Legal Q & A with Angel Taxes, RFC, and more…

Tara and Greg from Newport Ca.

Hello Angel, thanks for this format we follow it weekly and greatly appreciate the information you provide! Our question is, we are not residents nor temporary residents, but we keep reading and hearing that we have tax exposure in Mexico. Obviously, we are law- abiding citizens at home and want to have appropriate standing here, can you paint a picture of the tax responsibilities for us, (I am sure many folks are wondering the same thing). Gracias.

Angel 

Hi Tara and Greg, Regardless of whether we have our residence in the country of Mexico or not, foreign individuals (our guest community) and/or their legal entities (trusts and corporations) that receive income from Mexico must comply with certain tax obligations and pay taxes. The tax obligations of foreign residents in Mexico are the same as those of a Mexican individual. In the case of foreign legal entities residing in Mexico, they must pay taxes, depending on their activity or corporate purpose, according to the General Regime for Legal Entities, the Regime for Non-Profit Legal Entities, or the Regime for Agricultural, Livestock, Forestry and Fishing Activities.

For tax purposes, a foreigner is a person or a commercial or civil corporation that is governed by the legislation of another country, whether for reasons of nationality, domicile, residence, or place of operations. In order to determine the tax regime applicable to foreigners, the SAT or the Tax Administration Service distinguishes between residents and non-residents in Mexico.

Who are the foreign residents in Mexico?

They are, on the one hand, individuals who have their home in Mexico. If they also have their home in another country, they are considered residents if they obtain more than 50% of their annual income in Mexico or if the center of their professional activities is in Mexico. Also, corporations that have their principal place of business or their effective place of management in Mexico must also pay taxes as residents.

Who are non-resident foreigners?

The SAT or Tax Administration Service defines those taxpayers must pay taxes as non- residents in Mexico if they do not have their dwelling house in the country, or if they do, the income they obtain from sources of wealth located in Mexico does not exceed 51% of their total annual income. In the case of legal entities, non-residents are those that have not established their principal place of business in the country.

Non-resident foreigners have tax obligations in Mexico when they obtain income from a source of wealth located in Mexican territory, or when they receive income derived from a permanent establishment in the city.

Foreigner with dual residence

For tax purposes, a foreigner is generally considered a foreigner with a dual residence. A dual resident foreigner files two tax returns for the year, one return for the portion of the year he/she was considered a nonresident and another for the portion of the year he/she was considered a resident. In some situations, the taxpayer may elect to be treated as a resident for the entire year to avoid having to file two separate returns.

“Take into consideration that as a resident or non-resident in the country, you also have the obligation to pay taxes.”

Tim from Houston Tx.

Hola Angel! I know you are getting this question a lot these days but can you explain what the heck an RFC is? Thanks!

Angel 

Howdy Tim, Let’s start by defining what the RFC is: The RFC or Federal Taxpayers Registry is a unique registration code that serves to identify every person that carries out an economic activity and must contribute to the public expense fund through contributions based on earnings to the SAT (Tax Administration Service), the Mexican version of the IRS.

Your next question might be, How do I get my RFC?

To begin with, you must have your CURP which is: The Unique Population Registry, our version of the social security number which is an instrument used to register individually all the inhabitants of Mexico, including nationals and foreigners, as well as Mexicans living in other countries (you get this number once you acquire your temporary or permanent residence).

Once we obtain your CURP, we then apply for your RFC at the SAT- Tax Administration Service. Which oversees and reviews our tax returns and our tax payments. We will generate an appointment in the nearest offices since due to the pandemic over the past 2 years a substantial waiting list of people exists, a virtual line causing many delays. This is a process that must be done in person or through an attorney-in-fact empowered with a Power of Attorney (see previous articles for POA explanations).

I hope this is helpful Tim, best regards, Angel.