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Moving to a new country sounds scary, and some part of it is. It starts with elaborate planning and ends with figuring out the laws of that country. Everything between these two extremes tells a different story. It is no easy feat to leave everything and start a new life in a foreign land.
One of the most challenging tasks when moving is familiarizing yourself with the country’s legal system. The legal system also includes the tax system, law and order, and general laws that might affect your daily life. If you are from a country where law and order are in a poor state, you might want to reconsider your habits because the country you’re moving into can have strict laws. These precautions will help you settle in the new country with ease, and eventually, you won’t have to worry about keeping up with the law.
Mexican Tax System
Every country levy taxes on its citizens. The profit generated from these taxes is then used for the betterment of the public. Mexico is no different in this regard. It may not be as strict as other major countries of the world, but it does have a solid tax system that you should obey while living in Mexico.
1. National ID Number
The National ID Number (CURP) is an 18-digit code unique for every Mexican resident. Its purpose is similar to the Social Security Number assigned in the US. Like the SSN, CURP is also required by most government organizations. It consists of alphabets and numbers taken from a person’s personal information. Following are the parts that make up a complete code[i]:
- Four letters from a person’s legal name:
- The first letter of the paternal surname. If the name starts with the letter N, the letter X is used instead.
- The first internal vowel of the paternal name.
- The first letter of the maternal surname.
- The first letter of the given name.
- The individual’s birth date in YYMMDD format.
- One letter to indicate gender. ‘H’ for hombre (male) and ‘M’ for mujer (female).
- Two letters for the state where they are born.
- If a person’s place of birth is outside Mexico, “NE” is used instead.
- Three letters from the legal name:
- The first internal consonant of the paternal name. If it does not exist, the letter ‘N’ is used.
- The first internal consonant of the maternal name. If there is no consonant sound or if there is no maternal name, the letter ‘X’ is used.
- The first internal consonant of the given name.
- One character to avoid duplicate CURP:
- People born before 2000 are given a number from 0 to 9.
- People born after 2000 are given a letter from A to Z.
- A checksum of one digit.
2. Individual Tax
When you use a country’s resources to make money, you have to pay tax on it. Individual tax refers to the amount levied on your yearly income by the authorities. The government uses your tax money supposedly for your benefit.
Since 2016, deductions were taken from an individual’s income, but this changed in 2021. Now, the tax is reduced to 15% of the year’s taxable income, which is equivalent to 163,467 Mexican pesos[ii].
The following table shows the annual tax rates for residents[iii]:
|Annual Income||Payable Tax %|
|from MXN 1 to 7,735.00||1.92%|
|from MXN 7,735.01 to 65,651.07||6.4%|
|from MXN 65,651.08 to 115,375.90||10.88%|
|from MXN 115,375.91 to 134,119.41||16%|
|from MXN 134,119.42 to 160,577.65||17.92%|
|from MXN 160,577.66 to 323,862.00||21.36%|
|from MXN 323,862.01 to 510,451.00||23.52%|
|from MXN 510,451.01 to 974,535.03||30%|
|from MXN 974,535.04 to 1,299,380.04||32%|
|from MXN 1,299,380.05 to 3,898,140.12||34%|
|over MXN 3,898,140.12||35%|
Non-residents are levied tax if the source of their income is based on Mexican land. These taxes include income generated from a property or an organization that has its establishment in Mexico.
The following is a table for non-residents[iv]:
|Taxable Income||Tax Rate %|
|MXN 0 to 125,900||Exempt|
|MXN 125,900 to 1,000,000||15|
Residents whose income is equal to, or more than 4 million pesos are obligated to maintain their record digitally. They are to submit details of their accounts, trial balance, and accounting entries using an e-filing mailbox. The taxable income includes rental income, income from business and professional activities, and other legal sources. This system helps the authorities know the current status of taxpayers and whether they pay the mandatory taxes.
3. Residence Tax
A property or residence tax is applied to citizens if:
- More than 50% of the annual income comes from a Mexican source
- Mexico is the main location of an individual’s professional activities.
A mandatory tax is levied on all property that a resident or non-resident buys in Mexico. But buying is not the only way to acquire property. The following table will help you evaluate which property holds tax and which is exempt:
|Tax Category||Description||Holds Tax?|
|Net Wealth Tax||The tax levied on a person’s or family’s annual assets.||No|
|Estate Inheritance or Gift||Any property inherited from a Mexican citizen after their death or gifted to another in their life.||Yes|
|Property Transfer Tax||The applicable tax on real estate, machinery, or business when transferred to another person.||Yes|
|Corporate Asset Tax||Usually applied on bank assets or big businesses. It is similar to Net Wealth Tax.||No|
|Capital Duties||This tax is applied to shares and stocks that are purchased in a business.||No|
|Financial Transaction Tax||The tax levied on the sale or purchase of a financial asset.||No|
Now that you are familiar with the technicalities of Mexico’s tax system, it is time for you to know your options for getting suitable accommodation. We have already mentioned the cost difference between the US and other countries with Mexico. Similarly, renting and buying property is cheaper, too.
Of course, it depends on the location you want to settle in. Places that are closer to beaches have high rates compared to apartments in the city. A critical factor of renting out or buying a house is the distance from your workplace. You might want to settle as close to your office as possible to save commute time. Another factor is the size of the house, which depends on the number of people in your family. If you live alone, a simple one-bedroom apartment will do just fine. But if you have your family with you, things might get a bit different.
You can start searching for a place online even before you enter Mexico. Many sites have categorized their inventory by area. You enter the city and specific area, and it will show you the option it has. One reliable method is to ask a local friend or relative. Since they’ve been living in Mexico, they must know better than you, and you can get a good place to stay. But if you don’t know anyone local, you might have to turn to the real estate agent for help.
While these agents can significantly help you with your search, it is also possible that they may rip you off a lot of money as their commission.
Pro tip: Never sign a rental contract without seeing the site first. Insist on checking every corner and cabinet of the house before renting it. You don’t want to deal with rat infestation and leakages during your stay.
Types of Houses
Nothing new in this, but it is worth mentioning the types of houses that are up for rental in Mexico[v]:
1. Apartments and Condos
These are two of the most commonly rented types in Mexico. A condominium, or condo, is a single or double-story house connected adjacent to each other. You can find them as individual places or part of a block in a gated community.
Houses are built over private plots and can be rented out by an individual who owns the house. They may be built on a separate piece of land or as part of a community.
3. Countryside Properties
These are the not-so-regular, and unique houses often built far from the urban area. Usually, they are meant for vacations or trips away from home over a weekend. Cottages, bungalows, or rustic style casitas are a part of this type of living.
Utilities of a Rental House
Theoretically, all rentals in Mexico have basic services like electricity, water supply, and internet. But it would be wise to check everything before signing any contract. Utilities like the internet may vary from area to area. If the house is in a rural or semi-rural area, you might face some difficulty. It is best if your rental is in an urban area. The rent might be a bit higher, but you will have access to uninterrupted services during your stay.
Buying Property in Mexico
A recent surge has been noticed in the property buying trend of Mexico. Expats are buying properties in Mexico more than ever. There have been rumors that foreigners were thrown out of their properties in some parts of Mexico. However, despite such terrible news, people are still investing in affordable properties across Mexico.
Buying a house or piece of land in Mexico is not difficult. It is cheaper than the US, but there are a few precautions that an expat should take. Following these precautions will save you from a ton of hassle and you won’t have to regret anything later[vi].
1. Avoid Beachfront Land and Property
The ejido may look like a wonderful option with the ocean view and sea breeze; it is not friendly for expats. This area is where rumors come from about throwing people out even though they have paid for it.
The issue is with the ownership of the property. The coastal land is assigned to specific communities that are primarily indigenous. To buy such property, you will have to get 100% approval from the said community. Even then, the property may or may not be yours. Converting an ejido land’s ownership to your own is a long and tiring process. You’ll have to hire attorneys who can overlook your case, make sure that the property is legally converted, and hire some more third part attorneys to ensure insurance and claims for the future. In short, we do not recommend that you buy beachfront property.
2. The Restricted Zone
A restricted zone is 50 kilometers from the coast and 100 kilometers from an international border. Non-Mexicans were not allowed to buy property in this area. However, since 1973, foreigners can purchase property in a restricted zone via a trust.
In simple terms, a bank can function as a trustee between the buyer and seller. This trust is called the fideicomiso, which is similar to the Land Trust in the US. It allows the buyer to control the buying but with the bank at their back. The fideicomiso contract has to be renewed every 50 years.
3. The Notary
Unlike the US and other countries, a notary is an attorney assigned by the government who represents you instead of a third party. In the presence of a notary, you don’t have to hire another attorney. However, you can hire one if you need to crosscheck every step. Your notary will prepare all the legal paperwork, maintain records of a transaction with the municipality, and collect taxes and fees.
However, make sure that the notary understands your language for smooth communication.
4. The Legal Papers
Spanish is the official language of Mexico, but English can be understood by many as well. Most legal documents are in Spanish, but an English version of a contract is also available in some states. You may find this convenient, but beware; the English version may be a fake document. You should get a translator who can help you understand the official documents which will be in Spanish. The best approach would be to know the Spanish language before you make your move. It will make your life a whole lot easier in every aspect.
Purchasing Property in Mexico
- Make an offer and settle a price between you and the seller.
- Sign the contract. Make sure that you read everything that is in the contract and double-check all the facts and figures.
- Pay a deposit that is usually 5 to 10% of the total price.
- If the property is in a restricted area, initiate the creation of You can also transfer the owner’s fideicomiso to your name, but it will still have to be renewed once it reaches 50 years.
- Take permission of the purchase from the Foreign Secretary’s office.
- Let your notary review the title and get the official valuation.
- Sign the official document escritura at the notary office and make the closing payment.
- The notary will pay the tax, collect fees, and start property registration. You have to give him the money.
- The registration will be complete within three months.
- You will have to give the purchase’s closing costs, usually 5% of the total price. It includes 1.5% notary fees, 2% transfer tax, and other small fees.
[i] “Mexico – National ID Number.” Retrieved from https://learn.sayari.com/mexico-national-id-number-curp/
[ii] “Individual – Significant Developments.” Retrieved from https://taxsummaries.pwc.com/mexico/individual/significant-developments
[iii] “Mexico: Tax System.” Retrieved from https://santandertrade.com/en/portal/establish-overseas/mexico/tax-system
[iv] “Individual: Taxes on Personal Income.” Retrieved from https://taxsummaries.pwc.com/mexico/individual/taxes-on-personal-income
[v] “The Practicalities of Finding a House Rental in Mexico”, (Oct 6, 2021). Retrieved from https://www.mexperience.com/the-theory-and-practice-of-renting-a-house-in-mexico/
[vi] Lee Harrison, (April 20, 2021). “Buying Property in Mexico: Step-by-Step Guide for Expats”, Retrieved from https://www.liveandinvestoverseas.com/countries/mexico-countries/buying-property-mexico-step-by-step-guide-expats/