Tax Liability in Mexico

Tax Liability in Mexico

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I am a US citizen, have recently moved to Mexico & am working by telecommuting for a company in the US (business only in Ohio & Michigan). Now my employers are telling me they don't want anyone working outside the US borders for 2 reasons: 1. because they will be responsible for paying taxes to the Mexican government and 2. are concerned about not having international workers comp. I am currently here on a tourist visa. Can anyone point me in the right direction? I prefer to allay their fears rather than move back NOB or try to find another job. Thanks!

mazbook1

Nov 26, 2011, 5:48 PM

Post #2 of 30 (2331 views)

Re: [toni] Tax Liability in Mexico

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There are many, many ways that you can disguise the fact that you are online on the Internet in México. I see folks discussing this (for many different reasons) on various México forums. That would be the simple answer, find out how to do this (I'm not that Internet literate, but I could probably find out how to do it in less than an hour), then tell your employer you are no longer working for them from México. It's really that simple and not illegal, assuming that they pay you by deposit into your U.S. bank account, rather than wiring the money to you in México. Actually, their fears are totally unfounded; as long as you are not working for wages being paid IN México, México would have no reason to tax income earned and paid in the U.S. If you were to ever legally work for wages (or any payment) paid in México, the tax liability changes drastically, but a foreign employer paying in a foreign country STILL has no liability.

(This post was edited by mazbook1 on Nov 26, 2011, 5:50 PM)

Nov 27, 2011, 8:12 AM

Post #3 of 30 (2257 views)

Re: [toni] Tax Liability in Mexico

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You are breaking the law if you are working in Mexico on an FMM (tourist)...

donemry

Nov 27, 2011, 8:40 AM

Post #4 of 30 (2249 views)

Re: [toni] Tax Liability in Mexico

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I would be very cautious about accepting legal advice from unknown people on an internet forum.

RickS

Nov 27, 2011, 8:46 AM

Post #5 of 30 (2249 views)

Re: [chicois8] Tax Liability in Mexico

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This is just a question, not a confrontation.....

Are you sure that Mexican law specifically says that a tourist may not engage in 'Telecommuting' while on Mexican soil? By telecommuting I am referring to the use of Internet, telephone and/or fax devices to conduct business with and for a non-Mexican entity that resides outside of Mexican borders?

If this truly is the case, then there are a ton of people breaking Mexican law (not unheard of, of course) while they vacation 'on the Mexican beach' and keep in touch with their livelihood on a daily basis. Many companies now-a-days "require" one to stay engaged even when on vacation (or at least many A-types think this is a requirement!).

Nov 27, 2011, 8:54 AM

Post #6 of 30 (2242 views)

Re: [RickS] Tax Liability in Mexico

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I did not say people did not break the law, in Mexico you need an FM3 just to
volunteer....

DavidHF

Nov 27, 2011, 9:27 AM

Post #7 of 30 (2232 views)

Re: [chicois8] Tax Liability in Mexico

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I believe neither of your statements to be true. One does not need an "FM3" in order to volunteer. BTW, there IS no FM3. One breaks the law if one is employed in Mexico and receives income in Mexico.

YucaLandia

Nov 27, 2011, 10:15 AM

Post #8 of 30 (2213 views)

Re: [DavidHF] Tax Liability in Mexico

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Since "FM3" supposedly does not exist, we better tell INM and Aduana to stop using "FM3" in their current websites and publications. *grin*

Expats who are full time residents approved by INM are required to report all worldwide income to Hacienda.
Income taxes paid to the USA are credited against what is owed to Mexico.
There is a big difference between what many expats do vs. what they are required to do.
-
Read-on MacDuff
E-visit at http://yucalandia.com

Nov 27, 2011, 1:58 PM

Post #9 of 30 (2171 views)

Re: [DavidHF] Tax Liability in Mexico

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On my FMM I received d 2 weeks ago there is 2 spots to check, 1 for No inmigrante and 1 for Inmigrante and they are both preceded by FM3 and FM2...........

Work is work!

Here is a site from Mazatlan describing the volunteering status, you even have to have an FM3 to belong to the Peace Corp in Mexico...

http://www.pacificpearl.com/archive/2009/june/feature1.htm

Nov 27, 2011, 2:13 PM

Post #10 of 30 (2164 views)

Re: [chicois8] Tax Liability in Mexico

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In Reply To

work is work

Would that mean that if one checks their US work email or takes a conference call while in Mexico on vacation with an FMM they are breaking the law because they are working in Mexico ?

! Al pan, pan y al vino, vino !

Nov 27, 2011, 2:27 PM

Post #11 of 30 (2151 views)

Re: [Yacatecuhtli] Tax Liability in Mexico

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In Reply To

work is work

Would that mean that if one checks their US work email or takes a conference call while in Mexico on vacation with an FMM they are breaking the law because they are working in Mexico ?

Yes, if it is how you make a living then we call it work.........
I do not work, I am retired, every day is Saturday........

Bennie García

Nov 27, 2011, 2:42 PM

Post #12 of 30 (2139 views)

Re: [chicois8] Tax Liability in Mexico

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In Reply To

Yes, if it is how you make a living then we call it work.........
I do not work, I am retired, every day is Saturday........

Who is "we"?

Nov 27, 2011, 2:47 PM

Post #13 of 30 (2135 views)

Re: [chicois8] Tax Liability in Mexico

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In Reply To

In Reply To

work is work

Would that mean that if one checks their US work email or takes a conference call while in Mexico on vacation with an FMM they are breaking the law because they are working in Mexico ?

Yes, if it is how you make a living then we call it work.........
I do not work, I am retired, every day is Saturday........

I can see the new ads by the SECTUR (SECRETARÍA DE TURISMO) now where the American from NY is on the beach in Cancun with his wife and kids for xmas vacation and he answers an email on his Iphone and the cops come and haul him away for "illegally working in Mexico"

Maybe Calderon can work it into the tour guide series he is doing.......

For some reason I don't think Gloria Guevara Manzo would go for it.

! Al pan, pan y al vino, vino !

chinagringo

Nov 27, 2011, 2:54 PM

Post #14 of 30 (2122 views)

Re: [chicois8] Tax Liability in Mexico

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On the new FMM form, there is a box to check if you are visiting Mexico for work and another for business. How does this option play into this conversation?
http://www.rollybrook.com/fmm.htm
Regards,
Neil
Albuquerque, NM

(This post was edited by chinagringo on Nov 27, 2011, 2:55 PM)

tonyburton / Moderator

Nov 27, 2011, 3:24 PM

Post #15 of 30 (2108 views)

Re: [toni] Tax Liability in Mexico

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According to Mexican Taxes by Raoul Rodriguez-Walters, CFP® Mananging Partner, Mexico Advisor, the answer to your question depends on two things: "legal residence" and "tax residence".

The following quote is from that link (from the section "Mexican taxes", linked to from the left-hand column):

"Legal residence and tax residence are two different concepts. The first is related to the authorization, generally from the immigration authorities, to be in Mexico for a given period of time. This authorization comes is various forms, typical examples of which are evidenced in a tourist card or an FM-3. Tax residence, on the other hand, is defined in the tax law and tax treaties. The distinction between who is a Mexican tax resident and who is not is important because generally non-residents are subject to higher taxes than tax residents."

"In 2004, the Mexican Fiscal Code (the “Code”) established a new definition of “tax resident,” as anyone who has established an abode in Mexico, irrespective of the time he or she has spent in the country. The Code also stipulates that if you have one home in Mexico and another abroad, you are considered a tax resident of the country where you have your “center of vital interests.” Mexico considers that your center of vital interests is in Mexico if over 50% of your income is derived from Mexican sources or if you are employed (or self-employed) in Mexico."

"There are two main repercussions for a foreigner in Mexico as regards tax residency. The first is that tax residents are supposed to register to obtain a tax ID, known as an “RFC” and file an annual tax return reporting worldwide income. The second, and perhaps more of an immediate concern to many foreigners who own real estate in Mexico, is the ability of the foreign national to obtain a tax exemption on the sale of their Mexican residence. This income tax exemption is outlined in the section of the Mexican Income Tax Law applicable to tax residents and is clearly meant to benefit taxpayers who have been complying with their Mexican income tax obligations."

"The good news is that with proper financial planning you can permanently and legally live in Mexico without acquiring a Mexican tax ID, filing a tax return or paying income taxes on foreign income (Mexican source income is still subject to tax). By doing so you may give up the benefit of lower Mexican taxes available to tax residents but you will gain a greater level of peace of mind. "

RickS

Nov 27, 2011, 4:19 PM

Post #16 of 30 (2094 views)

Re: [tonyburton] Tax Liability in Mexico

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When I first saw Tony post this, I thought, "Oh boy, an answer!". However after reading it twice, I don't know any more than I did before. IMO the original contention is not addressed.... that an "FMT" holder, working for a non-Mexico located company and having their pay deposited in a non-Mexican bank, is breaking the law if they or their company don't pay taxes to the Mexican government.

This talks of a tax resident as 'one who has established an abode' (whatever doing that entails). Most folks holding an 'FMT' do not own a home in Mexico.

(This post was edited by RickS on Nov 27, 2011, 7:04 PM)

Nov 27, 2011, 4:26 PM

Post #17 of 30 (2093 views)

Re: [RickS] Tax Liability in Mexico

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In Reply To

When I first saw Tony post this, I thought, "Oh boy, an answer!". However after reading it twice, I don't know any more than I did before. IMO the contention that an "FMT" holder working for a non-Mexican company and having their pay deposited in a non-Mexican bank is not addressed.

This talks of a tax resident as 'one who has established an abode' (whatever doing that entails). Most folks holding an 'FMT' do not own a home in Mexico.

Yes it is.....its called centre of vital interests.....

"In 2004, the Mexican Fiscal Code (the “Code”) established a new definition of “tax resident,” as anyone who has established an abode in Mexico, irrespective of the time he or she has spent in the country. The Code also stipulates that if you have one home in Mexico and another abroad, you are considered a tax resident of the country where you have your “center of vital interests.” Mexico considers that your center of vital interests is in Mexico if over 50% of your income is derived from Mexican sources or if you are employed (or self-employed) in Mexico."

In the example you give.....( "FMT" holder working for a non-Mexican company and having their pay deposited in a non-Mexican bank is not addressed) the centre of vital interests is NOT Mexico

Abode: a dwelling or residence (you dont have to own it......)

! Al pan, pan y al vino, vino !

Nov 27, 2011, 4:49 PM

Post #18 of 30 (2081 views)

Re: [Yacatecuhtli] Tax Liability in Mexico

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Yucatecuhtli, I may be getting old and my eyesight is getting worse but please point out the part where the OP states he or employer is depositing funds in a US bank???????

He is only expressing his employers concerns......

And quoting a line with FMT is going back a ways since now we have FMM's.

(This post was edited by chicois8 on Nov 27, 2011, 4:58 PM)

chinagringo

Nov 27, 2011, 4:59 PM

Post #19 of 30 (2077 views)

Re: [chicois8] Tax Liability in Mexico

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chicois8:

Please read the OP where he states he is on a tourist visa but as I pointed out, we have no idea which box he checked when obtaining the tourist visa.
Regards,
Neil
Albuquerque, NM

tonyburton / Moderator

Nov 27, 2011, 5:10 PM

Post #20 of 30 (2072 views)

Re: [RickS] Tax Liability in Mexico

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"This talks of a tax resident as 'one who has established an abode' (whatever doing that entails). Most folks holding an 'FMT' do not own a home in Mexico."
in which case, and assuming he keeps a home somewhere else, he's fine (so far as Mexican tax authorities are concerned).

Nov 27, 2011, 5:14 PM

Post #21 of 30 (2069 views)

Re: [chinagringo] Tax Liability in Mexico

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In Reply To

chicois8:

Please read the OP where he states he is on a tourist visa but as I pointed out, we have no idea which box he checked when obtaining the tourist visa.

That is why at 8:12 this morning I wrote:

You are breaking the law if you are working in Mexico on an FMM (tourist)...

DavidHF

Nov 27, 2011, 5:27 PM

Post #22 of 30 (2063 views)

Re: [chicois8] Tax Liability in Mexico

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Wrong again; he's not earning money from a Mexican source and he's not receiving income in Mexico.

Nov 27, 2011, 5:30 PM

Post #23 of 30 (2063 views)

Re: [chicois8] Tax Liability in Mexico

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In Reply To

Chicois8, you will note that I responded to and quoted ricks not the op.

! Al pan, pan y al vino, vino !

Nov 27, 2011, 5:48 PM

Post #24 of 30 (2046 views)

Re: [Yacatecuhtli] Tax Liability in Mexico

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Like I said a few messages back, it's all moot, his employer is pulling the plug out from under him with his tax and workers comp concerns........

Notice the OP has not returned to this thread to comment or add additional information, come on toni lets see post #8 in a year+............

I would bet many folks bought homes when FMT were around just like many folks buy property and homes now on an FMM....

(This post was edited by chicois8 on Nov 27, 2011, 6:05 PM)

esperanza

Nov 27, 2011, 5:51 PM

Post #25 of 30 (2042 views)

Re: [mazbook1] Tax Liability in Mexico

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In Reply To

There are many, many ways that you can disguise the fact that you are online on the Internet in México. I see folks discussing this (for many different reasons) on various México forums. That would be the simple answer, find out how to do this (I'm not that Internet literate, but I could probably find out how to do it in less than an hour), then tell your employer you are no longer working for them from México. It's really that simple and not illegal, assuming that they pay you by deposit into your U.S. bank account, rather than wiring the money to you in México. Actually, their fears are totally unfounded; as long as you are not working for wages being paid IN México, México would have no reason to tax income earned and paid in the U.S. If you were to ever legally work for wages (or any payment) paid in México, the tax liability changes drastically, but a foreign employer paying in a foreign country STILL has no liability.

The line that I have italicized and made bold is the line that most concerns me in this discussion. Is this poster suggesting that the employee hide her IP in order to lie to her employer? Sounds like it to me.

http://www.mexicocooks.typepad.com

Nov 27, 2011, 6:30 PM

Post #26 of 30 (965 views)

Re: [DavidHF] Tax Liability in Mexico

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In Reply To

Wrong again; he's not earning money from a Mexican source and he's not receiving income in Mexico.

Hola DavidHF, lets look at what you wrote like this...

The OP works online, his employer sends his check electronically to his bank in the USA, The OP then goes to a Mexican bank ATM and withdrawals the money, is he not receiving income in Mexico???????

Bennie García

Nov 27, 2011, 7:18 PM

Post #27 of 30 (958 views)

Re: [chicois8] Tax Liability in Mexico

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Then if a tourist makes a withdrawal from an account outside of Mexico are they receiving income therefore working illegally here?

Nov 27, 2011, 7:33 PM

Post #28 of 30 (954 views)

Re: [Bennie García] Tax Liability in Mexico

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In Reply To

Then if a tourist makes a withdrawal from an account outside of Mexico are they receiving income therefore working illegally here?

Bennie,Bennie,Bennie, I guess if all the money that was i the USA account came from wages, for the last year and a half, I would consider it income, but remember .......Chico is 8.................at least when I signed up...........

YucaLandia

Nov 27, 2011, 7:41 PM

Post #29 of 30 (950 views)

Re: [DavidHF] Tax Liability in Mexico

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In Reply To

Wrong again; he's not earning money from a Mexican source and he's not receiving income in Mexico.

There seem to be 2 competing world-views here, and the OP will have to choose for himself.

One side advocates:
1. Lie to your employer about where you are located, and use blocking and masking programs to hide your location from your employer.
2. Lie on your Formato Basico that you fill out when you enter Mexico, and deny your intention to work while in Mexico.
3. Even though the OP clearly says that they "have moved to Mexico" and are "working in Mexico", they are advised by some to falsely declare that Mexico is not their primary place of activity.
4. Foreigners who reside here and work here, and legally owe taxes here, are then advised by this group that they should not declare income nor pay legally owed taxes.
5. Ignore the laws and rules.
6. Do what is necessary to do what you want.

The other side advocates:
1. Be forthright and truthful with your employer.
2. Tell the truth to the Mex. Gob. and fill out INM forms truthfully.
3. Pay taxes as required by laws.
4. Follow laws and rules, even when those laws and rules are inconvenient or expensive.
5. If this is your primary place of activity (because you have moved here), then you are supposed to report worldwide income, and pay your share of Mexican taxes - because you use Mexican services.

These differing viewpoints have been around as long as people have joined together into groups with rules.

There is also a 3'rd group who selectively follow rules, based on some combination of convenience, the likelihood of getting caught, and the severity of penalties of getting caught. e.g. In countries like Sweden where one loses their license for driving under the influence, compliance with this law is very high. In the USA where people can get 5 - 7 DUI's before facing serious penalties, driving after a few drinks is generally considered no big deal. The people who drive after having a few drinks do not consider themselves as criminals, even though they break the law.

The same issues pop-up with expats and duties. Some advise others on how to skirt the systems, and how to beat the systems, effectively advising others to not pay legal duties. Along with those who pay only when they think it is fair or convenient, there are always people who want to get or take things, like public services, without paying for them, unless forced.

Alternately, there is a group who advocates following the laws and rules, folks who pay what's legally owed, so that the larger organizations can continue to provide roads, water, sewer, police protection, etc.

Neither side can ultimately convince the other 2 groups that they should change.
-
-
Read-on MacDuff
E-visit at http://yucalandia.com

(This post was edited by YucaLandia on Nov 27, 2011, 7:58 PM)

Rolly

Nov 27, 2011, 7:48 PM

Post #30 of 30 (944 views)