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Lobo Hambriento

Feb 2, 2003, 9:48 PM

Post #1 of 6 (2208 views)

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Paid by US-based Employer, Do I have to Pay Mexican income tax?

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I hope someone knows the answer to my questions.

I work for a market research company in San Antonio and I would like to convince my boss to let me work in Mexico. My job requires mostly Internet research and telephone interviews, so it doesn't matter where I live. Theoretically, I could do my job just as well orbiting around the earth in the Space Station as in an office building or home office.

This is the deal: I love Mexico and I would like to live there while keeping my US job. Since my job is classified as a "Business Visitor" type of activity under the "Market Research and Design" clause, I believe I am eligible for a one-year FM3 non-immigrant visa, renewable for a total of five years (according to the INAMI website.) One of the requirements is that my employer certify that I will be paid in dollars from a foreign source. This would be SO cool since my US salary and benefits would go A LOT further in Mexico than in Texas.

My idea is to rent a nice house in Guanajuato and set up a home office with high-speed internet connection and long distance service so that I can be in daily contact with my manager in San Antonio, as well as conduct all my internet research and e-mail my articles to the home office when they are complete.

Now, this is my MAIN question, which could make or break my decision to go ahead with this plan. Since I will be paid by my American emplyer in dollars, and I will remain on the US home-company payroll, in which country do I have to pay income tax? In US or in Mexico? Now, if it turns out that I have to pay income tax in BOTH countries, to IRS AND HACIENDA, well, forget it! I'll just stay in Texas!

As a secondary question, in the scenario that I have presented (FM3 visa paid by a foreign employer as a remote worker), will I be eligible to enroll in IMSS? OR are there any private health insurance alternatives comparable to Blue Cross and Blue Shield in the US, etc.? Any help on these questions would be greatly appreciated!

--Antonio in San Antonio

awcharro

Feb 7, 2003, 6:11 PM

Post #2 of 6 (1901 views)

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Re: [Lobo Hambriento] Paid by US-based Employer, Do I have to Pay Mexican income tax?

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You will have to double check with the IRS on this one, but my understanding is that the income that you will be receiving from the U.S. will be tax exempt for the period of time that you are in Mexico for the year, up to around $72,000 or $74,000 a year (provided that you meet the requirements to take this exemption).

I am a missionary living in Mexico and I do not pay tax on any income I receive from the U.S. during my time in Mexico. However, the time that I am in the United States is not tax-exempt. So, if I were to spend two months a year in the U.S., earning, let's say, $12,000 a year, $2,000 of that income would be subject to U.S. income tax (less the exemptions, of course). However, I have to continue to establish that I am a resident in Mexico to have this benefit.

All offerings in the U.S. for my ministry are wired by my missions organization in Oklahoma to USAA bank in San Antonio. I am very happy with this bank's service.

You will need to get the IRS publication on working oversees to get more specific and correct answers than what I gave above.

My understanding is that I am not subject to any income tax in Mexico, since I am receiving almost all my income (with the exception of 700 pesos a month) from a source outside of Mexico.

However, don't take my answers as law, check with the IRS!

David(MTY)

Feb 25, 2003, 7:35 PM

Post #3 of 6 (1789 views)

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Re: [Lobo Hambriento] Paid by US-based Employer, Do I have to Pay Mexican income tax?

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Hi Lobo,

Yes, if you want to live in Mexico and earn money, you must pay tax to both the IRS and Hacienda. It is not as bad as it sounds except for actually doing the Uncle Sam part of the paperwork, but that is childplay for an accountant.

The only ways you could support dodging Mexican taxes would be to stay in a hotel on your traveling FM3 during your reasonable stays, not by renting, or by getting your company to pay the rent on a place you stay in used exclusively for purchasing Mexican products for export. The latter is not your stated purpose.

You cannot claim the US exemption for foreign earned income and ignore the Mexican Hacienda obligation as stated by one poster; an IRS requirement to qualify is recognizing Mexico's authority to tax you.

The good news is you will get to file your 1040 and pay tax on all capital gains, interest, dividends, etc., as normal in the US. You can do one or the other: claim the Mexican paid tax as a credit or you can qualify for the exemption mentioned above by meeting the IRS requirements correctly. The end effect will be you don't pay more than the Mexican rate on the monies in question earned in Mexico, and if you legally do it right you have a good chance of net savings by taking into account US allowed excess living expense and US household goods storage deductions.

David(MTY)

Feb 25, 2003, 9:08 PM

Post #4 of 6 (1754 views)

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Re: [David(MTY)] Paid by US-based Employer, Do I have to Pay Mexican income tax?

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Oh...and the news is even happier yet for US residents of 90% of the other states (not including your no State Income Tax Texas). Not only do many tax scenarios establishing your residence in Mexico utilizing the exemptions and decuctions I mentioned result in net lower taxes, but if you may be able to consider yourself not a resident of your US state of origin. If that is the case, you can forget about those state taxes entirely.

Feb 26, 2003, 5:52 AM

Post #5 of 6 (1740 views)

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no longer a state resident

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"if you may be able to consider yourself not a resident of your US state of origin"-- what do I need to do to accomplish this when I move to Mexico? Also, do I need to pay taxes on retirement funds to both US and Mexico? What about alimony, do taxes need to be paid on that to both US and Mexico?

David(MTY)

Feb 26, 2003, 11:33 AM

Post #6 of 6 (1699 views)

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Re: [MM] no longer a state resident

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Wheeew! While the original poster has a very obvious question (making money doing a lucrative activity while residing in Mexico and not paying tax) your's are now to the point of recommending a little investment in a financial advisor who knows the legal ins and outs this subject and is looking for fair pay for fair work.

That said I'll do my best to say the sayable based on your simple questions to something that can easily be made very complex by someone without experience when they dig in on the precise details of your situation.

I used the word "may" because: States will oblige you to pay taxes to them based on their own residency criteria. So yours of course regulated by your State from which you are coming from and any other State which may normally claim you pay them taxes. Example big states: New York, might a real big net and severing their claim could be a challenge, if you own a house there. Florida, well, don't be there on January 1 of the tax year and you are on your way there (but not out of the woods yet), California is in between, but if your income is not California sourced is a pushover. All of these are general comments and almost always check your physical presence in the State and whether you own residential property there - and then worry about how to treat that property if affirmative.

Taxability of "retirement funds". There is no asset tax in Mexico on these. However, dividends and interest are taxable for Mexican residents, but not double taxed, when it is recognized that your nationality requires you to pay taxes. Read that to mean you get a tax credit. Keep in mind the "foreign earned income exclusion" I mentioned that the IRS gives you on your IRS 1040 is only for wages from foreign-based income, a US citizen receives no benefit whatsoever on their 1040 for any revenues generated in the US.

Basic Alimony. Paying tax on alimony really would be a drag. Has tax already been paid on it by the payer? Does it just cover basic necessities or is it excessive by Mexican standards? Those are questions to raise with your financial adviser. You know, payments between immediate (spouse, parents, kids) family members are not touched in Mexico. Legally ordered payment for subsistence food is tax free. Use your financial advisor's common sense on this one, but remember if you pay tax on it in the US, Mexico would never bug you for more than the [Amount of Tax Due if all in Mexico] minus [Amount of tax paid in US] = difference. That is the no "double taxation" idea. And in the case of Alimony, you can expect most Hacienda auditors respect the family. You also could pose this question to a matrimonial lawyer. There is a hardworking but very helpful profesional in Michoacán...

There, now the disclaimer (sorry): The contents of this message are solely well-meaning, but: unresearched, unsubstantiated, unwarranted mumblings. Any resemblance to paid, researched, or substantiated advise of significant value is purely coincidental in this format.

(This post was edited by David(MTY) on Feb 26, 2003, 11:41 AM)