consumers must:
- Register with Mexican tax authorities
- Collect 16% VAT
- Appoint Mexican legal representative
- File monthly returns
Obtaining Mexican Tax ID (RFC)
RFC Requirements
You need an RFC (Registro Federal de Causantes) if you:
- Own rental property
- Work in Mexico
- Run a business
- Have interest-bearing Mexican bank accounts
How to Get RFC
- Not required to be permanent resident
- Need valid passport and immigration document
- Can apply through accountant or directly at Hacienda office
- Required for claiming tax deductions and credits
Other Important Taxes
Interest Income Tax
- Mexican banks: 4.9% withholding tax on interest
- Non-residents: Tax is final, no Mexican tax return required
- Residents: Can credit withheld tax against annual tax return
Securities/Investment Income
- Mexican stock exchange gains: 10% tax (considered final)
- Non-residents: 25% of transaction value or 28% of gain
- Residents: Different rates apply based on circumstances
Vehicle Tax (Tenencia)
- Annual tax on Mexican-plated vehicles
- Rate increases with vehicle size and value
- Pickup trucks: Classified as farm vehicles with very low tax rates
- Can reach: Several hundred dollars annually for expensive vehicles
Sales Tax/VAT (IVA)
- Rate: 16% on most goods and services
- Border regions: 8% in certain border economic zones
- Tourist refunds: Available for purchases when leaving Mexico by air/sea
Important Tax Filing Requirements
Monthly Obligations
- VAT returns: Due 17th of following month
- Provisional income tax: Due 17th of following month
- Information returns: Required for various activities
Annual Returns
- Individual tax returns: Due April 30th
- Corporate returns: Due March 31st
Record Keeping Requirements
Critical: You must have official receipts (facturas) for all business deductions. Facturas must:
- Be printed on government-approved forms
- Include RFC number of issuer
- Be obtained at time of payment
No factura = No tax deduction
Tax Planning Strategies
Legal Strategies to Minimize Taxes
- Early property tax payment for discounts
- Proper documentation of all deductible expenses
- Strategic property ownership structure (consult professional)
- Primary residence exemption for capital gains (if qualified)
- Cross-border tax treaty benefits (varies by home country)
Working with Professionals
Consider hiring:
- Mexican accountant for ongoing tax compliance
- Property management company for rental properties
- International tax specialist for complex situations
- Mexican lawyer for property transactions
Double Taxation Considerations
US Citizens
- Must file US returns on worldwide income
- Foreign tax credits available for taxes paid to Mexico
- Mexico-US tax treaty may provide additional benefits
Canadian Citizens
- Must file Canadian returns unless officially non-resident
- Foreign tax credits available for Mexican taxes paid
- Consider formal non-residency election in Canada
Other Countries
Mexico has double tax treaties with 74+ countries - check if your home country has a treaty to avoid double taxation.
2025 Key Changes and Updates
Based on Mexico's General Tax Rules for 2025:
- Updated VAT procedures for diplomatic missions and international organizations
- New e-commerce regulations requiring foreign operators to pay standard 16% VAT
- Enhanced digital services tax enforcement
- Simplified procedures for certain taxpayer categories
- Updated penalty and interest rates
Common Tax Compliance Mistakes to Avoid
- Not obtaining RFC when required
- Missing annual property tax payments (no bills are sent)
- Not keeping facturas for deductible expenses
- Underestimating worldwide income obligations
- Not using qualified Mexican professionals
- Ignoring monthly filing requirements
- Not taking advantage of early payment discounts
Final Recommendations
- Stay organized: Keep all tax documents and facturas
- Pay on time: Take advantage of early payment discounts
- Use professionals: Mexican tax law is complex and changes frequently
- Plan ahead: Consider tax implications before making major decisions
- Stay informed: Tax laws and enforcement can change
Remember: Tax laws change frequently, and individual circumstances vary significantly. Always consult with qualified Mexican tax professionals for advice specific to your situation.
Emergency Contact Information
If you need immediate tax assistance:
- SAT (Mexican Tax Authority): Contact local office or visit sat.gob.mx
- Mexican accountants: Essential for ongoing compliance
- Legal assistance: For property transactions and complex issues
Understanding and complying with Mexican taxes doesn't have to be overwhelming, but it does require attention to detail and proper professional guidance. With the right approach, you can minimize your tax burden while staying fully compliant with Mexican law.