How Do Taxes Work in Mexico for Expats?
For foreign nationals in Mexico, this guide clarifies the fundamental principles of the tax system, from determining your obligations to fulfilling compliance duties.
In Mexico, the tax system is administered by the Servicio de Administración Tributaria (SAT), the federal government’s tax authority. This body is responsible for ensuring that individuals and companies comply with their tax obligations. Understanding your obligations begins with determining your residency status, as this dictates how you are taxed. The Mexican tax system applies to both residents and non-residents, but their responsibilities differ significantly, making it a primary task for foreign nationals to understand the general structure of federal taxes.
Determining Your Tax Residency Status
The country’s tax laws establish specific criteria to classify individuals as either residents or non-residents, which dictates whether you are taxed on your worldwide income or only on income from Mexican sources. The primary test for tax residency is whether you have a “casa habitación,” or a home base, in Mexico. The Federal Tax Code provides that an individual is considered a resident of Mexico when they have established a home in the country, which is not determined by the number of days spent there but by the existence of a permanent home available to you.
If an individual has a home in Mexico and another country, a tie-breaker rule known as the “center of vital interests” test is applied. This test has two main components: you are considered a resident if more than 50% of your total income in a calendar year is from Mexican sources, or if the primary center of your professional activities is in Mexico.
Nationality can also play a role, as a Mexican citizen is presumed to be a tax resident unless they can prove otherwise. For foreign nationals, if residency status is unclear after applying these tests, tax treaties between Mexico and other countries may provide additional tie-breaker rules.
Key Federal Taxes for Individuals and Businesses
The Income Tax (Impuesto Sobre la Renta – ISR) is levied on the income of individuals and corporations. For corporations, the ISR is a flat rate of 30% on taxable income. Individual income tax rates are progressive, meaning the rate increases as income rises, with brackets ranging from 1.92% up to 35%.
Another federal tax is the Value-Added Tax (Impuesto al Valor Agregado – IVA), a consumption tax applied to most goods and services with a standard rate of 16%. Certain items, such as some foods and medicines, are subject to a 0% rate, while some services like education and public transportation are exempt.
A targeted tax is the Special Tax on Production and Services (Impuesto Especial sobre Producción y Servicios – IEPS), an excise tax on goods like gasoline, alcohol, and tobacco. While not a federal tax, property tax (predial) is a local tax for real estate owners. This tax is administered at the municipal level and is based on the property’s assessed value, with rates determined by the local municipality.
Calculating Individual Income Tax
Calculating your individual income tax, or ISR, involves understanding which income sources are taxable and applying the correct rates. Common taxable income sources include salaries, professional fees (honorarios), rental income from real estate, and capital gains from the sale of property or stocks.
The individual ISR is calculated using a progressive table with multiple brackets. To calculate the tax, you first locate your income within the correct bracket, subtract the bracket’s lower limit from your income, multiply the result by the corresponding percentage rate, and then add the fixed fee for that bracket. For 2025, the brackets begin at a rate of 1.92% and increase up to a maximum of 35% for the highest earners.
Tax residents can reduce their taxable income by claiming specific personal deductions. These deductions are subject to an annual limit, which is the lesser of 15% of your total annual income or five times the annual UMA (a government-set economic reference unit). Authorized deductions include:
- Medical, dental, and hospital expenses
- Mortgage interest on a primary residence
- Contributions to private pension plans
- Educational expenses for dependents
Essential Tax Compliance Requirements
Before you can file taxes or conduct most financial activities in Mexico, you must obtain a unique tax identification number known as the Registro Federal de Contribuyentes (RFC). This identifier is issued by the SAT and is fundamental for opening a bank account, earning income, and issuing official invoices (CFDIs).
To register for an RFC as a foreign individual, you must gather specific documentation. The requirements include a valid immigration document, a valid passport, and proof of address, such as a recent utility bill or a formal lease agreement.
The process begins with scheduling an appointment through the official SAT online portal and filling out a pre-registration application with your personal information. You must take the appointment confirmation to a local SAT office to finalize the registration. At the in-person appointment, you will present your original documents for verification, provide biometric data, and officially receive your RFC.
The Tax Filing and Payment Process
The primary deadline for individuals to file their annual tax return, or “declaración anual,” is April 30th of the year following the tax year. In addition to the annual return, individuals with certain types of income, such as from professional services or rental properties, are often required to make provisional monthly tax payments.
The filing process is done electronically through the SAT’s online portal. To begin, you must log in using your RFC and a password or your electronic signature, known as the “e.firma.” The e.firma is a secure digital certificate that is required for many official procedures.
The SAT portal often pre-populates the declaration form with information it has already received from employers and other sources. You must carefully review this pre-loaded information for accuracy and completeness, making any necessary corrections or additions.
Upon submission, the portal will generate a confirmation receipt. If the return results in a tax liability, the system will also generate a payment form with a unique reference number to pay the amount owed through your Mexican bank’s online portal or in person at an authorized bank.