May 29, 2025 • 27 mins
Tax Planning for Expats in Mexico | Taxes In Mexico
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V I D E O S T O W A T C H N E X T :
Online Business Tips to Working and Traveling In Mexico: https://www.youtube.com/watch?v=9zGH0voCyOc&list=PLh3xKhkMgH_IA6s3KvB_g9Cc9Ze1eji8j&index=2
Moving to Mexico: 10 Reasons Why We Chose to Live in Guadalajara https://www.youtube.com/watch?v=dK23vD8_xjc&list=PLh3xKhkMgH_LAY7UV78YMgms-f2e1UcwN&index=23
Tips for Moving Overseas: Top 5 Remote Work Skills That Make Money: https://www.youtube.com/watch?v=bFzjCrlNAL8&list=PLh3xKhkMgH_IA6s3KvB_g9Cc9Ze1eji8j
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Disclaimer: The information in this video should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Entrepreneur Expat can and does not provide advice unless/until engaged by you.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Did you know that no matterwhere you live in the world, you
(00:02):
still need to declare andusually pay taxes to Uncle Sam.
If you are a US citizen, one ofthe most complicated things to
sort out when living overseas istaxes.
Specifically, where do I reporttaxes and how much do I pay to
which country?
In this video, we're gonna talkabout international tax planning
basics for US expats in Mexico.
(00:23):
Welcome to Entrepreneur Expat.
On this channel, we talk abouteverything to do with living
overseas, generating incomeremotely, and building the life
of your dreams abroad.
If that's something you'reinterested in, definitely check
out the free resources belowthis video, including our Moving
to Mexico Guide, and you canalso get a consultation.
(00:43):
With our team, absolutely forfree, if you qualify by going to
entrepreneur expat.com/consult,and we'll put that below the
video for you as well.
And as always, this is not to beconstituted as any sort of
professional, legal, or taxadvice.
Always, always, always make surethat you do your own due
diligence and consult with a taxprofessional in whatever country
(01:06):
you're in.
Like a lot of thoseprofessionals that we have in
our network.
And if you'd like to get moreinformation on our international
tax planning sessions with thosecertified professionals, as well
as other white glove relocationservices that we offer.
And get your own plan set up.
Make sure that you go to thatURL, and that again is
entrepreneur expat.com/consult.
(01:28):
So first we're gonna talk alittle bit about the most common
questions that we get, which arehow do taxes work in the US if
I'm a US citizen, but I amliving overseas in Mexico.
How do I file my US taxes?
Uh, how do I optimize my UStaxes?
And how does all of that work?
So first and foremost, UScitizens, regardless of where
(01:52):
they are in the world, must filetaxes every single year.
There are a few smallexceptions.
Like if your income is super,super low, um, like under a few
thousand dollars a year, thenmaybe you can get away with not
doing it.
Um, but there's also caveatswhere if you've got certain
other types of income, likepassive income, you still do
(02:13):
have a filing requirement.
So with very few exceptions,you've gotta file.
And usually pay to the USgovernment every single year,
and we'll get into some of thedifferent, um, exclusions and
other benefits that you can reapas an expat.
But it's important to note thatjust living outside of the US,
even if you're permanentlyliving outside of the us, uh,
(02:36):
does not exclude you fromreporting and filing on that
global.
Income.
And unfortunately the US kind ofhas their reach all over the
world in terms of being able tosee, uh, where you bank, what
kind of income you have comingin, whether that's active income
or passive income.
And it's one of only twocountries in the world,
(02:56):
including RIA and Africa, uh,that actually goes after, uh,
their citizens for worldwideincome, even when they're not
even living in the country.
So there's two main ways thatyou can, uh.
Make money as an entrepreneur inthe US and those ways are,
you've got either a corporatestructure such as an S corp,
(03:19):
which is a little bit more taxadvantageous for people making
over a hundred k per year in netprofit.
The reason is because with thisS Corp structure, you only have
to pay your FICA tax or yourSocial security and Medicare
tax, um, on the portion.
That is considered your salary,like your owner's salary, and
(03:39):
typically you can split your netprofit, so to speak, right?
Like what your company.
Makes minus what the actualcompany expenses are between a
reasonable salary that you payyourself, which might be 40 or
50 or 60% of that remainder ofyour revenue.
Uh, and then the rest of it canbe attributed to dividends.
(04:00):
And on dividends you typicallydo not have pay that F tax.
So that's one of the highesttaxes you'll pay at 15.3%.
And yes, you do get some benefitfrom it at the end of the day,
like when you do decide to takeSocial security, I.
If it still exists when youretire?
I'm not sure if it will by thetime I'm ready to, to quote
retire, but, uh, it's not likeyou get nothing for that.
(04:23):
You do do at least getsomething.
It goes towards social security,it goes towards Medicare.
So you do have some practicalbenefit at the end of the day.
But typically what people wantto do is renew, reduce that to a
reasonable amount.
If you're at that level whereyou're making a hundred K or
more, then it might beadvantageous to set up a
structure like that.
One thing that I'll interjecthere as well, uh, that a lot of
(04:45):
people ask us about is statetax.
And if you're in a, a state thathas state tax such as
California, um, or Oregon orArizona or many other states
that do.
Uh, that do levy a state incometax.
You do also want to de domicileyourself, which might mean
getting a mailbox in a statelike Texas or Florida and
(05:07):
essentially telling that hightax state that you're leaving,
that you're no longer part ofthat state, and that all US
based communications and thingswill go to somewhere in a state
that is not.
Uh, going to tax you on thatincome.
So that's also very importantbecause we've had clients that
unfortunately we've had to help,you know, retroactively go and
(05:28):
fix some of these things wherethey may be left to Mexico and
they were even able to excludethe income tax, uh, on the
federal, basically the federalincome tax portion through
things like the 400 incomeexclusion.
But they were still domiciled ina state.
That did levy that state tax.
So you, you want to absolutelytake that into consideration.
(05:50):
So the other way of receivingyour income as an entrepreneur
in the US because your US orCanada, which which is similar
in some regards to what we'retalking about here.
Um, if you're, if your base ofclients is in the US or Canada,
typically you'll still want tohave.
Some type of corporate structureset up there because it's easier
for clients to pay and whatnot.
(06:10):
Um, or at least have paymentprocessing and things like that
in, in your home country becauseyour clients may not want to pay
a Mexican company and have tosend wires or do things that are
a little bit more, morecomplicated, um, in terms of
just your, your branding and,and, uh, how you relate to your
clients.
So the other way to do it, ifyou're planning on receiving
(06:30):
less than a hundred K per yearin.
Net income or net profit is, youcan always set up an LLC if
you'd like.
And the benefit of the LLC is itdoes provide some protection in
terms of like liabilityprotection, uh, asset protection
of your personal assets andthings like that.
The downside is an an LLC is adisregarded entity for tax
(06:52):
purposes Similar to an S-corp,but without a lot of the S-corp
benefits, like being able totake a certain portion of your
income as distributions versussalary.
So with an LLC or with a regular10 99, uh, style of receiving
income where you pay, uh, tax.
Essentially you're paying inboth of those methods, you're
paying that fica.
(07:13):
That Social Security Medicaretax on the entire amount.
If you have the LLC route, thenyou have a little bit of
liability protection.
If you don't have an LLC andyou're purely, um, reporting all
of that income on your ScheduleC with no, um, with no corporate
structure, then in both of thosecases you're gonna be paying
(07:34):
FICA.
And without the LLC, you've gota little bit less liability
protection.
Now all you really wanna do hereis kind of weigh the pros and
cons, so.
If you're making under a hundredk in most cases, it might not be
worth the administrative burdenof having to do more advanced
bookkeeping, potentially havebookkeeping software, uh, pay
(07:55):
your CPA or your enrolled agentto file separate corporate
returns for you, things likethat.
Um, on the flip side though, anS-corp is a lot less likely to
get audited, so there are somepotential benefits there.
It's not a huge difference interms of what you're paying.
It's kind of like a.
For administrative costs andthings, it's, it's sort of a
plus or minus one or$2,000 peryear, maybe a little bit more.
(08:19):
Um, but not, not typically muchmore than that.
Um, so if you're like, Hey, I'mserious about business, we're
probably gonna be making ahundred thousand, 200,000, a
million dollars a year or more.
Then just structure wise, youare going to be, uh, benefited
by the S corp.
Or even if that's going tohappen in the, in the near or
midterm, it might still help tostructure as that.
(08:40):
And just in terms of likemindset, I find that having some
type of corporate structure andalso separating bank accounts
from personal to business helpsa lot because you think of your
business as its own entityversus, Hey, I'm just.
You know, a consultant now, it'sactually a real business to me
that that helped significantlywhen I was just getting started
thinking about it as, as reallyits own thing.
(09:01):
Like, I've got my marketing, mysales, I've gotta pay myself,
you know, adequately make surethere's actual profit being
generated, et cetera.
So those are a bunch ofdifferent things to consider
there, uh, when you're thinkingabout the corporate structure
and the best way to do it.
And again, as I said at thebeginning of this video.
Whether, you know, you're makingmoney as an independent
(09:21):
contractor, whether you'remaking money, even selling tacos
on the street in Mexico, oryou're, you're out here
performing on, uh, you know, onthe, on the boardwalk, on the
Malecon in, in Vallarta, andplaying your guitar.
Technically letter of the law isyou have to report all of that
income to the United States, andwe'll get into how it works for
(09:44):
Mexico as well in a second.
But Uncle Sam is tracking whatyou do absolutely everywhere.
They have, uh, other reportingrequirements like FATCA and F
Bar that require actually filingreports for bank accounts and
investments that have more thana certain amount.
Of money, obviously consult yourCPA.
And they, they can help you getinto the details of that.
(10:05):
But the US government hasastounding power of being able
to track what you do worldwide,um, no matter what.
So that's something to be awareof and you always, always,
always want to file and pay inthe us Now let's get to Mexico.
So Mexico is one of thosecountries where it's a
relatively high tax country,even compared to the us.
(10:28):
But most people in Mexico don'treally pay taxes, especially if
they're, if they're freelancersor if they're working for, um,
let's say a foreign company andthey're expats.
Realistically speaking, there'sa huge difference between what
the letter of the law says andwhat's actually happening on the
ground.
But we'll get into the detailsnow of what the law says you are
(10:49):
supposed to do and how to becompliant and all of that.
Um, but take some of thosethings with a grain of salt.
First, if you're a non-resident,then you only pay tax on Mexico
based income.
For example, Airbnbs businesseswith clients physically in
Mexico that are requiringelectronic invoices or uras as
we call them here, you'redefinitely going to pay taxes on
(11:11):
that.
Even if you're a non-resident,but as a non-resident, which
means that your central of vitalinterest is not in Mexico.
Maybe you, you have a secondhome here, you're living here a
couple months out of the year,but your central vital interest
like businesses and main, mainbank accounts and everything
else are outside of Mexico.
Then you're typically considereda non-resident for tax purposes.
(11:34):
But when any of those criteriathat I mentioned above apply,
uh, IE you've got your principalcenter of influence here.
Uh, you've got a home purchasedhere that you actually use for
your primary residence.
You've got a business here, oragain, any of these can be true
or you're spending 183 or moredays per year.
(11:55):
In Mexico then typically you areconsidered a tax resident and
there is a progressive tax inMexico of up to at the highest
tier.
It's a marginal tax system, verysimilar to the us.
It's up to around 35% and thatis on worldwide income.
If you are a shareholder andyou're receiving distributions
(12:16):
from a foreign ore.
Mexican based corporation.
They also do tax you 10% on thedistributions.
Now to be clear, it's 10% on thenet of what you already, uh,
declared as your net incomeminus that ISR tax, which is
that up to 35% ISR, which uh,stands for ITOs.
(12:36):
So.
So Renta here is essentiallyyour, your income.
It's a little confusing not tobe confused with the rent that
you're paying.
Um, so whatever your net incomewas that you declared, minus a
credit for whatever you paidunder the ISR regime, you're
getting an additional 10%dividend tax on that amount
(12:56):
because it's essentiallycategorized as passive income or
shareholder income.
Uh, now.
First of all, uh, we'll, we'lltalk here about one of the
things that can help you, evenif you are paying and declaring
taxes in both countries becauseyou are a tax resident and you
haven't been advised that maybethere are some loopholes or ways
around it, um, by your, yourspecific, uh, tax, pr, prepare,
(13:21):
or tax, uh, accountant here inMexico.
There are, there are exclusions,there are treaties, there are
certain things like that.
So first and foremost.
You're not gonna be doubletaxed.
In both countries, there is atax treaty between the US and
Mexico.
So let's say as an example,you're paying$10,000 per year in
total tax in Mexico.
(13:42):
I.
And that$10,000 a year is likelygoing to be, depending on the
the income, right?
Let's assume that it's more thanthe tax you would pay in the us.
So if the tax on your givenincome is$10,000 per year in
Mexico, but it would've onlybeen$8,000 per year in the us.
You're not paying$18,000combined tax.
Instead that$8,000 of tax in theUS is offset by the tax that you
(14:07):
would pay in Mexico.
Uh, likewise, if for whateverreason in the US or in your home
country, I.
The total tax due to thegovernment would've been higher
than what you would owe inMexico.
Well, you can still claim thatcredit.
So you, you're not gonna also bedouble taxed in Mexico.
That's something, uh, that is,is worth noting.
(14:29):
And in most cases you can kindof choose and say, you know
what?
I'm going to, to pay like my,uh, my federal income tax in the
us and then you can just pay thedifference.
To Mexico.
Um, there are some nuancesthere.
Again, you wanna make sure thatyou.
Consult with a qualified taxprofessional in both countries.
(14:49):
Um, remember, you can always goto entrepreneur
expat.com/consult and you may,uh, qualify for a free
consultation, or we can actuallyactually connect you to some of
those people in our network thatare, that are gonna help look at
your individual.
Unique situation and tell youwhat you need to do.
Now, in most cases, anotherbenefit of of let's say retiring
to Mexico is for the most part,that retirement fund, like that
(15:11):
pension that you're receivinghere, is not going to be taxed
in Mexico, at least below, uh, acertain amount.
So.
The tax advisor can help youwith the specific details of
that, but typically they're,they're looking more for active
income that you're actuallyworking and you're receiving or
dividend income where you'regetting a return on some type of
capital investment.
(15:31):
Like I said at the beginning ofthis video, there are a lot of
gray areas here in the tax codein Mexico.
And the enforcement from what,what we've heard, right?
This is not legal advice of anykind, but after talking to
dozens of attorneys,accountants, expats, most expats
in Mexico are not being forcedto pay or are not typically
(15:55):
declaring foreign income ontheir Mexican tax returns, or in
most cases, if they don't haveincome.
Inside of Mexico, like thebusinesses locally here, like
the Airbnb or rental propertyincome, most of them are just
kind of not declaring taxes andthey're sliding under the radar.
And some of them have been ableto go five, 10 plus years and
(16:17):
not have any issues.
But it's important, again, tocheck your specific situation
because you never know whenenforcement might get a little
bit, uh, more.
Strict when they might changethe regulations.
And frankly, the, the sat, whichis the Mexican equivalent of the
IRS, does have a lot ofresources.
(16:37):
So, uh, they, they do haveresources electronically to see
what your bank accounts have inthe US because of different
information sharing agreementsbetween the US and Mexico.
They have the ability to look atyour investment accounts, your
potentially your tax returns,everything like that.
And also even see what types ofinvestments and properties you
own in other countries aroundthe world.
(16:59):
So do they have the resources togo after expats?
No, uh, at least not at thispoint because they haven't done
it.
Do they want to lose the, thebase of.
Other revenue that those expatsare bringing into the country by
going after them for taxes orback taxes?
Probably not.
Are we going to see them goingafter expats for foreign hundred
(17:20):
income at some point in the, inthe near future, in the next,
let's say two to five years?
Most likely not from what we'veheard, but it's always good to
know what, what your liabilitiesare and try to stay, uh, at
least as compliant as possiblewhenever you can be.
Now, I'll tell you guys aboutanother way to save on taxes
(17:43):
while staying fully compliant inMexico, especially if you're
here long term.
And that is called the or reficto, which means that you only
pay one to 2.5% tax on grossincome in Mexico.
In addition to gross incomeoutside of Mexico, while you are
a tax resident here, that one totwo per uh, that one to 2.5% tax
(18:07):
is on all of your grossreceipts.
You're not able to use anydeductions.
But the cool thing is if you'remaking under$200,000 a year, at
least in gross receipts, andyour expenses are not super
high, let's say you're aconsultant, especially if you're
working with Mexican businesseshere, well, you're gonna end up
paying.
At the end of the day,significantly less tax than if
(18:27):
you were to go through thenormal ISR regime.
But you, you should also notethat you have to pay and declare
taxes on all of your globalincome in the us, but you can
still use the foreign to earnincome exclusion in the US
because in that case, if you'reusing that reco regime, you're
probably gonna pay a smallamount in Mexico and a slightly
(18:47):
larger amount in the us, but youcan offset.
In, in most cases, the majorityof what you would, would, uh,
end up paying in the US throughthat foreign earned income
exclusion.
And in most cases you still willhave to pay social security and
Medicare taxes just as if youare making money in the us.
But your total tax bill, ifyou're able to qualify for das
(19:09):
l, is likely gonna be lower thanif you were paying into the US
tax system plus the standard ISRin Mexico.
One very important thing tonote, and again.
There are differences betweenthe letter of the law and the
enforcement here, but accordingto the rules of reco, you have
to completely, um, not have asingle shareholding interest in
(19:32):
any company in the Mexico, uh,within Mexico or foreign company
if you want to be able toqualify for that simplified tax
regime.
So it would mean that youweren't, would not be able to
have, let's say, an LLC or anS-corp in the us.
If you wanted to qualify forthat because they're, they're
looking to tax you on that oneto 2.5% on your, your gross
(19:53):
income or your gross receipts.
And if you were receiving that,let's say as a contractor from a
company that you own, well, youcould always claim all of the
deductions in the US and thenalso say, well, I'm only gonna
pay that aco, uh, lower taxregime in Mexico doesn't really.
Like that, you would essentiallyhave to bill your clients as a
independent contractor, as a 1099 type of contractor, not have
(20:15):
any corporate structure, and youcould not have any shares or
controlling influence over acompany in Mexico or anywhere
else in the world.
And like I mentioned before, um,when you, when you look at just
Mexico generated income, theAirbnb income, the uh.
Restaurant income, maybe youopen a cafe, you, you buy or
(20:37):
sell property here, you'redefinitely going to be
responsible for taxes on that.
That is very well tracked.
There's absolutely no other wayaround it.
So if you are, let's say,working for a Mexican employer,
or you're working for a USemployer and they've got
everything set up.
Uh, with a tax system here inMexico, which legally they would
be required to have.
If you are working remotelyfull-time from Mexico, well,
(20:59):
typically you're either directlyin the tax system, uh, with Uras
either receiving or sendingthose electronic invoices.
They have data over exactly whatyou're doing.
And you are absolutely obligatedto file and pay.
Uh, and there's very little wayaround it.
If you're working for anemployer that is registered in
Mexico, then they're typicallyremitting those taxes directly
(21:22):
to the government.
Now, there's also another tax inMexico that you should be aware
of, and this is how, franklythey make.
Most of the revenue here, uh,because most Mexicans do not pay
income tax or at least incometax on the majority of money
they're actually making.
So they decided to add what'scalled eva, which is a value
(21:43):
added tax, and that is taxed onall goods and services, not just
physical products that youpurchase here in Mexico except
for food and medicine.
And it also applies to mostimports for things bought online
and sent physically into Mexico.
Even including, Hey, I boughtsome stuff on eBay.
(22:03):
Had it sent to, in this case,you know, Amanda's parents'
house in Miami and they forwardit to me.
I still have to declare a valueon those items and still pay
that eva.
And in some cases, because it'sbeing sent from out of the
country, there are also, uh,different duties that are
applied to that as well.
So you might, if you have to buythings from outside of the
(22:23):
country and have them shippedin, you typically are paying eva
and in some cases even duties ontop of that.
So in total you might pay that16% Eva plus.
Five, 10, 15% duties dependingon the category.
And, um, yeah, that, thatcombined amount might be as high
as like 25 or 30%.
So that's something to be awareof.
One thing though that is, iskind of helpful is that most,
(22:46):
uh, establishments here, whetherthat's a shop, whether that's a
restaurant, or even if you buythings online, let's say from
Amazon, within Mexico, fromtheir Mexican website or other
online retailers, typically theygo, they're going to have that
EVA included as well as any.
Duties that they've paid toimport those goods into the
country, they're gonna have thatactually baked into the price.
(23:07):
So when you go to a restauranthere and you see.
A price of 200 pesos for a meal.
It's not that they're gonnacharge you sales tax on top of
that, like they do in the us.
You might see like a seven to10% sales tax or even slightly
more depending on the countythat you're in, in the US and
the state.
Um, here, all of it's baked intothe price.
So this was a.
(23:28):
Definitely not comprehensiveguide to taxes for us expats
living in Mexico, but ascomprehensive as I could make it
for the, the, the venue that wehave here and the time and
space.
Um, obviously if you want moreinformation, you definitely
should schedule a consult withour team.
You canapply@entrepreneurexpat.com.
(23:49):
Slash consult will pop that onthe screen and below this video
as well, and we can help you getstarted with your entire plan to
move to Mexico, how you canoptimize taxes between
potentially multiple countries.
Uh, what ways are to, forexample.
Live a certain number of days inone country, live a certain
number of days in anothercountry, and not fit into the
(24:11):
tax net of any country.
Uh, there those are someadvanced strategies that we talk
about during our relocationconsult, as well as when we, um,
work with you on a one-on-onebasis to optimize your tax
strategy, your relocationstrategy.
Get your second residence, yoursecond passport.
So book thatbelow@entrepreneurexpat.com.
(24:31):
And as always, thank you so muchfor being a subscriber of this
channel.
Uh, it's, it's really you guysthat, that motivate us to
produce all of this content and,uh, get this all out to you.
So we're, we're doing our bestto be as informative as possible
and help you as much as you can.
Uh, like this video, it helps usa ton with the algorithms.
(24:51):
And if you're not alreadysubscribed.
Please subscribe as well, anddon't forget to book that
consult below.
Thank you so much, and we willsee you again next time.
Did you know that no matterwhere you live in the world, you
(00:02):
still need to declare andusually pay taxes to Uncle Sam.
If you are a US citizen, one ofthe most complicated things to
sort out when living overseas istaxes.
Specifically, where do I reporttaxes and how much do I pay to
which country?
In this video, we're gonna talkabout international tax planning
basics for US expats in Mexico.
(00:23):
Welcome to Entrepreneur Expat.
On this channel, we talk abouteverything to do with living
overseas, generating incomeremotely, and building the life
of your dreams abroad.
If that's something you'reinterested in, definitely check
out the free resources belowthis video, including our Moving
to Mexico Guide, and you canalso get a consultation.
(00:43):
With our team, absolutely forfree, if you qualify by going to
entrepreneur expat.com/consult,and we'll put that below the
video for you as well.
And as always, this is not to beconstituted as any sort of
professional, legal, or taxadvice.
Always, always, always make surethat you do your own due
diligence and consult with a taxprofessional in whatever country
(01:06):
you're in.
Like a lot of thoseprofessionals that we have in
our network.
And if you'd like to get moreinformation on our international
tax planning sessions with thosecertified professionals, as well
as other white glove relocationservices that we offer.
And get your own plan set up.
Make sure that you go to thatURL, and that again is
entrepreneur expat.com/consult.
(01:28):
So first we're gonna talk alittle bit about the most common
questions that we get, which arehow do taxes work in the US if
I'm a US citizen, but I amliving overseas in Mexico.
How do I file my US taxes?
Uh, how do I optimize my UStaxes?
And how does all of that work?
So first and foremost, UScitizens, regardless of where
(01:52):
they are in the world, must filetaxes every single year.
There are a few smallexceptions.
Like if your income is super,super low, um, like under a few
thousand dollars a year, thenmaybe you can get away with not
doing it.
Um, but there's also caveatswhere if you've got certain
other types of income, likepassive income, you still do
(02:13):
have a filing requirement.
So with very few exceptions,you've gotta file.
And usually pay to the USgovernment every single year,
and we'll get into some of thedifferent, um, exclusions and
other benefits that you can reapas an expat.
But it's important to note thatjust living outside of the US,
even if you're permanentlyliving outside of the us, uh,
(02:36):
does not exclude you fromreporting and filing on that
global.
Income.
And unfortunately the US kind ofhas their reach all over the
world in terms of being able tosee, uh, where you bank, what
kind of income you have comingin, whether that's active income
or passive income.
And it's one of only twocountries in the world,
(02:56):
including RIA and Africa, uh,that actually goes after, uh,
their citizens for worldwideincome, even when they're not
even living in the country.
So there's two main ways thatyou can, uh.
Make money as an entrepreneur inthe US and those ways are,
you've got either a corporatestructure such as an S corp,
(03:19):
which is a little bit more taxadvantageous for people making
over a hundred k per year in netprofit.
The reason is because with thisS Corp structure, you only have
to pay your FICA tax or yourSocial security and Medicare
tax, um, on the portion.
That is considered your salary,like your owner's salary, and
(03:39):
typically you can split your netprofit, so to speak, right?
Like what your company.
Makes minus what the actualcompany expenses are between a
reasonable salary that you payyourself, which might be 40 or
50 or 60% of that remainder ofyour revenue.
Uh, and then the rest of it canbe attributed to dividends.
(04:00):
And on dividends you typicallydo not have pay that F tax.
So that's one of the highesttaxes you'll pay at 15.3%.
And yes, you do get some benefitfrom it at the end of the day,
like when you do decide to takeSocial security, I.
If it still exists when youretire?
I'm not sure if it will by thetime I'm ready to, to quote
retire, but, uh, it's not likeyou get nothing for that.
(04:23):
You do do at least getsomething.
It goes towards social security,it goes towards Medicare.
So you do have some practicalbenefit at the end of the day.
But typically what people wantto do is renew, reduce that to a
reasonable amount.
If you're at that level whereyou're making a hundred K or
more, then it might beadvantageous to set up a
structure like that.
One thing that I'll interjecthere as well, uh, that a lot of
(04:45):
people ask us about is statetax.
And if you're in a, a state thathas state tax such as
California, um, or Oregon orArizona or many other states
that do.
Uh, that do levy a state incometax.
You do also want to de domicileyourself, which might mean
getting a mailbox in a statelike Texas or Florida and
(05:07):
essentially telling that hightax state that you're leaving,
that you're no longer part ofthat state, and that all US
based communications and thingswill go to somewhere in a state
that is not.
Uh, going to tax you on thatincome.
So that's also very importantbecause we've had clients that
unfortunately we've had to help,you know, retroactively go and
(05:28):
fix some of these things wherethey may be left to Mexico and
they were even able to excludethe income tax, uh, on the
federal, basically the federalincome tax portion through
things like the 400 incomeexclusion.
But they were still domiciled ina state.
That did levy that state tax.
So you, you want to absolutelytake that into consideration.
(05:50):
So the other way of receivingyour income as an entrepreneur
in the US because your US orCanada, which which is similar
in some regards to what we'retalking about here.
Um, if you're, if your base ofclients is in the US or Canada,
typically you'll still want tohave.
Some type of corporate structureset up there because it's easier
for clients to pay and whatnot.
(06:10):
Um, or at least have paymentprocessing and things like that
in, in your home country becauseyour clients may not want to pay
a Mexican company and have tosend wires or do things that are
a little bit more, morecomplicated, um, in terms of
just your, your branding and,and, uh, how you relate to your
clients.
So the other way to do it, ifyou're planning on receiving
(06:30):
less than a hundred K per yearin.
Net income or net profit is, youcan always set up an LLC if
you'd like.
And the benefit of the LLC is itdoes provide some protection in
terms of like liabilityprotection, uh, asset protection
of your personal assets andthings like that.
The downside is an an LLC is adisregarded entity for tax
(06:52):
purposes Similar to an S-corp,but without a lot of the S-corp
benefits, like being able totake a certain portion of your
income as distributions versussalary.
So with an LLC or with a regular10 99, uh, style of receiving
income where you pay, uh, tax.
Essentially you're paying inboth of those methods, you're
paying that fica.
(07:13):
That Social Security Medicaretax on the entire amount.
If you have the LLC route, thenyou have a little bit of
liability protection.
If you don't have an LLC andyou're purely, um, reporting all
of that income on your ScheduleC with no, um, with no corporate
structure, then in both of thosecases you're gonna be paying
(07:34):
FICA.
And without the LLC, you've gota little bit less liability
protection.
Now all you really wanna do hereis kind of weigh the pros and
cons, so.
If you're making under a hundredk in most cases, it might not be
worth the administrative burdenof having to do more advanced
bookkeeping, potentially havebookkeeping software, uh, pay
(07:55):
your CPA or your enrolled agentto file separate corporate
returns for you, things likethat.
Um, on the flip side though, anS-corp is a lot less likely to
get audited, so there are somepotential benefits there.
It's not a huge difference interms of what you're paying.
It's kind of like a.
For administrative costs andthings, it's, it's sort of a
plus or minus one or$2,000 peryear, maybe a little bit more.
(08:19):
Um, but not, not typically muchmore than that.
Um, so if you're like, Hey, I'mserious about business, we're
probably gonna be making ahundred thousand, 200,000, a
million dollars a year or more.
Then just structure wise, youare going to be, uh, benefited
by the S corp.
Or even if that's going tohappen in the, in the near or
midterm, it might still help tostructure as that.
(08:40):
And just in terms of likemindset, I find that having some
type of corporate structure andalso separating bank accounts
from personal to business helpsa lot because you think of your
business as its own entityversus, Hey, I'm just.
You know, a consultant now, it'sactually a real business to me
that that helped significantlywhen I was just getting started
thinking about it as, as reallyits own thing.
(09:01):
Like, I've got my marketing, mysales, I've gotta pay myself,
you know, adequately make surethere's actual profit being
generated, et cetera.
So those are a bunch ofdifferent things to consider
there, uh, when you're thinkingabout the corporate structure
and the best way to do it.
And again, as I said at thebeginning of this video.
Whether, you know, you're makingmoney as an independent
(09:21):
contractor, whether you'remaking money, even selling tacos
on the street in Mexico, oryou're, you're out here
performing on, uh, you know, onthe, on the boardwalk, on the
Malecon in, in Vallarta, andplaying your guitar.
Technically letter of the law isyou have to report all of that
income to the United States, andwe'll get into how it works for
(09:44):
Mexico as well in a second.
But Uncle Sam is tracking whatyou do absolutely everywhere.
They have, uh, other reportingrequirements like FATCA and F
Bar that require actually filingreports for bank accounts and
investments that have more thana certain amount.
Of money, obviously consult yourCPA.
And they, they can help you getinto the details of that.
(10:05):
But the US government hasastounding power of being able
to track what you do worldwide,um, no matter what.
So that's something to be awareof and you always, always,
always want to file and pay inthe us Now let's get to Mexico.
So Mexico is one of thosecountries where it's a
relatively high tax country,even compared to the us.
(10:28):
But most people in Mexico don'treally pay taxes, especially if
they're, if they're freelancersor if they're working for, um,
let's say a foreign company andthey're expats.
Realistically speaking, there'sa huge difference between what
the letter of the law says andwhat's actually happening on the
ground.
But we'll get into the detailsnow of what the law says you are
(10:49):
supposed to do and how to becompliant and all of that.
Um, but take some of thosethings with a grain of salt.
First, if you're a non-resident,then you only pay tax on Mexico
based income.
For example, Airbnbs businesseswith clients physically in
Mexico that are requiringelectronic invoices or uras as
we call them here, you'redefinitely going to pay taxes on
(11:11):
that.
Even if you're a non-resident,but as a non-resident, which
means that your central of vitalinterest is not in Mexico.
Maybe you, you have a secondhome here, you're living here a
couple months out of the year,but your central vital interest
like businesses and main, mainbank accounts and everything
else are outside of Mexico.
Then you're typically considereda non-resident for tax purposes.
(11:34):
But when any of those criteriathat I mentioned above apply,
uh, IE you've got your principalcenter of influence here.
Uh, you've got a home purchasedhere that you actually use for
your primary residence.
You've got a business here, oragain, any of these can be true
or you're spending 183 or moredays per year.
(11:55):
In Mexico then typically you areconsidered a tax resident and
there is a progressive tax inMexico of up to at the highest
tier.
It's a marginal tax system, verysimilar to the us.
It's up to around 35% and thatis on worldwide income.
If you are a shareholder andyou're receiving distributions
(12:16):
from a foreign ore.
Mexican based corporation.
They also do tax you 10% on thedistributions.
Now to be clear, it's 10% on thenet of what you already, uh,
declared as your net incomeminus that ISR tax, which is
that up to 35% ISR, which uh,stands for ITOs.
(12:36):
So.
So Renta here is essentiallyyour, your income.
It's a little confusing not tobe confused with the rent that
you're paying.
Um, so whatever your net incomewas that you declared, minus a
credit for whatever you paidunder the ISR regime, you're
getting an additional 10%dividend tax on that amount
(12:56):
because it's essentiallycategorized as passive income or
shareholder income.
Uh, now.
First of all, uh, we'll, we'lltalk here about one of the
things that can help you, evenif you are paying and declaring
taxes in both countries becauseyou are a tax resident and you
haven't been advised that maybethere are some loopholes or ways
around it, um, by your, yourspecific, uh, tax, pr, prepare,
(13:21):
or tax, uh, accountant here inMexico.
There are, there are exclusions,there are treaties, there are
certain things like that.
So first and foremost.
You're not gonna be doubletaxed.
In both countries, there is atax treaty between the US and
Mexico.
So let's say as an example,you're paying$10,000 per year in
total tax in Mexico.
(13:42):
I.
And that$10,000 a year is likelygoing to be, depending on the
the income, right?
Let's assume that it's more thanthe tax you would pay in the us.
So if the tax on your givenincome is$10,000 per year in
Mexico, but it would've onlybeen$8,000 per year in the us.
You're not paying$18,000combined tax.
Instead that$8,000 of tax in theUS is offset by the tax that you
(14:07):
would pay in Mexico.
Uh, likewise, if for whateverreason in the US or in your home
country, I.
The total tax due to thegovernment would've been higher
than what you would owe inMexico.
Well, you can still claim thatcredit.
So you, you're not gonna also bedouble taxed in Mexico.
That's something, uh, that is,is worth noting.
(14:29):
And in most cases you can kindof choose and say, you know
what?
I'm going to, to pay like my,uh, my federal income tax in the
us and then you can just pay thedifference.
To Mexico.
Um, there are some nuancesthere.
Again, you wanna make sure thatyou.
Consult with a qualified taxprofessional in both countries.
(14:49):
Um, remember, you can always goto entrepreneur
expat.com/consult and you may,uh, qualify for a free
consultation, or we can actuallyactually connect you to some of
those people in our network thatare, that are gonna help look at
your individual.
Unique situation and tell youwhat you need to do.
Now, in most cases, anotherbenefit of of let's say retiring
to Mexico is for the most part,that retirement fund, like that
(15:11):
pension that you're receivinghere, is not going to be taxed
in Mexico, at least below, uh, acertain amount.
So.
The tax advisor can help youwith the specific details of
that, but typically they're,they're looking more for active
income that you're actuallyworking and you're receiving or
dividend income where you'regetting a return on some type of
capital investment.
(15:31):
Like I said at the beginning ofthis video, there are a lot of
gray areas here in the tax codein Mexico.
And the enforcement from what,what we've heard, right?
This is not legal advice of anykind, but after talking to
dozens of attorneys,accountants, expats, most expats
in Mexico are not being forcedto pay or are not typically
(15:55):
declaring foreign income ontheir Mexican tax returns, or in
most cases, if they don't haveincome.
Inside of Mexico, like thebusinesses locally here, like
the Airbnb or rental propertyincome, most of them are just
kind of not declaring taxes andthey're sliding under the radar.
And some of them have been ableto go five, 10 plus years and
(16:17):
not have any issues.
But it's important, again, tocheck your specific situation
because you never know whenenforcement might get a little
bit, uh, more.
Strict when they might changethe regulations.
And frankly, the, the sat, whichis the Mexican equivalent of the
IRS, does have a lot ofresources.
(16:37):
So, uh, they, they do haveresources electronically to see
what your bank accounts have inthe US because of different
information sharing agreementsbetween the US and Mexico.
They have the ability to look atyour investment accounts, your
potentially your tax returns,everything like that.
And also even see what types ofinvestments and properties you
own in other countries aroundthe world.
(16:59):
So do they have the resources togo after expats?
No, uh, at least not at thispoint because they haven't done
it.
Do they want to lose the, thebase of.
Other revenue that those expatsare bringing into the country by
going after them for taxes orback taxes?
Probably not.
Are we going to see them goingafter expats for foreign hundred
(17:20):
income at some point in the, inthe near future, in the next,
let's say two to five years?
Most likely not from what we'veheard, but it's always good to
know what, what your liabilitiesare and try to stay, uh, at
least as compliant as possiblewhenever you can be.
Now, I'll tell you guys aboutanother way to save on taxes
(17:43):
while staying fully compliant inMexico, especially if you're
here long term.
And that is called the or reficto, which means that you only
pay one to 2.5% tax on grossincome in Mexico.
In addition to gross incomeoutside of Mexico, while you are
a tax resident here, that one totwo per uh, that one to 2.5% tax
(18:07):
is on all of your grossreceipts.
You're not able to use anydeductions.
But the cool thing is if you'remaking under$200,000 a year, at
least in gross receipts, andyour expenses are not super
high, let's say you're aconsultant, especially if you're
working with Mexican businesseshere, well, you're gonna end up
paying.
At the end of the day,significantly less tax than if
(18:27):
you were to go through thenormal ISR regime.
But you, you should also notethat you have to pay and declare
taxes on all of your globalincome in the us, but you can
still use the foreign to earnincome exclusion in the US
because in that case, if you'reusing that reco regime, you're
probably gonna pay a smallamount in Mexico and a slightly
(18:47):
larger amount in the us, but youcan offset.
In, in most cases, the majorityof what you would, would, uh,
end up paying in the US throughthat foreign earned income
exclusion.
And in most cases you still willhave to pay social security and
Medicare taxes just as if youare making money in the us.
But your total tax bill, ifyou're able to qualify for das
(19:09):
l, is likely gonna be lower thanif you were paying into the US
tax system plus the standard ISRin Mexico.
One very important thing tonote, and again.
There are differences betweenthe letter of the law and the
enforcement here, but accordingto the rules of reco, you have
to completely, um, not have asingle shareholding interest in
(19:32):
any company in the Mexico, uh,within Mexico or foreign company
if you want to be able toqualify for that simplified tax
regime.
So it would mean that youweren't, would not be able to
have, let's say, an LLC or anS-corp in the us.
If you wanted to qualify forthat because they're, they're
looking to tax you on that oneto 2.5% on your, your gross
(19:53):
income or your gross receipts.
And if you were receiving that,let's say as a contractor from a
company that you own, well, youcould always claim all of the
deductions in the US and thenalso say, well, I'm only gonna
pay that aco, uh, lower taxregime in Mexico doesn't really.
Like that, you would essentiallyhave to bill your clients as a
independent contractor, as a 1099 type of contractor, not have
(20:15):
any corporate structure, and youcould not have any shares or
controlling influence over acompany in Mexico or anywhere
else in the world.
And like I mentioned before, um,when you, when you look at just
Mexico generated income, theAirbnb income, the uh.
Restaurant income, maybe youopen a cafe, you, you buy or
(20:37):
sell property here, you'redefinitely going to be
responsible for taxes on that.
That is very well tracked.
There's absolutely no other wayaround it.
So if you are, let's say,working for a Mexican employer,
or you're working for a USemployer and they've got
everything set up.
Uh, with a tax system here inMexico, which legally they would
be required to have.
If you are working remotelyfull-time from Mexico, well,
(20:59):
typically you're either directlyin the tax system, uh, with Uras
either receiving or sendingthose electronic invoices.
They have data over exactly whatyou're doing.
And you are absolutely obligatedto file and pay.
Uh, and there's very little wayaround it.
If you're working for anemployer that is registered in
Mexico, then they're typicallyremitting those taxes directly
(21:22):
to the government.
Now, there's also another tax inMexico that you should be aware
of, and this is how, franklythey make.
Most of the revenue here, uh,because most Mexicans do not pay
income tax or at least incometax on the majority of money
they're actually making.
So they decided to add what'scalled eva, which is a value
(21:43):
added tax, and that is taxed onall goods and services, not just
physical products that youpurchase here in Mexico except
for food and medicine.
And it also applies to mostimports for things bought online
and sent physically into Mexico.
Even including, Hey, I boughtsome stuff on eBay.
(22:03):
Had it sent to, in this case,you know, Amanda's parents'
house in Miami and they forwardit to me.
I still have to declare a valueon those items and still pay
that eva.
And in some cases, because it'sbeing sent from out of the
country, there are also, uh,different duties that are
applied to that as well.
So you might, if you have to buythings from outside of the
(22:23):
country and have them shippedin, you typically are paying eva
and in some cases even duties ontop of that.
So in total you might pay that16% Eva plus.
Five, 10, 15% duties dependingon the category.
And, um, yeah, that, thatcombined amount might be as high
as like 25 or 30%.
So that's something to be awareof.
One thing though that is, iskind of helpful is that most,
(22:46):
uh, establishments here, whetherthat's a shop, whether that's a
restaurant, or even if you buythings online, let's say from
Amazon, within Mexico, fromtheir Mexican website or other
online retailers, typically theygo, they're going to have that
EVA included as well as any.
Duties that they've paid toimport those goods into the
country, they're gonna have thatactually baked into the price.
(23:07):
So when you go to a restauranthere and you see.
A price of 200 pesos for a meal.
It's not that they're gonnacharge you sales tax on top of
that, like they do in the us.
You might see like a seven to10% sales tax or even slightly
more depending on the countythat you're in, in the US and
the state.
Um, here, all of it's baked intothe price.
So this was a.
(23:28):
Definitely not comprehensiveguide to taxes for us expats
living in Mexico, but ascomprehensive as I could make it
for the, the, the venue that wehave here and the time and
space.
Um, obviously if you want moreinformation, you definitely
should schedule a consult withour team.
You canapply@entrepreneurexpat.com.
(23:49):
Slash consult will pop that onthe screen and below this video
as well, and we can help you getstarted with your entire plan to
move to Mexico, how you canoptimize taxes between
potentially multiple countries.
Uh, what ways are to, forexample.
Live a certain number of days inone country, live a certain
number of days in anothercountry, and not fit into the
(24:11):
tax net of any country.
Uh, there those are someadvanced strategies that we talk
about during our relocationconsult, as well as when we, um,
work with you on a one-on-onebasis to optimize your tax
strategy, your relocationstrategy.
Get your second residence, yoursecond passport.
So book thatbelow@entrepreneurexpat.com.
(24:31):
And as always, thank you so muchfor being a subscriber of this
channel.
Uh, it's, it's really you guysthat, that motivate us to
produce all of this content and,uh, get this all out to you.
So we're, we're doing our bestto be as informative as possible
and help you as much as you can.
Uh, like this video, it helps usa ton with the algorithms.
(24:51):
And if you're not alreadysubscribed.
Please subscribe as well, anddon't forget to book that
consult below.
Thank you so much, and we willsee you again next time.
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