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Digital Nomad Taxes in Mexico: All You Need to Know to Pay Your Taxes
If you're a digital nomad in Mexico, find out here the taxes you must pay as a tax resident and much more details.
Mexico, with its vibrant culture, stunning destinations, and diverse ecosystems, has become a top choice for digital nomads. However, living here also comes with tax responsibilities. This guide aims to simplify the often-intimidating topic of taxes. If you’re a digital nomad in Mexico, we’ll help you navigate the tax system, understand your obligations, and manage your taxes efficiently.
This article explains the taxes digital nomads living or working in Mexico need to pay and how to handle them efficiently. It covers key topics such as how taxes are calculated, the laws that apply, when to start paying, and whether there are any tax benefits you can take advantage of as a remote worker.
Do digital nomads pay taxes in Mexico?
For digital nomads considering a temporary stay in Mexico, it’s essential to understand the country’s tax system, which revolves around tax residency. Residency status determines whether you’re obligated to pay taxes on your income, and the time you spend in Mexico plays a significant role.
Criteria to be a tax resident in Mexico:
- Stay of 183 days or more: Spending over 183 days in Mexico within a 12-month period classifies you as a tax resident. This means you’ll be required to pay taxes on your total income, regardless of whether it’s earned inside or outside of the country.
- Less than 183 days: If your stay in Mexico is under 183 days, you won’t qualify as a tax resident. This means you’ll only need to pay taxes on income earned locally, such as freelance projects for Mexican clients or income from starting a business while in the country.
Types of taxable income
The income digital nomads earn can vary widely depending on the nature of their work. In Mexico, your tax obligations will depend on the type of income you generate:
- Salary income. If you live in Mexico for over 183 days, even if you work for a foreign company, you must pay taxes on your income. This applies to all earnings, no matter the source.
- Income from freelance or professional services. If you provide freelance services to clients abroad, your earnings will also be subject to taxes if you are considered a tax resident in Mexico.
- Income from investments or passive activities. If you’re a tax resident in Mexico, you’ll also be taxed on any passive income you earn, whether it’s from rentals, royalties, or investments.
If you’re a tax resident in Mexico, keep in mind that the country taxes all of your income, whether it’s earned locally or internationally.
What law regulates taxes for digital nomads?
Mexico’s tax system includes various laws that apply to both citizens and foreigners. If you’re working as a digital nomad in the country, it’s important to familiarize yourself with the key regulations that affect you:
1. Federal Fiscal Code (CFF):
The Federal Fiscal Code outlines the rules for tax obligations in Mexico. If you live in the country for more than 183 days, you will be considered a tax resident. This applies to digital nomads as well, who must fulfill the same tax responsibilities as citizens and permanent residents.
2. Income Tax Law (ISR):
ISR is the main tax on individual earnings in Mexico. It follows a progressive system, meaning the higher your income, the greater the percentage you’ll need to pay. Tax rates in Mexico range from 1.92% to 35%, depending on your income level.
Here is a list of some key tax brackets in the Income Tax Law:
- Income up to 38,000 MXN ($2,090 USD approx.) per year: 1.92% rate.
- Income between 500,000 and 750,000 MXN ($27,500 and $41,250 USD approx.) per year: 30% rate.
- Income over 3,000,000 MXN (approx. $165,000 USD) per year: 35% rate.
3. Value Added Tax Law (VAT):
If you’re offering services within Mexico, you’ll generally need to charge VAT, which is currently 16%. However, if your clients are based outside Mexico, this doesn’t apply. Services provided to international clients are considered exports under Mexican law, and exports are exempt from VAT.
When should I start paying taxes in Mexico?
As a digital nomad, when you need to start paying taxes in Mexico depends on a few factors, mainly the type of visa you use to enter the country and how long you plan to stay.
Types of visas for digital nomads in Mexico:
- Tourist visa. Most people who enter Mexico as tourists can stay in the country for up to 180 days without having to pay taxes. As long as they don’t earn any local income. However, if you decide to stay longer or start earning money within Mexico, you may become liable to pay taxes.
- Temporary resident visa. If you plan to stay in Mexico for an extended period, you’ll need to apply for a temporary resident visa. This visa is usually issued for one to four years. After spending more than 183 days in the country, you’ll automatically be classified as a tax resident. This means that you will have to pay taxes on all of your global income.
- Permanent resident visa. Although it’s not typical for digital nomads, if you choose to settle in Mexico permanently, you’ll obtain a permanent resident visa, which also makes you an obligated taxpayer.
Requirements to start paying taxes:
- If you stay in Mexico for more than 183 days, you’ll need to register with the Federal Taxpayers Registry (RFC) and begin filing your tax returns.
- You will also need to keep track of your income and expenses, as being a tax resident requires you to file an annual tax return.
Tax benefits for digital nomads in Mexico
While Mexico doesn’t have a tax regime tailored for digital nomads like some other countries, it does offer a few benefits that can help you improve your tax situation. Here are some of the key advantages:
Tax deductions
As a tax resident in Mexico, you could qualify for deductions on specific personal expenses, allowing you to lower your overall tax liability. These deductions might cover a variety of expenses, such as:
- Medical and dental expenses.
- Health insurance payments.
- Donations to non-profit organizations.
- Interest on mortgage loans.
Benefits from double taxation agreements in Mexico
A major issue for digital nomads is double taxation, where they’re required to pay taxes on the same income in two different countries. To address this, Mexico has signed double taxation treaties with more than 50 countries. These agreements help alleviate the burden for those who live temporarily in Mexico but earn income from abroad. Some of the countries covered include:
- Spain
- United States
- Canada
- France
- Germany
- United Kingdom
- Chile
- Colombia
- Brazil
- Argentina
- Japan
- India
- The Netherlands
- Portugal
- Russia
To take advantage of these agreements, digital nomads need to provide the proper documentation proving they’ve paid taxes in their home country. This could include tax returns, proof of tax payments, or a certificate of tax residency issued by their home country’s tax authorities.
Digital nomads should also consider working with a specialized tax advisor to ensure they comply with all legal and administrative requirements. This step is crucial for avoiding double taxation and ensuring they can credit against taxes due in Mexico. Ultimately reducing their overall tax burden.
How much tax do I have to pay?
The amount of taxes you’ll pay as a digital nomad in Mexico varies based on your income and tax status. Since the income tax system is progressive, higher earnings are taxed at higher rates. If you invoice clients in Mexico, you will likely also need to charge VAT.
Taxable items for a digital nomad:
- Employment income. Working for a foreign company or international clients, this income will be subject to tax if you are a tax resident.
- Freelance services. If you provide services to companies or individuals in Mexico, you must declare this income and pay the corresponding taxes.
Keep in mind that these rates depend on your earnings, so the more you make, the higher the percentage you’ll pay. Starting at 1.92% and going up to 35% for those earning over $165,000 USD annually. As a digital nomad, if you issue invoices in Mexico for services provided to foreign companies, those invoices may be subject to VAT of 16%. However, in most cases, digital nomads working exclusively for foreign companies are not required to invoice in Mexico, which may exempt them from this tax.
Where can I seek advice before paying taxes as a digital nomad in Mexico?
Digital nomads should seek specialized advice before paying taxes or filing returns. In Mexico, numerous companies and agencies offer tax services for both locals and foreigners. Many even provide online consultations, making it easy to get help no matter where you are in the country.
Recommended options include the following:
- KPMG Mexico: One of the most recognized companies in tax consulting. Their team specializes in international taxation, ideal for digital nomads who generate income outside of Mexico.
- PwC Mexico: Another global company that offers tax advisory services. Experienced in handling double taxation cases and tax optimization for individuals temporarily residing in the country.
- Fixat.mx: Fixat is a Mexico-based company specialized in financial, tax and accounting advice for freelancers, startups and digital companies. They focus on helping people with income in different countries. Making it easier for them to file their taxes correctly and ensuring they comply with local regulations.
Consulting with one of these companies can save you valuable time and help avoid potential mistakes that could result in fines or penalties from the Mexican tax authorities. Working with an expert also keeps you informed of any updates or changes to the tax laws that could affect you.
Frequently asked questions about taxes for digital nomads in Mexico
Yes, you will be considered a tax resident if you stay in Mexico for more than 183 days in a fiscal year, and you will have to pay taxes on your global income, even if you work for a foreign company.
Mexico has double taxation agreements with over 50 countries. If your home country is on the list, you can avoid paying taxes twice by providing the necessary documentation. This includes proof of tax residency and tax returns.
If you stay for less than 183 days and don’t plan to settle permanently, you won’t be considered a tax resident. As a result, you won’t have to pay taxes in Mexico, unless you earn income within the country.
Yes, tax residents in Mexico can deduct certain expenses. Including medical costs, health insurance, and donations. These deductions can help lower the amount they owe.
Although it’s not required, having an accountant or tax advisor can be extremely helpful to ensure you meet all your obligations. They can also help you take full advantage of any available tax benefits.
If you’re paying taxes in your home country or another country, Mexico may have a double taxation agreement with that country. This agreement could allow you to avoid paying taxes twice on the same income by crediting the taxes you’ve already paid. Make sure to confirm whether your country has a double taxation agreement with Mexico and, if so, learn how to apply it correctly.
If you stay in Mexico for more than 183 days and become a tax resident, you’ll need to register with the Federal Taxpayer Registry (RFC). This is a requirement to file tax returns and meet your tax obligations. Even if you don’t have clients in Mexico, tax residency requires you to register.
To avoid penalties, it’s crucial to stay ahead of your tax obligations from the beginning. As a tax resident of Mexico, ensure you register with the RFC and file your tax returns on time. It’s also a good idea to work with a specialized accountant who can guide you through the process. It helps you avoid mistakes or misunderstandings.
While it’s not a requirement to have a bank account in Mexico to meet your tax obligations, it can make managing your income and payments much easier. As a tax resident, having an account in Mexico allows you to receive payments in pesos and helps simplify handling local expenses and deductions.
The type of visa you hold can affect your tax responsibilities. If you’re in Mexico on a tourist visa and stay for less than 183 days, you won’t need to pay taxes unless you earn income within the country. However, if you have a temporary or permanent resident visa and stay beyond 183 days, you’ll be considered a tax resident and must comply with the corresponding tax requirements.
