U.S. taxpayers are required to file certain reports with the U.S. government if they own property in Mexico,
have a business in the country, or are shareholders in Mexican
corporations Uncle Sam, U.S. tax watchdog, has instituted a voluntary
disclosure program for those people who may have omitted reporting in
the past. This program is designed to limit penalties that may be
imposed on those U.S. taxpayers who have failed to make the required
declarations previously.
A tax specialist, familiar with the law and reporting requirements
in both the U.S. and Mexico can provide details. However, the most
common issues that need to be addressed are the following:
Property
owned in a Mexico Bank trust (fideicomiso): Under Mexican law, any
residential property located in therestricted zone when foreigners are
involved, must be placed in a Mexican bank trust, fideicomiso.
Therestricted zone is an area 50 kilometers (approximately 30 miles)
wide along all the Mexico real estate coastlines and 100 kilometers (approximately 60 miles) from the Mexico U.S. and Mexico-Belize borders
Under the U.S. regulation section 6048 (b) Taxpayers must report
ownership interest on Form 3520-A yearly and on form 3520 initially and
if there are any changes The penalty for failing to file these
information returns is five percent of the gross value of trust assets
determined to be owned by the U.S. taxpayer.
Bank and Financial Accounts: U.S. taxpayers must annually report
direct or indirect financial interest in a financial account that is
maintained with a financial institution located in a foreign country
if, for any calendar year, the aggregate value of all foreign accounts
exceeded $10,000.00 USD at any time during the year. This report of
Foreign Bank and Financial Accounts is commonly known as an FBAR, and
the penalty can be as high as the greater of $100,000. USD or 50% of
the total balance of the foreign account if the failure is deliberate
omission (Sec.31 U.S.C. 5321(a)(5) Nonwillful violations are subject to
a civil penalty of not more than $10,000.00 USD.
Shares of Stock or Interests in Mexican Corporations and/or
partnerships: Generally shareholders or partners with a 10% or greater
interest in the partnership or corporation must inform the IRS of same
through Forms 5471 or 8865 Failure to file can be quite costly.
As in most countries the U.S. tax regulations are complicated,
especially when dealing with properties or assets located outside the
United States. Accountants, tax advisors and tax preparers do not
always know the rules regarding filings for international assets nor
the ramifications of failure to file. For this reason it is highly
important that the US taxpayer consult with experts in these
bi-national transactions.
TAX OBLIGATIONS IN MEXICO:
Any foreigner with real property or business income in Mexico must also plan to pay taxes in Mexico.
The good news! When paid with the proper receipts, certain of these
taxes can become a CREDIT or a DEDUCTION in the country of tax
residence!
For example:
Mexico Property Taxes: Whether in the La Paz real estate
market, in Cancun, or in Huatulco, taxes are due and payable every two
months, or can be paid in one annual payment, usually with a
substantial discount, during the first two months of each calendar year
Property taxes are based upon the value declared by the property tax
office where the property is located and are generally relatively low
in comparison with rates in the U.S. and Canada.
On-going taxes on business income: If you have a Mexican corporation
or partnership, no matter what the activity, a monthly declaration must
be filed for IVA taxes (Added Value Taxes) and for Impuesto Sobre La
Renta which, in this case, is more like an income tax. A local Mexican
accountant should be hired to review the accounting procedures and to
prepare and file the monthly declarations. The monthly tax payments are
generally considered as provisional and an annual declaration will show
either a refund or a payment due These taxes can also be a credit or a
deductible expense in a home country, depending upon how the companies
are established. An attorney-accountant with international expertise in
this will be an important advisor to help avoid double taxation on
profits.
Impuesto Sobre La Renta when a property is sold: is a capital gains
type of tax. For foreigners who are tax residents of another country,
the tax is calculated in two ways:
1. It is a flat amount of the total selling price; without deductions, or
2. It is a percentage of the difference between selling price and
the tax basis shown in the seller s deed, less allowable deductions.
The Notary Public should also provide the seller with a copy of the
tax payment for use with the tax authorities in seller s tax residence
country.
Impuesto Sobre La Renta when income is received from a rental of Mexican property:
All income received from Mexican property is taxable in Mexico,
regardless of the nationality of the owner Thus, the US or Canadian
citizen who rents a condominium or home regularly, or occasionally,
through a property manager or via internet, is obligated to file
declarations MONTHLY. Failure to declare income can cause very high
penalties. The good news taxes paid are credits or deductions in
taxpayer s home country.
"Mexico's Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!"
Thomas
Lloyd, graduated from Purdue University Krannert School of Management
with a degree in Management/Financial Option Investments. He has been
living, investing, and working professionally in Mexico for over 15
years. Mexico Real Estate Degree & Professional Identificacion
Number S.E.P. #5978657. He is the current president of
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