New Tax Regulations in Mexico

Jen Lytle — Mon, 01 Jun 2020 02:41:43 +0000

NEW REGULATIONS COMING FOR TAXPAYERS

by Linda Jones Neil

For many years the SAT, Mexico’s taxing authority, has been collecting tax on income from Mexican rental properties.   The law is clear: no matter where the money is paid, if the income is generated from a property located in Mexico, SAT is entitled to its tax.    And the authorities are watching the company websites, the property managers, the vacation rental companies and the digital platforms on internet. They KNOW there is major tax evasion taking place!

Since many owners have not come forward to honor their tax obligations, a new law goes into effect on June 1, 2020.   Beginning June 1, anybody who accepts a booking through a digital platform (think AirBnB, VRBO, Home Away, etc) will have the applicable taxes deducted before the balance is sent to the owner!   So…….. no evasion! No way to avoid the taxes! These new regulations are defined in Articles 113 and following of the Income Tax Law (ISR), Section III, and Articles 18 and following of the Added Value Tax (IVA), chapter II.

The law breaks tax rates and procedures for payments into two categories:

The Resident in Mexico: if the owner is a resident of Mexico, he may obtain a taxpayer identification number (RFC) and declare income less allowable deductions.   Taxes are generally lower than for non-residents but the requirements for residency are fairly high including minimum time in the country each year and verifiable proof of monthly income.   In most cases the monthly declarations are provisional and an annual declaration must be filed with the tax authorities.

The Non-Resident in Mexico: If the owner is someone who came, fell in love and bought a property for appreciation, for retirement or just for fun but is not in a position to live in the country or does not have sufficient stable income, he or she is a NON-RESIDENT, and declares under a different formula.   Tax rates are fixed and an annual declaration is not required.

Both residents and non-residents who promote their properties through AirBnB, VRBO and any other digital platform, will be taxed and funds withheld from income based upon their immigration status.

What about those who rent through a property manager? or privately? What about those who rent sometimes through a digital platform and sometimes through other sources?

The law has not changed.   Both residents and non-residents must declare their full income and enforcement will most likely be stricter than ever.   For the non-resident, a Mexican person or entity must be appointed to collect, declare and pay taxes. No RFC is required.   The tax is fixed, on the gross, it is a definite tax and no annual declarations need be made.

Evasion of tax is a criminal offense.   Articles 150 to 178 of the Fiscal Code provide for imprisonment of up to six years for evasion of taxes.   Not only is it a criminal offense but the taxpayer must pay the past due taxes and very substantial interest penalties which amount to 1.3% per month, compounded.   Unless taxes and accrued penalties are paid in a timely manner the property can be seized and put up for auction.   Additionally, in a reform of Article 118 of the Fiscal Code, no landlord may demand payment of past due rent in the courts without submitting proof of tax compliance.    This is not unlike tax evasion consequences in the US and Canada!

The good news on all of this is that Mexico has tax treaties with 32 nations, including the US and Canada.   Thus, taxes paid in Mexico are a credit against income in both countries!   Double taxation is never an issue!

copyright 2020. C. Phoenix, S.C. Reproduction prohibited without consent. # # # #

About the author:

LINDA JONES NEIL is the founder of The Settlement Company®, which specializes in real estate transfers, escrows, and consultations. Settlement® provides a full accounting and taxpaying service for residents and non-residents.. For further information on taxes on rental properties please contact: The Settlement Company®, info@settlement-co.com.

Rentaltaxmexico@settlement-co.com

THE SETTLEMENT COMPANY®

www.settlement-co.com

Time for FBAR

Jen Lytle — Tue, 24 Jun 2014 20:57:25 +0000

It’s FBAR Time

We would like to send out this friendly reminder to everyone about the important FBARs (Foreign Bank and Financial Account Reports) Tax Deadline. The deadline for the 2013 reporting year FBAR is approaching – June 30, 2014. The FBAR is required to be Electronically Filed this year, by the due date.

If you or someone you know has a foreign financial account, take note! And it does not have to be just a personal account. Sometimes having signatory authority or a beneficial interest over a foreign bank or financial account also has reporting requirements.

Last year, the Report of Foreign Bank and Financial Accounts, FBAR, (Form TD F 90-22.1) was changed to FinCEN Form 114. It is a disclosure report form required to be filed with the Financial Crimes Enforcement Network under the Bank Secrecy Act (BSA) on or before June 30th each year. This year the Form 114 cannot be mailed and must be submitted through the BSA’s e-filing system.

Note: The IRS can levy a $10,000 penalty, per account, for a late or inaccurate filing.

How Do I Know If I Need to File?

You need to file this disclosure if at ANY time during 2013 you had foreign bank and/or financial accounts that, when combined, exceeded $10,000 (even if it is was just for a moment.) And this value is a cumulative number. For example, if you had four foreign accounts at $3,000 each, you would be above the $10,000 number and need to complete an FBAR form reporting all these accounts or risk a $40,000 penalty.

What is Considered A Foreign Account?

A foreign account meets the following criteria:

It is not a U.S. institution or a branch of a U.S. institution
-A Bank of America account located at a Bank of America branch in France is considered a foreign account.
-An account at the First Bank of France at a branch located in the USA is not considered a foreign account.
You are assigned a customer ID or account number
-Money or metals held in a safe at your home in Yucatan is not considered a foreign account.
-Money or metals held at vault, in which the foreign institution has an ID number for you, is a foreign account.

If the account with the foreign institution holds money, tradable securities (stocks or other investments), insurance/annuity with a cash value or precious metals, or the like, you may have a filing requirement.

When in Doubt, Disclose!

Beginning July 1, 2014, banks around the world will be coming forward to the U.S. with information on their U.S customers. That is when the Foreign Account Tax Compliance Act, or FATCA, goes into effect. Currently, there are new streamlined procedures that minimize or waive penalties for unreported foreign accounts. However, if you come forward after the United States begins investigating the bank where the account is held, there are new higher penalties which can be 50% of the highest balance in the account(s)!

If you are not certain whether you should file, don’t wait, ask your accountant or the IRS now!