Landlord Tax and Immigration Requirements
If foreigners have income from a rental unit in Mexico – even if the funds are deposited in another country – it is considered revenue earned in Mexico. All landlords are required to register with SAT (Tax Administration Service) for taxes. This service is normally provided by an accountant.
A tourist may not earn income in Mexico and, therefore, may not be a landlord. A Temporary Resident, once registered with SAT as a landlord, must immediately apply for a “work visa,” officially known as Permiso Para Trabajar. You do not have 90 days to do so. A Permanent Resident may work, but again, you must register with SAT and inform Immigration, but this time you have 90 days to do so as a Permanent Resident.
I also recommend tenants check if the landlord is legally qualified to be a landlord and confirm that they will issue a proper receipt.
SAT officials do check social media and vacation rental sites, such as Facebook Groups and Airbnb, to locate property rentals throughout Mexico. If a landlord has not been reporting the income, the court may enforce penalties based on the area’s occupancy rate to arrive at a perceived rental income. This could potentially increase the actual taxable rental income to landlords, leading to a much higher cost.
Landlords must verify that they have been issuing CFDIs (Digital Tax Receipts by Internet) for their income from rentals. The CFDI is an electronic invoice that describes a good or service purchased, the transaction date, the cost, and the taxes corresponding to the payment of said transaction. Often, when a tenant does not pay the rent and the landlord chooses to go to court to claim the rent due, the judge will ask the landlord to show the CFDIs that prove the income. If the landlord cannot provide the CFDIs, the judge must notify SAT no later than five days after the deadline. At this point, the judge will rule in favor of the tenant, and the landlord will not be paid the rent due. In addition, the landlord will be visited by the SAT officials, leading to a judgment against the landlord.
Keep in mind the “power” of the tenant. If the landlord does not abide by the requirements regarding taxes, receipts, and, when applicable, Immigration – the tenant may withhold rent and remain on the property for months rent-free.
Renting or Leasing Your Home in Mexico
When the landlord resides outside of Mexico, either the tenant or the Mexican rental agent or the accountant is responsible for withholding and submitting the tax portion of the rent payment, depending on who collects the rent. If the rent goes directly to the owner in another country, the tenant must withhold and submit the tax.
Income Tax Calculation
Tax is paid by applying the rate of 25% on the income without any deductions.
How is Income Tax Paid?
When the landlord is in Mexico or those who retain a rental agent or accountant, that person calculates the tax and makes payments to the Tax Administration Service (SAT) on a monthly basis.
The person who withholds the tax must pay it no later than the 17th day of the following month in which the tax was deducted.
When payment is to be made by the landlord in Mexico who receives the rent directly, it must be paid within 15 days of the receipt of such income.
It would be an error to assume that because the income from the property is paid to a bank account in another country, you do not need to pay taxes on the property in Mexico. Any rental property in Mexico is subject to tax in Mexico, no matter which country or bank account the rent is paid to. When the landlord is a resident abroad, if the tenant is paying the landlord directly – they are responsible for withholding 25% and paying monthly, online or at a bank. If the payment to a non-resident landlord is made through a rental agent or accountant, the agent or accountant must calculate and pay the tax either online or through a bank teller.
If SAT detects a landlord is receiving income without the payment and declaration of taxes, the treasury may audit the landlord as far back as five years.
Obligation to Issue an Electronic Invoice
Landlords must issue electronic invoices (CFDI) for the income received and must meet the tax requirements on that income.
When the rent is paid to a trust, the trustee must issue tax receipts and withhold the corresponding amount.
Property owners that do not comply with these laws may lose their rights as the property owner, and face possible jail time, fines, deportation from Mexico and forced sale of the property.
Frequently, rent deposits are not returned by unscrupulous landlords. The deposit is to be returned in the manner in which it was paid. For example, if paid by a transfer of funds, it is to be returned in the same manner. If paid in cash, then the deposit is to be paid in cash. Trying to get back a deposit through legal means will take more effort and likely cost so much that most just walk away. The tenant has to do what is best for them to have the rent deposit returned when there is no reason for it not being paid. The tenant may want to insist, when about to pay the last month’s rent, to use the deposit for that purpose.