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Tax system in Mexico City

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Resident individuals are subject to Mexican income tax on their worldwide income, regardless of their nationality. Non-residents, including Mexican citizens who can prove residence for tax purposes in a foreign country, are taxed only on their Mexican source income. The Federal Tax Code provides that a foreign individual will be considered a resident of Mexico for tax purposes when he has established his home in Mexico, unless he has been physically present in a foreign country for more than 183 days, consecutive or not, in one calendar year, and is able to prove residence for tax purposes in that other country.

Residents are required to include investment income in their annual returns, except for: (a) interest from the Mexican banking system and government obligations, which is either subject to a final withholding tax of 20% on gross interest (or a portion thereof) or is exempt; (b) dividend income from Mexican corporations or investment funds; and (c) capital gains on transactions carried out through the Mexican stock exchange, which are exempt.

Residents of Mexico are taxed on their worldwide capital gains, whereas non-residents are only subject to Mexican tax on gains arising from sales of real property located in Mexico or non-exempt sales of shares of Mexican companies, regardless of where the sale takes place.

U.S. expatriate residing abroad still owe U.S. taxes each year on their worldwide income. If you are an American living in Mexico, there are many different forums that discuss the best way to handle taxes and tax law in Mexico. one of the best is

Sales tax in Mexico is known as IVA (Impuesto al Valor Agregado). Mexico has two sales tax rates: 10% in the border zones and 15% everywhere else. The current rate of sales tax on all goods and services classed for the application of IVA is 15% unless the transaction takes place inside the 'border zone' in which case the lower rate of 10% will apply.

Starting this month, foreign shoppers can get a refund on Mexico's 15 percent VAT (value added tax). Claim your refund by picking up a form at a VAT booth at one of the following airports: Cancún, Guadalajara, Los Cabos, Mexico City, and Puerto Vallarta. At Mexico City's main airport, for instance, there are currently nine booths. The program is still fairly new, but here are some of the details:

  • To qualify, you have to be returning to the U.S. by sea or air. Cruise passengers won't find VAT booths at the major ports until next year.
  • You have to spend a minimum amount—about $115.
  • You can't include the tax you pay for restaurant meals, hotel rooms, and car rentals.
  • If you pay with cash, each item has to cost fewer than 3,000 pesos (about $289).
  • Up to half of your refund will be given to you right away in pesos. The remainder will be credited to your credit card account or bank account within 40 days. (This means that if you paid for all of your items in cash you'll need to supply your bank account information to receive the rest of your refund.)
  • The most you can claim per trip is 10,000 pesos (about $960), whether you pay for items with cash or by credit or debit card. But note that, broadly speaking, the United States has an $800 per-person cap on how much you can bring back tax-free. Anything above this limit is subject to an American duty, which varies by item.

If you need help with taxes, Mexico City offers plenty of tax professionals:

  • Deloite & Touche Accounting & Advisory #5283-7777
  • HCMR Asesores Public Accounts #5687-8988
  • Orozco Medina & Asociados #5575-2750
  • Price Waterhouse Coopers Public accountants #5263-6000

Update 6/09/2008


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