Nov 27, 2011, 3:24 PM
Post #15 of 30
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. "