Residence and Taxation in Mexico

Today we are going to show you a residence option in a fascinating country, Mexico. This country offers the possibility of obtaining both a residence permit and the tax residency, which, as you may know, are not necessarily the same thing. Both options can be interesting, depending on your individual circumstances.

Mexico has always been on the radar as an attractive place to live and enjoy life following the Flag Theory. However, until now, we have hardly talked about Mexico as a country for personal residence or investment, only naming it for the possibilities it offers for obtaining a second nationality or, during the COVID era, as a place to escape from control and restrictions. This is because it was not, in general, an interesting place for tax residence. However, this has recently changed.

Now, let us see why Mexico can be an attractive option for our clients and readers.

Advantages of residing in Mexico

First of all, Mexico offers several ways to obtain a residence permit, which are relatively quick and easy. Of course, to obtain the residency you will have to travel to the country, but you only need to stay there for 4 weeks until you obtain the permit. There are different options for obtaining a residence permit in Mexico, either a permanent permit or a temporary residence permit. These options include via income, savings, and investments —either in movable or immovable property in Mexico.

Secondly, the costs of obtaining residency in Mexico are relatively low compared to other countries, where obtaining a residency permit can cost $6,000 or 7,000, as is the case in the United Arab Emirates or Panama.

Finally, we must also take into account taxation in Mexico, specifically the advantages we have with the Simplified Trust Regime (RESICO).

Another advantage that Mexico has is that the requirements to stay in the country are quite low: it is not a country where you must spend a long time to apply for or even maintain a residence permit. The temporary permit is first granted for one year and can then be renewed for two, three or up to four years. After 4 years, you can choose to keep the temporary permit or you can apply for a permanent permit.

Mexico is a country with a high tax burden: personal income tax is 35%, corporate income tax is 30%, it has a long blacklist of tax havens, the general VAT rate is 16% (lower than in the EU, of course) and, in addition, it has a taxation system based on residence for worldwide income —i.e. it is not a country with territorial taxation like Panama or Paraguay, nor a tax-free country like the Emirates or the Bahamas.

This means that, if you have your tax residence in Mexico, you must pay tax on your worldwide income, whether you earn it in Spain, Brazil, the United States or wherever… You will always have to pay tax in Mexico.

Of course, to avoid paying taxes in several countries for the same event, Mexico has several double taxation agreements that set out how double taxation is treated and eliminated. But, in the end, you will always have to pay taxes in Mexico. The only thing is that, if you have paid taxes in another country, that generally acts as a tax credit against your Mexican taxes.

So, as we said, in general, Mexico is not generally attractive if it comes to taxes… but it can be for certain people. If you have the typical profile of a self-employed person, small businessman or even if you are a person who wants to invest in real estate in Mexico to rent it there, tax residency in Mexico combined with RESICO could be quite interesting. We will analyse the conditions and the existing brackets later.

On the other hand, if we are talking about reasons for wanting to move to Mexico, it is important to bear in mind that it is a growing economy with relative stability, despite changes in government. Mexico benefits greatly from its neighbour, the United States, a powerful economy on which it relies for growth. Thus, the increasing fiscal pressure in the US and the need for cheaper labour has led many companies in the automotive industry, such as BMW and General Motors, to set up factories in Mexico.

Mexico’s GDP has grown at around 2.8 —3% in the last 10 years, and they have a much lower public debt than most developed or developing countries. For example, all EU countries have a public debt to GDP ratio of more than 100%, such as Italy, Spain, Greece, Portugal and even the United States. Brazil, one of the BRIC countries, also has a high debt. Here we need to be aware that having low debt will allow for more future growth, because if you owe a lot of money, future growth will probably be limited by the need to pay that debt.

Beyond economics, we must also consider the quality of life, something you can also find in Mexico: Mexican food is excellent, and there are amazing places to visit, from the famous Caribbean and Pacific beaches to Cancun and Playa del Carmen. You also have metropolises like Mexico City, where you can find almost any product in the world. There are very beautiful areas, lots of culture everywhere, and it is very well connected —with great airports in Cancun and Mexico City.

Residency in Mexico

Now, let us look at the residency options available if we plan to reside or spend time in Mexico. In this sense we have the tourist visa, the temporary residency, and the permanent residency.

Tourist visa

The Mexican tourist visa has the advantage of offering one of the longest periods of stay in the world for most nationalities, including Schengen countries, the United States, and many Latin American countries, except for Honduras and the Dominican Republic.

On arrival in Mexico, you are granted a visa that allows a stay of up to 180 consecutive days. If you wish to stay longer, you need to leave the country and then re-enter. However, it is important to bear in mind that this visa only grants tourist status, which limits certain options such as working, opening bank accounts (which is possible, but more complicated), and making investments in a simple way.

To enter Mexico as a tourist, it is generally recommended to have proof of return or exit from the country. This can be a plane, bus or boat ticket showing that you intend to leave Mexico at the end of your visit. However, this is not a strict requirement and the final decision is at the discretion of the immigration officer at the point of entry.

As for the typical proof of accommodation, it is not a mandatory requirement to enter Mexico as a tourist. However, you may be asked for information about where you will be staying during your time in the country and you should certainly have a credible answer.

Be aware that if the immigration officer suspects that you intend to live or work in Mexico, you will be denied entry.

Temporary residence

If you are looking for a deeper connection to Mexico to, for example, establish your tax residence there (something which, as we said, can be quite attractive if we apply for the Simplified Trust Regime), you have two options: temporary residence or permanent residence.

Temporary residence is valid for up to 4 years, is initially granted for one year and can then be renewed for one year, two years, three years or up to four years. Once the four years have elapsed, one can continue with the temporary visa or opt for the permanent visa.

There are several ways to obtain a temporary residence visa in Mexico. Apart from the ones we are going to explain in this article, you could also apply for it as a student, for family reunification, or for employment purposes. However, the most common options for the typical profile of our clients, who tend to be investors and independent entrepreneurs, is for income, savings, or investments in Mexico.

One of the most interesting ways to apply for temporary residency is by presenting proof of income. If you can prove that for the last 6 months you have had an income of at least $3,400 per month, you would be eligible for temporary residency. If you wanted to include your spouse or dependent children, you would have to prove that you had an income of an additional $1,110 for each dependent. To prove income, you will usually need a payslip or bank statements showing the said income.

Another option that may be easier for many of our readers is to apply for savings. In this case you will need to show a minimum monthly balance of $55,500. They do not accept your balance in real estate investments or stocks: it must be a bank balance. You must have had a bank balance in the last 12 months that averaged at least $55,000. By proving that, you would be able to apply for temporary residence.

Finally, the other option is to make an investment in Mexico. If it is a real estate investment, the total must be more than $400,000. By buying one, two, three, or four houses, land, etc., that exceed this amount, you could apply for a temporary resident visa.

On the other hand, if you prefer to invest in movable assets, the amount is somewhat lower, $225,000 to invest in Mexican companies or other movable assets, whether in Mexican government bonds or any other.

Permanent residency

The advantage of a permanent resident visa over a temporary resident visa is that it does not expire, i.e. the status is granted indefinitely. You do have to renew the cards, but the permanent resident status does not expire and does not require you to spend a minimum amount of time per year in the country to renew it and not lose it. This makes it quite attractive.

To apply for permanent residency in Mexico, one option is to first go through temporary residency, but it is not obligatory, you could also get it through the income or savings route.

Thus, you could apply directly for permanent residency by justifying having had an income during the last six months of at least $5,600 per month (instead of the $3,400 required for temporary residency). If you have dependent children or a spouse, you will have to increase the amount by an additional $500 per additional person (slightly less than half of what is required for temporary residence).

If you opt for the savings route, you will need to demonstrate a minimum monthly balance of at least $225,000 (instead of the $55,500 for the temporary residence).

The third option for permanent residency is to have held a temporary resident visa for at least four years.

Tax residence in Mexico

As you are well aware (at least if you are a regular reader of our blog), tax residence determines in which country a person or company must pay taxes, a concept that is normally linked to the place where you live most of the time or where you have your centre of vital interests.

Unlike in neighbouring countries to the south, tax residents in Mexico are required to pay taxes in Mexico on income earned worldwide. This includes both incomes generated within the country and from abroad. And, of course, as a tax resident there, you must comply with Mexican tax rules and regulations, and will be subject to audits and reviews by the local tax authorities (the SAT).

In Mexico, there are several ways to be considered a tax resident. For example, a tax resident is any person, national or foreign, who establishes their home in the country. That is, if you have a residential property that is used as your habitual place of residence in Mexico, then you would be considered a tax resident there.

If you have a home or habitual residence in Mexico and also in another country, then your economic interests would be analysed to decide whether you are considered a tax resident in Mexico or not. If more than 50% of your total income comes from Mexico or if Mexico is the centre of your professional activities, you will become a Mexican tax resident.

For Mexican nationals this is a little different. In this case it is assumed, unless there is proof to the contrary (residence permit, tax certificate, registration in the municipal register, etc.), that you are a tax resident in Mexico.

In addition, it is interesting to note that if, as a Mexican citizen, you move to a country considered a tax haven by Mexico (countries with very low taxes) you will continue to be a Mexican tax resident during the year of the change of residence and the following five years. This is unless Mexico has an information exchange agreement in force with that country or a double taxation agreement with an information exchange clause. Therefore, if you are a Mexican citizen and you want to stop paying taxes there, you should generally use a country with which there is a signed agreement as a bridge country.

Be that as it may, for non-nationals interested in becoming tax residents in Mexico (e.g. because they want to stop being tax residents in another country or because they want to be protected by Mexico’s treaties), the key point here is this: if you have your habitual residence in Mexico and apply for RESICO, you would be considered tax residents and could obtain a tax certificate even if you spend very, very little time in the country.

On the other hand, if (without being nationals) you spend more than 183 days in Mexico, but you do not have a habitual residence or economic ties with Mexico (companies, investments, work), you would not become tax residents there. In other words, you could spend most of the year in Mexico, with a temporary residence permit or a tourist visa, and not pay taxes on your income as long as you receive it from a foreign source.

Prices of our services

Below you will find a description of our prices and services related to both residence and the special regime in Mexico.

You have the service of Residency in Mexico in two variants:

• Full Residency Support: $2,499 for the main applicant, $2,299 per dependent.
• Full support for Residency and RESICO: $2,999 for the principal applicant, $2,799 for each dependent requiring RESICO, $2,299 for dependents not requiring RESICO.

These packages include:

• Full 24/7 legal advice throughout the duration of the application.
• Compilation, compliance review, and due diligence of all necessary documentation, as well as handling all appointments and communications with immigration and consular officials.
• Communication with the National Migration Institute (transport and storage, legal advice, and representation).
• In the RESICO package: resolution of doubts and RESICO application.

If you just want assistance and guidance to do the residency and RESICO yourself, our partners can help you for $999.

If you sign up for any of the residency packages, you have access to the following additional services:

• RESICO application: $500 USD
• Residential property search, compliance verification, negotiation and signing: $650 USD
• Rental property search. This includes face-to-face negotiations and legal representation with tenants, as well as drafting and reviewing lease agreements: $350 USD.
• Annual tax return in Mexico: $400 USD per return.
• Legal representation in front of tenants and landlords for disputes: $300 USD per day.
• Completion of legal forms: $180 USD per form
• Review of legal documents: $25 USD per page
• Renewal of residency: $700 USD
• FMM (Forma Migratoria Múltiple) regularisation: $2,000 USD
• Acquisition of citizenship: Due to the complexity and variety of individual cases and circumstances, citizenship application services are quoted based on the estimated number of hours required to complete the process at a rate of $55 USD per hour.

If you would like to hire any of these services or need other customised services, please contact us and we will provide you with a personalised quote.

Process for acquiring residency in Mexico

To acquire residency in Mexico, you will need the following documents:

1. Passport (must be valid for at least 6 months and have at least one blank page for the visa sticker).
2. Photocopy of your passport (only the page with personal information).
3. Identification (driving licence, ID card, etc.).
4. One passport size photo.
5. Application form (duly signed and completed).
6. Letter addressed to the consulate requesting residency. The letter should state your address in Mexico, the intended duration of your stay and that you are aware that, as a holder of this type of visa, you are not allowed to work in Mexico.
7. Confirmation of the appointment printed on paper (PDF or number).
8. Payment of fee ($51 to be paid at the Consulate).
9. For minors: All applicants who are minors (under 18) must present an original birth certificate along with valid identification from both parents.

All documentation must be in original alongside with one copy, and must be submitted separately for each applicant.

The application process for residency in Mexico consists of two steps:

1. Apply for a resident visa. The visa consists of a sticker that is affixed to your passport and cannot be issued in Mexico; you must apply for them at a Mexican Consulate or Mexican Embassy. Resident visas are valid for 6 months, but only for one entry, which gives you enough time to complete step 2.
2. Obtain the Resident Card. When you arrive in Mexico, you must go to your local INM immigration office within 30 days of arrival and follow a procedure to exchange your resident visa for a resident card (a plastic card).

It is important to note that the waiting time until your card is issued is up to four weeks. During this time, you must remain in Mexico. If necessary, you can apply for a special permit to leave Mexico while waiting for your card.

The period of validity of your card will depend on the type of residency you have applied for. The permanent resident card has no expiry date. On the other hand, the Temporary Resident Card is issued for one year and can be renewed for 1, 2 or 3 years. Both cards allow you to apply for work permits, as well as to enter and leave Mexico as many times as you want.

It is important to note that renewals and replacements of Resident Cards can only be done in Mexico, at the INM office.

Obtaining Mexican citizenship

For those of you who are interested in the nationality flag, you will be happy to know that Mexico is particularly attractive in this regard. This is especially true for Latin American, Portuguese, or Spanish citizens. In such cases, after only two years in the country on a permanent or temporary visa, it is possible to apply for naturalisation and thus obtain a second passport in Mexico.

The Mexican passport is not one of the passports that gives you the most freedom of movement in the world, especially compared to those of the United States, Switzerland or, in general, those of the European Union. However, it is quite useful, as it allows you to travel to 153 countries in the world. 104 countries without a visa, 49 with a visa on arrival and 45 by applying for a visa. Moreover, unlike the US passport, it does not oblige you to pay taxes or file declarations simply because you are a citizen.

If you are not Latin American or Spanish, you will have to live in Mexico for five years before you are eligible for citizenship. However, if your spouse is Mexican or any of your children are born in Mexico, you could apply for citizenship after living there for only two years.

It is important to note that the naturalisation process requires time and connection to the country. At the time of application, you will have to submit a form reporting your entries and exits from the country and, if you have not spent enough time in Mexico, you will not be granted citizenship. In other words, you will not be granted citizenship simply because you have had a residence permit for two years and have been there for a few weeks per year. You should spend at least six months every year in Mexico —better if it can be more.

On the other hand, you will also have to pass a Spanish language test and a test on the general culture of Mexico.

Explaining the Régimen Simplificado de Confianza

The Régimen Simplificado de Confianza (RESICO) has been available since 1 January 2022, when it replaced the Régimen de Incorporación Fiscal (RIF).

The RIF was an optional taxation scheme for individuals with business activities earning up to two million pesos per year (about USD 116,000 currently). It offered a 100% income tax discount in the first year. After the first year, 3% tax was added, until you reached the normal 30% income tax after 10 years. In other words, you paid 0% in the first year, 3% in the second, 6% in the third, 9% in the fourth and so on. It is a regime that we have already advised to some of our clients who wanted to reside in Mexico before 2022.

But, now, let us go back to RESICO. This new regime also offers you interesting advantages, including, of course, reduced taxes. Under this regime you are not taxed on your economic activities at the general progressive rate, which is now (since 2013) 35%, but you are taxed between 1% and 2.5% up to a gross turnover of 3.5 million Mexican pesos per year, which is equivalent to approximately USD 205,000.

There are five brackets ranging from 1% to 2.5%. Thus, the first 30,000 pesos (around USD 1,750) are taxed at 1%, the next bracket up to 600,000 pesos (around USD 35,000) at 1.1%. Up to 1 million is taxed at 1.5%, up to 2.5 million at 2%, and from 2.5 million to 3.5 million is taxed at 2.5%. Although this taxation is applied on gross turnover (not on profit), it is quite attractive, especially in the case of professionals who have hardly any expenses to deduct.

Now, what income is taxed at this rate? Well, you can take advantage of this 1 to 2.5% on independent professional services, i.e. you will not be able to apply it if you are a salaried employee and have income from working for others.

So, for example, if you are a freelancer or self-employed consultant and you have clients abroad (as will be the case for most people interested in this option), you could be taxed under RESICO (in any case, there are also ways to be taxed under this regime if you have clients in Mexico). In principle, this special rate also applies to income from foreign companies that are fiscally transparent.

Apart from income from economic activities, certain income from real estate investments can also be taxed under this regime. If you wish to invest for rental purposes, rentals would be included in your self-employed turnover up to USD 200,000 per year. In this case, you would be taxed at just 2.5%.

As a Mexican tax resident in RESICO, Mexican rental income is taxed at 2.5%. However, you should bear in mind that rental income in other countries is generally taxed in those other countries and will most likely be taxed at higher rates.

Capital gains would not be covered by RESICO and are taxed under the general regime. In other words, while RESICO is ideal for a self-employed person, it is less so for a stock market investor or trader, as neither dividends nor capital gains are covered.

Finally, it should be noted that other activities such as agriculture, fishing or forestry can also be included in RESICO, although with some additional conditions.

To sum up, as the official information states, you can apply to RESICO if:

1. You are engaged in business and professional activities
2. You were part of the Tax Incorporation Regime (RIF).
3. You use or enjoy real estate (leasing)
4. You are engaged in agricultural, livestock, fishing or forestry activities.

You cannot apply to the special regime if you are a salaried worker.

In addition to the above requirements, another important one is that you cannot be a shareholder of a Mexican company and that your tax residence must be solely and exclusively in Mexico.

As a foreigner, if you wish to have clients in Mexico, you will need a Mexican work permit, which you can get, but it is not included in the residence permit or RESICO. A work permit is not required to work as an independent contractor or to provide independent professional services for foreign clients.

It is important to note that RESICO, unlike other special regimes, is not time-limited and does not differentiate between nationals and foreigners: it is available to all.

Concluding

In short, Mexico offers a great opportunity for those of us who want to apply the Flag Theory to get the most out of our lives. It offers us interesting options to invest, to get a second passport quickly and cheaply, to live in a Spanish-speaking place where you can feel comfortable, spend little and, at the same time, not pay many taxes; as well as to obtain a residence permit that we can use as a plan A or B.

We know that there are many people who are afraid of Mexico and, therefore, will not be interested in this option, but it is also a reality that there are many other people who are attracted to this great country and all the opportunities it offers, or who have already been there and have fallen in love with the country.

Of course, if you are not sure whether or not Mexico is the best option for you or if you want to know more about how it would work, you can book a Denationalize.me consultation. We can discuss how you can free yourself from your current tax residence, explore whether Mexico is an attractive option for your situation or whether it would be better to consider other alternatives such as, for example, the United Arab Emirates, Panama, Paraguay, Costa Rica, Malaysia, Malta, Cyprus, or many others.

On the other hand, if you have everything clear and you are ready to take the step to implement this Plan A or B in Mexico, just contact us. We will help you to acquire the residence permit and apply for the RESICO.