If you're moving to Mexico, here's how taxes work

Before you accept a job offer in Mexico, you need to understand the local tax system. The numbers might surprise you.

Tax System Overview

Income Tax in Mexico

Mexico operates a progressive income tax system, meaning higher earners pay a higher percentage on their income above certain thresholds. The top marginal rate is 35%.

What Does This Mean in Practice?

On a gross annual salary of €90,000, you would pay an effective tax rate of approximately 12.3%, resulting in a net monthly income of approximately €5,850. This accounts for income tax and mandatory social contributions.

For context, the average monthly salary in Mexico is approximately €880.

VAT (Value Added Tax)

The standard VAT rate in Mexico is 16.0%. VAT is included in consumer prices and applies to most goods and services. Reduced rates typically apply to:

• Basic food items and groceries
• Medical supplies and pharmaceuticals
• Books and educational materials
• Public transport (in some cases)

Special Tax Regimes for Expats

No special tax regime for expats

While Mexico may not have a widely publicised expat tax regime, there may be bilateral tax treaties with your home country that prevent double taxation. Check if a Double Taxation Agreement (DTA) exists.

Tax Filing Requirements

As a tax resident of Mexico, you are generally required to:

1. Register with tax authorities upon establishing residence
2. Obtain a tax identification number
3. File an annual tax return (deadlines vary)
4. Declare worldwide income if you are a tax resident
5. Report foreign bank accounts if applicable

Double Taxation

Mexico has double taxation agreements (DTAs) with numerous countries. These treaties determine which country has the right to tax specific types of income and help prevent you from being taxed twice on the same income. Before moving, check whether a DTA exists between Mexico and your home country.

Tax Tips for Expats

• Hire a local tax adviser familiar with expat situations during your first year
• Keep records of all income, deductions, and tax payments from day one
• Understand residency rules: most countries consider you a tax resident after 183 days
• Check for exit tax: some countries impose tax on unrealised gains when you leave
• Social security contributions are often separate from income tax and can add 10-20% to your total burden

Additional Practical Information

The following information is compiled from expat community sources and recent reports to complement the official data above.

Additional Data Points

Recent reports and expat sources provide these additional figures for Mexico:

• Paying income tax is relatively straightforward in Mexico, and taxes are automatically deducted from your paycheck. Therefore, unless you earn more than 400,000 pesos (around 20,000 USD) a year, you don't have to file any tax statement or do any paperwork whatsoever. In fact, at most companies, you won't even receive your yearly tax statement unless you specifically ask for it.
• Sales tax in Mexico is set at 16% as of early 2020. In Spanish, it is called IVA, or impuesto al valor agregado, in English 'value-added tax.' It is nearly always included in the price and not added on later, like in the U.S.
• When you acquire the property, there is a 2% acquisition tax
• An official evaluation may be substantially lower than the estate's market worth, and it is not uncommon that it marks only between 30% to 40% of the true selling price.
• Technically speaking, this is not considered legal, but everyone does it. So if you buy, for example, an apartment for 100,000 USD, instead of paying the complete 2% (2000 USD), you would only pay 600 USD or 800 USD.
• You have to pay 25% of the transaction's reported value

Tax Registration Process

Expat sources describe the following steps for Mexico:

1. You have to pay 25% of the transaction's reported value
2. You decide to pay 30% of the net wealth, which is the difference between the evaluated worth when you acquired the estate, and at the time you want to sell the property. Any improvements on the property that you have made or commissions you had to pay will be taken into account as well.

Additional data sourced from expat community reports. All information should be verified with official sources.