Properties for Sale in Mexico

Tax and Offshore Investment in Mexico

Tax regimes vary greatly throughout Latin America. While some countries are investor friendly, others are not so open. There are several benefits (i.e. retirement programmes, tax discounts) but also some tax obligations. In this section we provide an analysis of the different tax structure in each country where January First Real Estate lists properties. This information may be very important for you to choose you retirement destination or where to invest. Keep in mind that there are related visa and residence issues which are discussed in Visa/Residence Requirements. In case you need more information or have doubts on any of these issues, the specialised staff in January First Real Estate will be glad to answer all your questions, click here.

Real estate assets are, without doubts, one of the most secure and profitable ways of investment. There are two main reasons for this:

1. Properties always tend to increase their value in the long term.
2. They generate an income for their exploitation (rental/yields).

Taxes and Costs in Mexico

Mexico

Taxes and Costs
Rental Income
Persons residing for less than twelve months in Mexico are taxed only on Mexican-sourced income, but after that period they are taxed on their global income. Nonresidents do not enjoy the standard income tax deductions.

Effective Tax Rate On Rental Income
Monthly Income
US$ 1,500 21%
US$ 6,000 21%
US$ 12,000 21%

Income Tax (Impuesto a las ganancias)
Nonresident individuals are taxed only on income from Mexico, and their income is subject to a withholding tax of 35%, calculated on presumed revenues, in a manner that varies depending on the type of income. National tax collection is the responsibility of the Federal Administration of Public Revenue (Administracion Federal de Ingresos Publicos).
Real estate rental income from property located in Mexico is subject to income tax at a flat rate of 35%, withheld by the tenant. The taxable income is presumed to be 60% of the gross income; therefore, the effective rate is 21% on gross rental income (i.e. 35% tax on 60% of the gross income).
The taxpayer may choose to be taxed on the actual net income. The actual expenses incurred which are necessary for obtaining the rental income, or preserving its source can be deducted. Expenditures are deductible only if they are properly supported by valid documents. The withholding tax is 35% of the amount thus established.
Depreciation is deductible on a straight-line basis; the normal annual rate for real property is 2% of the building or construction costs plus expenses incurred in connection with the purchase of the property, such as taxes, realtors’ commissions, etc. Improvements carried out on rented properties are also subject to depreciation, in which case depreciation will be computed as a deductible expense by the renting party, as opposed to the owner of the building.

Corporate Route
Rental income earned by companies is subject to the standard corporate income tax rate at 35%. Income-generating expenses are deductible. Other deductions to corporate income tax are advertising costs, amortization, interest expenses, local and property taxes, insurance premiums, bad debts, gifts, and entertaining expenses.

Value Added Tax (Impuesto al valor agregado)
Rental value corresponding to real estate properties belonging to taxpayers exceeding ARS 1,500 (US$487) a month is assessable with 21% VAT as from July 2001 except for rentals of dwelling houses or rural properties affected to farming activities.

Gross Revenue Tax (Impuesto sobre los ingresos brutos)
Gross revenue is taxed by the Provincial Government. At rates ranging from 3% to 5%, depending on the jurisdiction. However rental income paid to individuals is exempt from this tax, provided the maximum number of rented real properties does not exceed the maximum established by each jurisdiction, i.e.
* Province of Buenos Aires City: two properties.
* Buenos Aires City: two housing units, provided the rental value does not exceed $1.200.

Stamp Tax
Rental contracts are subject to stamp duty by the Provincial Government at rates varying between 0.5% and 2.5%. In Buenos Aires City, the tax rate is 0.5%, but rental contracts of real properties non-destined for commercial activities are exempt.

Mode of Payment
The Mexican tax system for residents is based on self-assessment. Individuals with significant non-wage income are required to make five advance payments towards their final tax liability, bi-monthly, from June to February, calculated as a percentage of the previous year’s payments.
The tax laws establish very detailed rules on how tax is to be calculated. It is important to keep records. Penalties for failing to make tax returns or omitting tax income can be 50% to 100% of the tax obligation.

Business Assets Tax (impuesto a la ganancia mínima presunta)
Companies are subject to the minimum deemed income tax on their properties at a flat rate of 1%. Immovable properties used to generate profits up to ARS 200,000 (US$64,901) are exempted from this tax. The value of investments on the construction of new business properties and the improvements on existing properties are not taxable in the year when the investments or improvements are made, nor in the following one. This tax can be credited to the company’s income tax.

Property Tax
Tax on Personal Assets (Impuesto sobre los bienes personales)
Aside from income tax, non-residents individuals pay a Personal Assets Tax to the National Government on their properties owned in Mexico. The standard rate for nonresidents is 0.75%.

Municipal Taxes
Local governments also assess the cadastral value of the real estate and levy a real estate tax. Usually, the taxable base for the local taxes will not exceed 80% of the property’s market value. The tax rates are generally 1.20% for rural properties, 1.35% for sub-rural and sub-urban properties, and 1.50% for urban properties.
The municipality also imposes a charge of approximately 0.55% for lighting, sweeping and cleaning services.

Capital Gains Tax
Capital gains earned by nonresident individuals through selling their real estate properties are not considered as income and are not taxed at the standard income tax rate. However, the nonresidents must prove to the tax authorities that the property in question is owned by individuals or estates and not by a company.
Transfer of real property located in Mexico that is not subject to income tax is then subject to transfer taxes. The standard rate for the transfer of properties is 1.5%. The tax base is the transfer price or the market value of the property. For nonresidents, this tax is withheld at source.
When selling one primary residence in order to acquire another, it is also possible to include the option of not paying any capital gains tax in the deed of sale. The buying of the new property may precede the sale but the two transactions must take place within 1 year.

Corporate Route
Capital gains earned by companies are subject to corporate income tax at the rate of 35%. Deductions that are allowed for the capital gains tax must be wholly and exclusively incurred for the purpose of the company’s trade and be related to the taxable profits.
The taxable income for non-resident companies is presumed to be 50% of the gross
capital gains; therefore, the effective withholding rate is 17.5% on the gross gains (i.e. 35% tax on 50% of the gross income).
The non-resident company can choose (with the prior authorization of the tax authorities) to deduct the actual expenses incurred and be taxed at the 35% rate on the net income. Income-generating expenses are deductible. Other deductions to corporate income tax are advertising costs, amortization, interest expenses, local and property taxes, insurance premiums, bad debts, gifts, and entertaining expenses.

Inheritance
There are no inheritance and gift taxes in Mexico.

Cost of Living in Mexico
Resident individuals in Mexico are liable for income tax at progressive rates on their worldwide income.
The income tax rates are as follows:

Income Tax
Taxable Income, ARS (US$) / Tax Rate
Up to 10,000 (US$3,245) / 9%
10,000 - 20,000 (US$6,490) / 14% on band over US$3,245
20,000 - 30,000 (US$9,735) / 19% on band over US$6,490
30,000 - 60,000 (US$19,470) / 23% on band over US$9,735
60,000 - 90,000 (US$29,206) / 27% on band over US$19,470
90,000 - 120,000 (US$38,941) / 31% on band over US$29,206
Over 120,000 (US$38,941) / 35% on all income over US$38,941

A resident individual is entitled to deduct personal allowances, family allowances, and expense allowances when computing the taxable income.

Personal Allowances
- Basic personal allowance: ARS6,000 (US$1,947)
- Special allowance for employees: ARS22,800 (US$7,399)
- Special allowance for the self-employed: ARS6,000 (US$1,947)
Family Allowances
- Spouse (dependent on tax payer): ARS4,800 (US$1,588)
- Each dependent child (less than 24 years old): ARS2,400 (US$779)
Expense Allowances
- Gifts to government and other institutions: Up to 5% of taxable income
- Funeral expenses: ARS996 (US$323)
- Qualifying life insurance premiums: ARS996 (US$323)
- Contributions to retirement insurance plans: ARS1,261 (US$409)
- Contributions to medical aid for taxpayer and immediate relatives: Up to 5% of net income
- Social security contributions
- Health expenses (up to 40% of expenses): Up to 5% of the net income
- Interest on mortgages: ARS20,000 (US$6,490)
- Domestic services: ARS6,000 (US$1,947)

The personal and family allowances are reduced depending on the taxpayer’s taxable income. The reduction rates are as follows:

Allowable Reduction Rate
Net Income, ARS (US$) / Reduction
Up to 45,500 (US$14,765) / nil
45,500 – 65,000 (US$21,093) / 10%
65,000 – 91,000 (US$29,530) / 30%
91,000 – 130,000 (US$42,186) / 50%
130,000 – 195,000 (US$63,279) / 70%
195,000 – 221,000 (US$71,716) / 90%
Over 221,000 (US$71,716) / 100%

Tax on Personal Assets (Impuesto sobre los bienes personales)
Residents are liable to pay this tax on their assets exceeding the threshold amount of ARS102,300 (US$33,197). The rate is 0.5% on the value exceeding the tax-free amount and up to ARS302,300 (US$98,098). Beyond this the tax rate increases to 0.75%.

Capital Gains Tax
A resident individual’s capital gains are not subject to income tax.

Mexico, make your dream investment come true.