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Fiscal standing of foreigners in Mexico
By Ana Paula Telleria • Robles Lazo y Gallardo Law Firm • Photos by Jesús de Avila· March 2009

If there’s anything certain in this life, as the saying goes, it’s death and taxes. No matter your nationality or in which country you are. Which is why it is of vital importance that a foreigner in Mexico be aware of his fiscal situation during his stay in Mexico and the obligation which it entails - regardless of his migratory status in our country.

For tax purposes in Mexico, foreigners are considered to be those individuals or juridical persons who are ruled by the legislation of another country for reasons of nationality, domicile, residence, etc.

In order to explain the applicable fiscal regime, and the taxes generated to foreigners, the Tax Administration Service (SAT for its initials in Spanish) divides them according to two criteria: Residents in Mexico and Foreign Residents.

The tax legislation considers Residents in Mexico the national and foreign individuals who have their residence in Mexico.

When they also have a residence abroad, they are still Residents in Mexico if they fall into any of the following categories:

• When more than the 50% of their annual income is obtained in Mexico.
• When the main establishment of their professional activity is located in Mexico.
• People who are civil servants or Mexican workers, even when the main base of their business is abroad.
• The legal entities that have been established with the main base of their business or their working headquarters in Mexico. 

Individuals who are Residents in Mexico according to the aforementioned, despite having foreign nationality, will pay taxes as any other national resident individual in Mexico.

Equally, the legal entities that are Residents in Mexico will pay taxes according to their activity or corporate purposes under any of the following regimes: general regime, non-lucrative purpose regime and simplified regime.

On the other hand, Foreign Residents are the individual persons who do not have their house in Mexico and who do not fit into any of the above mentioned categories, and, in the case of the legal entities, that have not established their main business location or the domicile of their administration in Mexico.

Individual persons or legal entities, who, in accordance with the above mentioned, are Foreign Residents, must pay taxes in Mexico when they obtain income from any wealth source within the Mexican territory, or, when they have a permanent establishment in the country, for the income obtained from such establishment.

If a foreigner receives salary, fees, leasing profits, etc. in Mexico, when obtaining said income, he must pay Income Tax (ISR for its initials in Spanish).

He must also pay the Value Added Tax (VAT or IVA for its initials in Spanish) in case he obtains income from the disposition of property or from the lease of real estate property, other than real estate property used for residential purposes.

Furthermore, VAT must be paid for rendering services that are effectively used in Mexico, for the use or benefit of tangible or intangible property, among other cases, since these are considered as importations.

The Corporation Tax Single Rate (IETU for its initials in Spanish) must be paid by Residents in Mexico and Foreign Residents with permanent establishment in the country; taxes will be paid according to the income obtained, no matter the place where the income was generated: selling fixed assets, independent services and temporary rent of assets. 

In any case, foreigners legally bound to pay taxes in Mexico generally comply with that obligation when the person who makes the payments in their favor withholds the tax and pays it to the SAT, no later than the 17th day of the month following the transaction. Otherwise, the contributor –foreigner- who receives the income must state and pay said tax via internet or in a bank tax statement on or before 15 days after the transaction.

Whatever the scenario, the foreigner must issue receipts, (for instance, after giving a professional service or receiving a lease payment). The receipt must contain the usual fiscal requisites with the exception of the Federal Taxpayers Registration (RFC for its initials in Spanish). These receipts need not be printed in authorized SAT institutions and may even be manually done.

It is important to mention that the tax paid through withholding, or directly by the taxpayer, is considered as definitive payment, which means that there is no obligation to file a return.

Robles, Lazo y Gallardo - Law Firm
E-mail: jgallardo@rlg.com.mx

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• Robles, Lazo y Gallardo, S.C. is a Law Firm of specialists in various areas of Law, including Corporate Law, Real Estate, Immigration, Foreign Investment, among others. The Firm is integrated with a group of highly qualified attorneys and has offices in Guadalajara (Privada del Niño No. 676, Fraccionamiento Camino Real, telephone number 33-3121-3010) and Puerto Vallarta (Carretera a Mismaloya No. 479 interior 107, Edificio Scala. Telephone number 322 223-3218)• E-mail: jgallardo@rlg.com.mx

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