Navigating the Tax Labyrinth: A Simple Guide to Understanding Mexican Taxes for Expats and Businesses in Quintana Roo

GUIDE | TAX LAW & FOREIGN INVESTMENT

By Enrique Benet-Gregg | September 2023

Consider setting up a shop or owning a little slice of paradise in Quintana Roo, Mexico. If so, you'll need to understand the tax laws to ensure you're not caught off guard. Let's dive in and compare the tax landscape in Mexico and the United States to help you plan smarter and live better.

Who's in Charge of Taxes?

First, let's talk about who holds the tax reins in each country. In Mexico, it's the SAT (Servicio de Administración Tributaria); in the United States, it's our familiar friend, the IRS (Internal Revenue Service). Both agencies are pretty similar, and they make the rules you need to follow.

Let's Talk Income Tax

Mexico has a progressive system regarding income tax, just like the United States. The rates range from 1.92% to a high of 35%. Compare that to U.S. federal rates that start at 10% and go up to 37%.

What's the Same: Both systems are progressive, meaning the more you earn, the more you pay. What's Different: Mexico's tax rates could hit those with lower incomes harder than in the U.S.

Corporate Tax

Are you planning on doing business? Well, corporations in Mexico get taxed at 30%. Meanwhile, U.S. federal corporate taxes are at a comfy 21%. What's Different: Doing business is cheaper tax-wise in the U.S. than in Mexico.

Capital Gains Tax

Have you sold an asset for a profit? That's where capital gains tax comes into play. In Mexico, the rate can be as high as 35%. In the U.S., the rate for long-term gains maxes out at 20%. What's the Same: Both countries want a piece of your pie when you make a profitable sale. What's Different: Mexico might take a larger slice.

Property Tax 101

Own a property? You'll pay property tax. In Quintana Roo, it ranges between 0.1% and 1.5%. Depending on your location, you'll find a broader range in the United States, from 0.2% to 4%. What's the Same: Both tax you based on your property's value. What's Different: In the U.S., these taxes often fund local services, whereas in Mexico, they're often channelled into municipal initiatives.

Consumption Tax (Think: Shopping!)

Mexico applies a 16% VAT (Value-Added Tax) on most goods and services. In the United States, the familiar sales tax can range from 0% to over 9%, depending on your state. What's the Same: Going shopping? You'll pay some extra in both countries. What's Different: Mexico has a consistent rate countrywide, whereas in the U.S., it's a mixed bag.

Paperwork and Compliance

Both countries require yearly tax returns, but here's the kicker: The U.S. wants to tax your global income, whereas Mexico mainly focuses on what you make within its borders. What's the Same: Paperwork is a yearly affair in both countries. What's Different: U.S. citizens are taxed globally; in Mexico it's about local earnings.

Avoiding Double Trouble: Double Taxation

The U.S. and Mexico have agreed to avoid double-taxing each other's citizens, which is a relief!

Wrapping It Up

Whether contemplating life as an expat or planning a business in Quintana Roo, being tax-savvy is essential. While the tax landscape is filled with both similarities and differences, one thing remains constant: the need for professional guidance.

Consult IBG Legal, your trusted tax and legal advisors, for personalized support and sail smoothly through the tax seas of your new adventure.

Enrique Benet-Gregg is an attorney specializing in foreign investment, real estate and tax law in Quintana Roo. He directs IBG Legal, a boutique law firm with offices in Cancún and Mexico City. info@ibg.legal | ibg.legal