Expatriate tax ebook - Mexico

What taxes?

Capital gains tax
Investment income
Local taxes
Real estate taxes
Social security taxes
Stock options

Capital gains tax
Capital gains tax does apply in Mexico. The rates are 25% on the gross amount of the transaction or 28% (30% for the period 2010 - 2012) on the gain obtained, if certain requirements are fulfilled.

Profits on the alienation of shares, securities, and other assets are to be considered subject to capital gains tax.

Capital gains tax to an expatriate living in Mexico depends on the tax cost basis, the type of the asset to be alienated, the sales price and other additional issues to be analysed (e.g. tax report on the transaction to be taxed based on the gain in lieu of the gross amount of the transaction).

Investment income
In general terms interest income, dividends, profit on investment, are considered taxable income according to the Income Tax Law.

In particular, investment income is subject to taxation in Mexico. The rates depend on the type of income. In case of foreign residents the withholding tax rate could be somewhere between 4.9% and 28% (30% for the period 2010 - 2012), subject to analysis based on Tax Treaties, and depending on the beneficiary. In case of dividends derived from the Net Fiscal Benefit Account (CUFIN) no tax shall be paid at a personal level, it is the corporation the one obliged to pay the corporate tax.

The degree of affectation that investment income tax has on expatriates living in Mexico depends on the tax residence status.

As previously mentioned, a Mexican tax resident, for income tax purposes, is requested to pay the income tax on worldwide basis; therefore, any income received, notwithstanding its source, must be subject to taxation.

Local taxes
In Mexico, there is a local tax on payroll paid by Mexican entities; this tax differs between states. Some of the states apply a progressive tariff to determine the payroll tax; others establish fixed rates that must be applied to the payroll. The tax rates that apply in most states range somewhere between 1% and 3%.

Real estate tax
Real estate tax applies in Mexico. In case of foreign residents selling real property located in Mexico, the income tax shall be determined by applying a 25% withholding tax rate on the gross amount of the transaction. It is also possible to be taxed on a profit basis at a 28%  tax rate (30% for the period 2010 - 2012); for such purposes, certain requirements must be fulfilled.

In case of Mexican residents, they are required to pay taxes on their worldwide income.

Moreover, there is a local tax that the seller must pay which is determined by applying a tax rate between 2% and 4% depending on the state in which the transaction takes place, which is applicable against the amount of the transaction. In addition, notary fees are payable.

As previously mentioned, an expatriate that is considered as Mexican resident for income tax purposes, is liable to pay taxes on a worldwide basis; therefore, any income received must be taxed in Mexico. In case of foreign residents, if the real property is located in Mexico, there is an obligation to pay real estate tax in Mexico.

Social security taxes
Social security taxes apply in Mexico. The rates range between 0.25% and 20.40% depending on the type of benefits that would be covered in accordance with the Social Security Law.

Social Security taxes apply to all Mexican employers that pay salaries to its employees in Mexico. Therefore, if the salary is going to be paid by a Mexican company (employer), there is an obligation to pay the Social Security taxes.

On the other hand, if the employer is a foreign entity and the employee does not have a work relationship with any Mexican company, there is some criteria which suggests that these payments are not subject to Social Security taxes. We recommend a deep analysis for each case.

Stock options
Taxes on stock options do apply in Mexico. The difference between the price at the moment in which the option was granted and the price at the moment of exercise of said stock options must be considered as salary. The above-mentioned difference must be taxed for the expatriate, and a progressive rate must apply.

Information about Mexico:

• introduction
• facts and figures
• basis of taxation
• what taxes?






Last updated June 2010

Please be aware that the data included in this expatriate tax e-book is correct at the time of publication. Please do not act on the information contained within this e-book without first seeking expert, professional advice
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