Mexican Taxes, Everything you Need to Know
Are Mexican Taxes making you pull your hair out? Are you intimidated by it all? Is a language barrier slowing down your financial progress? I recently had the privilege of sitting down with Gerald Burmeister from Burmeister Consulting on Asphalt’s Real Deal on Real Estate on Radiante 98.3 FM to discuss taxes, and it was fun! Gerald makes complex issues simple, highly ethical and easy to communicate with, so I love recommending him to my clients.
Many expats are relocating to Mexico to start businesses, as Mexico is a great place to be an entrepreneur, but navigating Mexican taxes is most effectively managed by implementing the appropriate steps from the beginning with a strategy. If you will be doing business in Mexico, or even if a Mexican company will employ you, then meeting with an international tax specialist is a great way to start.
They say: “The only certainties in life are death and taxes.” We all pay taxes, even in Mexico! It is a reality of starting operations or moving to the country. Like most everywhere else, you must pay business and personal taxes in Mexico. As a foreigner in Mexico, the taxes you pay will depend on your situation. If you own property in Mexico, you’ll pay property taxes, and foreigners often have many questions about these taxes in Mexico.
Gerald Burmeister is the Founder and CEO of Burmeister Consulting.
Burmeister Consulting combines the customer service you would expect abroad with local expertise and know-how. They have an outstanding team of accountants and fiscal attorneys. Burmeister Consulting has thrived in helping others navigate their tax journey through the apparent need to link the wonderful world of expats doing business abroad. Gerald brings 30 years of legal advisory settings and 20 years of real estate experience. He also has a real estate license in the USA and is a certified Supreme Court Spanish Interpreter.
Doing Taxes in Mexico
Gerald shares his firm’s experience saving money on your taxes.
We find it familiar that expats come here to invest in properties and upgrade their properties. Yet, when it comes time to sell their investment, they realize too late that they have missed some steps along the way and thus are now facing substantial tax consequences. I recommend taking the proper steps to avoid costly mistakes, which I help expats do!
Starting on the Right Foot! Practical Mexican strategies
I asked Gerald Burmister, from Burmeister Consulting, what advice he has for entrepreneurs starting a business here in Mexico.
It’s essential to take specific vital steps in the beginning; Gerald advises that some realtors might not inform you because they think these steps are optional or on a need-to-know basis, but they are crucial.
Four basic foundational steps to success:
- Get your permanent residency.
- Tax ID and filings are in order.
- Be under the correct tax regime.
- Create a tax strategy for the long run.
Gerald advises that the Mexican Government has made many changes to the tax regimes, making specific regimes more attractive for newcomers.
He recommends that you don’t fall into government traps and be well prepared for future issues that may arise. After all, there are always bumps along the way.
Gerald described what he often sees, the typical scenario of Expats visit, and then they fall in love with the area, buy a place, and rent it out. Seems so simple! Gerald doesn’t fault Realtors, but he does point out with a cute wink that Realtors are always eager to sell a property.
Airbnb Success and How to Lower Your Taxes On an Airbnb from the Get-go!
If becoming an Airbnb host is your goal, the first steps begin with obtaining a Permanent Residency. One is not obliged to retain a Mexican Immigration lawyer, but it is highly advisable. Barbara La Pointe and her Real Estate team work with reliable and friendly Mexican Immigration Attorneys you can trust.
Long gone are the days when one could not pay taxes in Mexico.
When you become an Airbnb host, you immediately have fiscal obligations. Platforms like VRBO and Airbnb used to allow owners to skip their Mexican budgetary obligations to the Government, but the Government caught up to that and forced Airbnb to apply and charge taxes. The result? Everyone saw an increase in rental rates.
The Mexican Government created a new digital platform regime for all those people using technological platforms like Uber or Airbnb, and just like that, The Mexican Government closed the loophole.
Avoid the Common Pitfalls
Rent to you directly; don’t pay taxes or deposit directly to my USA or Canadian account to avoid paying taxes. Money never comes to Mexico.
It will work for a while until you have a lousy renter who wants to squat in your place, and you need to go to the necessary authorities. The first thing the authorities will ask you for is the tax receipts. If you have tax receipts on the rental income, you have a claim to remove the renter.
If you don’t, you will find yourself in the vulnerable position of losing your property. What will you do if somebody in your condo changes the locks on your property? It’s all a slippery slope and another reason for setting up shop correctly from the beginning.
As Canadians and Americans, it is a very ordinary and familiar practice to request the first and last month’s rent as a deposit when renting.
Yet, heads up, in Mexico, if you sign a receipt for last month’s deposit, you acknowledge all previous rents have been paid, according to Gerald. A final month’s receipt could mean the renter has made all previous months’ payments. It is an excellent reminder that Mexico is a different country.
When we buy a property, inevitably, we invest further money to make it perfectly ours. It’s important to have paper receipts from your contractor, but remember to have facturas from the beginning! No facturas, no write-offs.
To get facturas, you need a tax ID from the beginning of your property journey. Burmeister Consulting or an immigration lawyer can quickly help you with these processes.
What is a Factura in Mexico?
A factura is a digital certificate, a legal receipt that is digital.
The vendor has to go into the SAT system and issue this factura. The business is telling the Mexican Government what he sold to whom and how much taxes he charged. Facturas are part of doing business in Mexico and are legally binding documents. Another good example is if you have an insurance claim, you must submit your facturas, not a receipt, for your deduction.
Do we pay less Mexican taxes?
Straight facts are that the Mexican Government has a very high tax rate. The Income-tax averages about 30%, Value Added Tax 16% and the Lodging Tax is 3%. It was interesting to learn about new tax regimes for expats that offer a lower tax rate, but one drawback with that regime is that it has many limitations and takes all of your income.
Always remember, if you’re renting straight through Airbnb without filing your taxes, you’re paying the highest tax rates and getting zero deductions.
Another common scenario, according to Gerald, is owners avoiding the platforms and receiving rental money without paying taxes. This innocent mistake is tax evasion, and it’s possible to have your bank accounts frozen. Burmeister Consulting has copyrighted tax strategies that can lower your taxes by quite a bit.
In a year, the Government can change its tax rules, industry, tax regimes, and more. It’s a constantly changing landscape. Mexico is trying to make the jump to a First World country. There are many changes that expats may miss out on because of language barriers and not watching the Mexican news.
Gerald was a fun interview because he let me ask him seemingly outrageous questions and had many funny stories to share. He warns that Mexican accountants could do all kinds of gimmicks, but be careful because those gimmicks can catch up with you. The Government has closed loopholes and weird solutions.
Consider getting a healthy checkup and friendly audit of your taxes, and Gerald will be there to guide you and protect you each step of the way.
Gerald’s What’s app 322 -227-1557, and his website mexprofessionals.com or Barbaralapointe@fabriscorp.com