The Mexican tax system has been subject to comprehensive tax reform legislation. This legislation, enacted principally in 1986, 1988 and 1994, has dramatically changed the tax laws in an attempt to make the system competitive with the tax systems of Mexico’s most important trading and investment partners as well as with the systems of countries competing with Mexico for foreign investment.

Principal Taxes in Mexico
The principal taxes payable by individuals and by corporations operating in Mexico and, in certain cases, by foreign companies, are those levied by the federal government.

State and municipal governments have more limited taxing powers and until now have never levied general corporate income taxes; some states tax employers on salaries and professional fees paid by them. The principal taxes are as follows:

Federal Taxes:
1. Taxes on income, including a minimum tax based on assets held;
2. Value-added tax;
3. Import and export taxes; and
4. Payroll taxes, social security premiums, mandatory retirement savings system, and contributions to the National Workers’ Housing Fund.

There are some special federal taxes on a few specific products and services, such as alcoholic beverages, cigarettes, gasoline, telephone service, automobiles, etc.

Local taxes:
1. On real property
2. On salaries

Individual Income Tax
Residence
Resident individuals are subject to Mexican income tax on their worldwide income, regardless of their nationality. Non-residents, including Mexican citizens who can prove residence for tax purposes in a foreign country, are taxed only on their Mexican source income.

The Federal Tax Code provides that a foreign individual will be considered a resident of Mexico for tax purposes when he has established his home in Mexico, unless he has been physically present in a foreign country for more than 183 days, consecutive or not, in one calendar year, and is able to prove residence for tax purposes in that other country.

Individuals holding immigration papers as temporary or permanent immigrants are usually considered residents, unless the foreigner enters Mexico during the last half of the calendar year, in which case he would have been outside the country for more than 183 days and should probably be taxed only on this Mexican source income during that first calendar year.

Foreigners working in Mexico under a visitor’s permit should probably not be considered as residents until they have established some type of physical home in Mexico and have remained in the country for at least 183 days in a calendar year.

U.S. Tax Information
Internal Revenue Service
P.O. Box 920
Bensalem, PA 19020
(215) 516-2000 (not toll-free)
(215) 516-2555
Phone service available from 6:00 am to 11:00 pm (EST) M-F
www.irs.gov

The Internal Revenue Service (IRS) office serving Mexico is located in Philadelphia, and provides U.S. Federal tax assistance to Americans in Mexico.

The IRS Home Page has a lot of information available to answer many questions. Go to ‘Individuals’ and then ‘Overseas Taxpayers’ you will find a section of FAQ, which will take you to IRS Publication 54. Many questions of overseas taxpayers can be answered from that source.

One point to remember for all overseas taxpayers is that the United States taxes its citizens on their worldwide income. Even though they may be eligible to exclude a certain amount of their earned income from their income tax computation, they must file a US tax return in order to claim that exclusion.