Moving to a new country can be a daunting task, especially when it comes to understanding the local tax system. If you're an expat in Mexico, it's crucial to get a grasp on the different types of tax regimens. This guide will help you understand the basics of the Mexican tax system, ensuring you stay compliant and avoid any potential legal issues.
The first type of tax regimen in Mexico is federal taxes. These are taxes that are applied nationwide and are regulated by the Mexican Tax Administration Service (SAT). Federal taxes include Income Tax (ISR), Value Added Tax (IVA), and Special Tax on Products and Services (IEPS).
Income Tax, or ISR, is a tax on the income of individuals and corporations. The rate varies depending on the level of income, with a progressive scale ranging from 1.92% to 35%. It's important to note that Mexico operates on a worldwide taxation principle, meaning that residents are taxed on their global income.
Value Added Tax (IVA) is a consumption tax applied to the sale of goods and services. The standard rate is 16%, but a reduced rate of 11% applies in the border region. IVA is also applied to imports.
IEPS is a federal tax applied to specific goods and services considered harmful or non-essential, such as tobacco, alcoholic beverages, and junk food. The tax rate varies depending on the product or service.
The second type of tax regimen in Mexico is state taxes. Each of Mexico's 32 states has its own taxation system, which is applied in addition to federal taxes. State taxes include payroll tax, property tax, and vehicle ownership tax.
Payroll tax is a state tax that employers must pay based on the total salaries paid to employees. The rate varies by state, but it generally ranges from 2% to 3%.
Property tax, or predial, is a local tax levied on the value of real estate. The rate varies by municipality, but it's generally quite low compared to other countries.
Vehicle ownership tax, or tenencia, is a state tax on the ownership of vehicles. The rate varies by state and the value of the vehicle. Some states have abolished this tax, while others continue to apply it.
Understanding the tax system in Mexico can seem overwhelming, but with this guide, you should have a basic grasp of the different types of tax regimens. Remember, it's always a good idea to seek professional advice to ensure you're fully compliant with your tax obligations.