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Join us in this insightful discussion with the co-founder of Outbound Mexico, Miguel Leon, as we delve into the complexities of Mexico’s legal taxation, and expat life. Our expert guest from Outbound Mexico sheds light on common misconceptions, tax considerations, investment opportunities, and even the digital nomad visa situation in Mexico. Whether you’re a retiree, expat, or potential investor, this conversation offers valuable insights into successfully navigating legal and financial matters in Mexico.
TIMESTAMPS:
0:00 Introduction
9:42 Misconceptions about Legal Systems in Mexico
20:33 Misconceptions about Crime in Mexico
29:18 What about Taxation System (Hacienda)?
40:49 What is Considered to be a non-resident in Mexico for tax purposes?
47:12 What are the Investment Opportunities for Retirees in Mexico (including expats)?
53:11 Digital Nomad Visa and Mexico’s Approach
Emily: Hello, hello everyone. And today, our topic is dissolving misconceptions about Mexico, legal and lifestyle aspects. And for introduction, I can tell you is that I’m Emily Bron. Owner of International Lifestyle Consulting and myself expat in Mexico.
And I spend my time between Mexico and my home in Toronto for the business purposes. And today with me is one of the SEOs. Owners of Outbound Mexico Legal Company Miguel Leon. And I have pleasure to introduce this bright person Miguel. Please tell a little bit about yourself.
Miguel: Thank you very much, Emily.
First of all, thank you for having me here. It’s always a pleasure to be able to talk to your audience and be collaborating with you in this type of events. Very nice to meet you everyone. My name is Miguel Leon. I am a lawyer here in Mexico City. I specialize in international law regarding Mexico.
More in the specific, I specialize in immigration law and international taxes, as well as civil law and commercial law here in Mexico. As Emily said, I am the partner and co founder of Outbound Mexico and Outbound Mexico is a recently launched company, which provides with legal services for foreigners in Mexico.
Its main goal is to make relocation to Mexico in the legal field as seamless and smooth as possible. Our main focus is in providing with expats and people not from Mexico with cost efficient and time efficient and simple ways in which they can understand law and they can successfully relocate to Mexico from delving easily into the, you know, Mexican law, basically. That’s what we do. My original background is in corporate law. I was a few years during my career during corporate law. After that, I decided to make a you know, dive into the entrepreneurial lifestyle and decided to found Outbound Mexico with you know, other partners of my university.
I studied at itam, which is a pretty renowned uni. Law school here in Mexico University. And yes, so the past couple of years, I’ve been delving into the international characteristics of relocating to Mexico in the legal field. Right? And that’s what Our main focus is we, we provide with comprehensive services for foreigners, for instance, we just recently launched a membership program in which we with a monthly flat fee, we provide a sort of a legal insurance to our clients basically consultation of any sorts regarding property, rental, property lease, property obtainment, like purchasing property, right?
Acquiring it investing in Mexico. Immigration, taxes, all of the legal questions a foreigner may have while residing in Mexico, even if it’s for a temporal time, we are here to help them and most of all to prevent legal issues or fraud or generally problems with their time and money here. So yes, that that’s what we are specializing.
We’re passionate about it. We are young and we are, as I said, efficiently and technology oriented.
Emily: Thank you really great introduction.
But I was trying and I put on the screen. Actually presentation of your new membership program.
And I was personally very excited to see this program coming especially to expat, because I’m expat myself. I had a multi immigrational experience in the past, living in different country, countries, and I know how hard it is for newcomers to adjust to new country, to new culture. To new law, but even with a kind of knowledge of law, like layperson cannot know, you know, all this intricacies.
There is a lot of questions that it’s very important to discuss, to ask, to review documents. And I wish like somebody in my past or who I was working with or, you know around me was offering such a program. And I understand that it’s, actually new concept. I believe nobody, nobody offered such a thing before.
And when I was trying to bring awareness about your product, I would say about your offer comprehensive legal shield. Some people in Facebook expert groups and communities, they couldn’t believe like, Oh, we never heard about it. It cannot be real. Who are these guys? How long they are in the business?
I believe it’s all legitimate questions because people are cautious. These days probably they’ve had a negative experience. Already, and they are afraid to be, you know, involved with something new. And it’s really a new concept and what I was sharing as well and please tell me a little bit more about it Is it you are not alone because to cover all these different?
Legal areas and you know business directions and telling the truth. I think that your offer is Too large, like unlimited calls, documentation, and all this. It’s kind of hard to believe, you know, too good to be true. And I was explaining that you are team of the, like, friends, lawyers, partners, who are trying cover expat you know, legal…
Issues from different sides, because even for me, it was strange how you can do all this, what you’re offering. Can you tell a little bit about it?
Miguel: Yeah, of course. Well, first of all it’s not just me and my co founder, right? We have actually four associates with us. We have senior legal counsels who are expert of many, many years.
Like our chief legal counsel has, our senior legal counsel, sorry, has around 50 plus years of experience in the legal field. So what I would say is that these concerns are, are valid. ’cause at the end of the day, we are innovating in the legal field in Mexico. This has never been done exactly in this type of model before in Mexico.
I believe in parts of the USA and Europe, they have a like a subscription model of some sort, some sort like a legal shield, but in Mexico, it’s a new thing, right? So I will say that right off the bat, we are a team of agents and obviously we will not accept new subscriptions. Until we know that our services are going to be capable of supporting more, right?
It’s a structure that needs to grow if our membership program explodes and there’s a lot of new members, right? We will need to plan ahead of that. So we will never accept new memberships if we know our current team is not going to be able to attend. To all the consultations and obviously for instance we, the time is limited, right?
The resources are limited. So obviously unlimited consultation is like an advertisement, but obviously we will need to. See the our client’s schedule of our client’s plans and objectives and plan in that in that sense, right? It wouldn’t be reasonable for a client to have eight hour consultation calls for one day, right?
So obviously it is not freely unlimited, but the aspect that is really unlimited is that we are not going to charge you a More than just a flat fee monthly, and it’s up to you how much you use our services, right? It is up to you how much you let’s say, take advantage of this model, right?
Emily: So I believe people will not abuse your time and not take advantage.
And, but I would like to outline it really kind and, and, and large offer, and obviously it would be changed. I mean, some condition would be changed along the road. What I like, I like your entrepreneurial spirit. I like actually startups. That’s why I’m in Mexico. That’s why I’m working with young ambitious Mexicans.
And I’m looking for other new ideas and project because I think it’s really what will help Mexico go forward and us expats to be happy and flourish in a, in a new country, because again, going back to our title.
There is a lot of misconception about Mexico and kind of, I, I am not naive and I will not say that there is no crime in Mexico.
There is no corruption in Mexico. Oh, you know, all is okay in Rosie. No. There are areas where the crime is unfortunately rising and it’s along the border with the United States. But Mexico is a big, I would say even huge country by territory. With a really different, with variety of different climate zone, geographic zone, which is not the same, cultural differences and even differences between economical development of different states.
Again, it’s a 31 state now, yes, less one and there are differences, and actually it’s what interesting for me personally, that’s why every year, I’m trying to have this discovery tour going from state to state to actually observe and notice the differences between states. And from my perspective as owner of International Lifestyle Consulting, I’m actually looking how people, local people and expats living in a different state, adjusting to the different life condition, because again, climate is different. And many people I would say north of Mexico have idea about Mexico. It’s like, like only, you know, this resort, humid, hot you know, small cities.
Offering actually very appealing lifestyle. But what I would like to outline, there are different areas. For example, I like more, like, cool moderate climate. So I prefer colonial cities of the central Mexico Bahia area. Because for me, and people like me, it’s all for different lifestyle. You know, different…
Cultural ambience different climate, like what I’m looking for and I’m helping baby boomers and I understand what is important for baby boomers, medical system, you know, and this or other city or place infrastructure development, connection between city you know, development of city state and actually even like a political climate, maybe in this or other state because I understand it’s all influence, you know, life of people living in this state.
And I’m spreading my impressions and my story about Mexico. And it’s not only about differences in climate. It’s the differences in again, I would like to outline cultural ambience. People who are living in this or other states, there are more industrial states, like Nuevo Leon Curatora, even Guadalajara, and they’re catering to one type of people, and I would advise, actually, digital nomads, or people remote workers, or, or, actually, people who are looking for the work in this, like, industrial specific areas, not now to speak about it.
To, to consider this state and there are another states which are better matching lifestyle of retirees or digital nomads. Okay, all the details I can share in my consultation and webinars that will be coming soon. But I will ask Miguel, you to, to share. Your thoughts and observation about misconception about legal system in Mexico.
Miguel: Well, I think there’s two primary misconceptions about Mexican legal system. One of which is that it is easy, right? Like, For people who just here of Mexico, it’s like, oh, you just, you know, pay this government fee and it’s so easy. Like you, you can, you can, it’s very, you know expat friendly, like, 100%, like, you just pay a fee and you you’re set up.
Right? It’s a simple process. As long as you. Have the means and to investing into the country. However Mexican bureaucracy is big, right? Mexican bureaucracies is complicated and there’s a lot of discretionary decisions. With the government officials, right? So even even as as you, you clearly said, Emily, knowing the law, even as an expat or having a legal advice, sometimes it’s not enough because the, it’s a lot based on customs, right?
And discretionary decisions of officials. So, for instance, if you would like to apply for a Mexican residency in a consulate abroad. You’ll have to know how each consulate operates because some consulates ask for different kind of requirements. And that’s not something that is in the law. That is something that is on the experience, day to day, people that have been through the process before, attorneys that have been, have dealt with those cases before.
So it’s not as easy as it may seem, right? Just like, oh, pay 51 for your immigration fee and you’re set up. Sometimes it’s more complicated than that, unfortunately. Another, let’s say, legal misconception about Mexico is that maybe people think that all of Mexico, the law applies the same and the legal system is the same.
However. As in the US, for instance, we have a federal type of law, and we have also local types of law.
Emily: Like in Canada as well,
Miguel: yeah, so, but the thing is that some misconceptions may arise, for instance, if an enterprise or an investor is seeking to invest in a project, let’s say in a tourism sector in Mexico, and they have the permission from the federal government, And they all they think that that was the most essential part that they are all set.
However, the local sector of the local regulations, and even the smaller sectors, like the municipalities, they ask for different kind of requirements, and maybe your investment on your plan will not be fully executable because You’re not compliant with local regulations and municipality regulations.
So that’s another thing that I’ve seen with my own eyes happen, right? With, with large investment projects, it’s not just federal government that needs to be on your site, but also the local governments, right? And it’s very important. And yes, and also with the localities again, this is this is the same.
It’s a lot of based on customs on discretionary decisions from the government official. So you need to have, you need to know someone that has been personally. Has dealt and has dealt with this type of procedures themselves to provide you with better insight and personal experience. That’s how law works here in Mexico.
You know, some people tell you something works. But another consultant will tell you it does not work, but it really depends on a case on case basis and the type of procedure you want to apply to. And yes, so that is something that maybe some foreigners, maybe some expats may be surprised by or impatient.
Right. But in Mexico you need to be patient with the government. You need to be a bit laid back. That’s how in Mexico we operate. You know, be ready to have long lines while doing an application and don’t like be, be patient because it may, it may not be able to work and the first time if you’re trying to make it on your own.
Right? So, Just understand that that’s how the Mexican system works. And I understand United States and Canada is way more efficient than our legal system.
Emily: What I understood that the best way to navigate and all the situation that to have kind of private lawyers like you guys, Because you never know and even as you mentioned in different states and you covering kind of expats in, in different states of Mexico, there is local law, by the way, exactly like in United States and Canada.
There is federal law. State or provincial law and local municipal law and different questions can be resolved on the different level depends what kind of question it is and what kind of project involved if we are speaking about the business or, or real estate we would say, yes. And there’s a lot of changes.
And only actually legal professionals who are really up to date with all what has happened can navigate and it take time even from legal professionals to find, you know, every time some kind of unique, I would say, custom approach to the, to the different problems. And I found that work with you guys, and I already shared that I know you for couple of months already, and I selected Outbound Mexico to be My partners, yes, it’s not secret because I was looking as the owner of international lifestyle consulting and myself, like business owner solopreneur, I was looking to the different legal professionals to advise me on this other or Maybe in the future, some, you know, possible different issue because we don’t know what is coming and I found that here in one place, I found the people, the team who, who really would help me if they don’t know at the moment.
And you cannot know all in a moment but you can do research. You can find a way it’s what I believe. It’s really a professional approach. And if people were asking me like, how long is it in the business? How old are they? I was like, okay, come in, look, try the age young age. For me, it’s a benefit.
It’s not, it just proves that the people are fresh in knowledge really ambitious and they. Looking for the ways to help and like negative experience past experience from other lawyers that might happen should not kind of overshadow new possible experience and work with a new lawyer.
About crime in Mexico. And again crime statistic about crime in Mexico and like different cases sometimes really gruesome. Like I will not say you know, appearing in newspapers of United States, Canada and others, like immediately after they happened unfortunately.
Sometimes without the details, like what happened, only if expats, or say, Americans and Canadians in this regard were involved. And obviously, it’s not good. But what I found sometimes when I was trying to dig many of these people who were wounded or even killed were actually involved in drug trafficking.
Or maybe in some other, I would say, illegal activities. or risky activities in Mexico. Yes, there there is cartel and there is in my view, increase of cartel activity, especially on the border with United States. But unfortunately, it’s not only problem of Mexico. Actually, I believe Mexicans, real kind of people of Mexico
paying the price themselves for all these activities happening on, on the American borders and a refugee, which is coming now, unfortunately, for a long time already through Mexico, causing a lot of problem for Mexicans. And help cartel to, to flourish, I would say. But all this flow of people, drugs, and guns, and unfortunately child and people trafficking going up north to United States, in Canada even.
And with all this please tell me now your view on crime situation in Mexico as of 2023.
Miguel: Yes, so I think there’s 2 type of crimes, right? And Mexico, like that people citizens may have to look out for 1, which is organized crime, you know cartel and gang activity. And the 2nd type of crime is individual crime more random, you know, like, oh, they, they stole my purse. They stole my car. They stole my, my phone on the public system, public transportation system, for instance, right? And I think regarding the 1st type of crime of criminal activity, as, as you said, Emily, it is a complex problem, which is primarily influenced by the export of drugs, you know, that’s their, that’s their business.
And that’s the why a lot of billions and billions of dollars are coming into Mexico and are incentivizing violence between gang members and cartels. So understanding. This, this these factors of this phenomenon, we are able to understand that cartel violence and gang violence is directed between these gangs, between the cartels, right?
The problem comes with collateral damage or let’s say
Emily: accidental death.
Miguel: Yeah, because the cartels. It’s one of their most
Emily: highly organized.
Miguel: Yeah, no, yeah, but, but it’s, it’s one of their priorities not to attack innocent civilians and not to have a bad public image. Moreover, their own clients in tourist areas, they don’t, obviously they don’t want to bother them a bit.
Like they want them to stick being their clients. They want the market, et cetera. It’s their consumers. So. It’s on the last of the priorities to hurt them in any way, right, for them to lose clients. So understanding this scenario the best way for an expat to avoid being engaged in collateral or, or misfortunes is first of all, not engaged, right?
In, suspicious like activities. Don’t, don’t go where. Where you know people buy and sell drugs. Don’t consume drugs yourself. Don’t go to this don’t engage, right, with these people in the first place. And that’s like the rule number one, right? In the tourist areas, even in the resort or whatever, just don’t engage with people trying to sell you something, right?
Or even your friends. So that would be my first advice. And in the second advice, with the more, you know, casual type of crime, just, no individual robbers, random robbers. I think it’s the same with all the, with all the big cities. For instance, there’s going to be neighborhood and places neighborhoods where you have to be more cautious, right?
It’s not in Mexico City. For instance, it’s not the same to be walking with your dog in Roma or Camdesa, right? Or even Polanco, which has one of the highest rates of policemen in the whole country. and security than to go to Iztapalapa with the same with the same type of awareness for the situation.
So I think it’s a more general tips for, for big cities and big places.
Emily: As I say, do your homework and even in my articles, I put in what areas you can go at night if you like nightlife in what area you should be cautious or actually not to go be aware.
Miguel: Yeah, exactly. That’s what I would say that.
And, and again, like we as, as human beings have this bias is this risk aversion, right? We see in the news that one American citizen or American national was hurt. Or unfortunately was, was murdered or something along the lines. However, we need to also understand that for instance, in Cancun, around 1.6 million tourists when last year, and one American citizen. for instance, was hurt, right? Let’s say so one in 1.6 million tourists is really a very low percentage, right? However, there’s also, there’s always this risk aversion in our heads that even the slightest risks is is adverse to us, right?
So to put things into perspective, Like that, that crime rate is extremely low, like if you go to Cancun or, or a resort like that, probabilities really are extremely low for you to have.
Emily: I would like to outline, speaking about statistics that people in United States and Canada somehow forget some of them about mass shootings in United States coming from Unfortunately, all in citizen about all this very sad events, which are happened in United States and sometimes in Canada.
Now, more often, I have not heard about such events in Mexico, other than, you know, cartel activity, like shooting in the city or shooting in a theater or, you know, mass public event. So unfortunately. Crime actually is growing in western countries. by different reasons and comparing apple to apple and I don’t have now statistics but there is statistics that sometimes from official sources that I am following what I found that unfortunately crime level in United States in some city is really close or even Up to Mexican cities and some Canadian cities, which is a big pain for us because in Canada, it was not such a situation even five years ago.
It’s going really up. So again, what I am advising and why I am following You know, all the statistics because I advise people like retirees specifically, my clients and remote workers with families to, to move or to leave or to consider as the safest areas in the Mexico, because again, as in our cities, there is a good areas where, you know, people are leaving and going at night, walking around, and there is some areas in, you know, Toronto even I am sarcastic Where it’s better not to be even during the day because there is a shootings now So you need to do homework and if you don’t know ask professionals people who are aware of situation like me and or like miguel, only if there is a legally related questions.
And the next question just to diversify it about the taxation system, I just put like hacienda Because I believe and even me like some people, Think okay kind of there is no problem.
I’m speaking about expas now We are expats and we kind of Not involved, but I believe we need to know rules of each country we are living in. And it takes time. I understand it takes time. And specifically in Mexico. And from other even kind of big promoters of relocation industry.
I would like not to name kind of known speaking head on some big channels, they’re speaking about how awful is Mexican taxation system how it’s, you know, very expensive to have a business in Mexico and stuff like that. So, what you would say in this regard?
Miguel: I would say it purely depends on your type of taxation back home, right? That’s like the 1st step you need to know. For instance, if you’re an American citizen, America, I think is the only country that actually taxes it’s citizenships. It’s citizens. Sorry. Based on pure having just the American passport, right? Being an American citizen. So they tax globally regardless of their residency.
They’ll tax. So I’d say right right off the bat. If you are an American citizen. Yes. It will be expensive for you to be to having business and having you know, formally established business in other countries because. You will be taxed not only by the country that you invested in, but also at your home country.
So that’s obviously not, not ideal in terms of taxes because you, well, that is where taxation treat is coming to play. Obviously the authorities and the OECD knows that double taxation is not good for the economy, right? Who wants to be double taxed? And, and that’s where the tax treat is coming to play.
However, it’s sometimes even with a tax convention between two countries. It may not be ideal in terms of taxes, if you’re American citizen. So that’s the first consideration. The second one is that Mexico gives a lot of benefits for small taxpayers and for business starters or entrepreneurs.
Why? Because there’s this regime that actually came out into the year 2022, just a year ago, it’s called a tax regime. It’s called Resico which gives all sorts of tax advantages to all citizens or tax residents of Mexico that engage in professional activities are not shareholders per se of an LLC or something.
Just engage in professional activities, engage in the, in the rental of goods, even, and they they have this preferential tax regime, which charges them income from 1% up to 2. 5% tax income, so that’s extremely low and the only consideration with this tax regime is that you’re not able to deduct if you’re not an LLC, so you’re just an individual taxation, you’re not able to deduct some, some taxes based on your expenses, right?
Emily: Nothing to, deduct from 2%.
Miguel: Especially if you have an online business, right? What are you going to deduct? Like the internet bill, right? So it’s not a, especially for online businesses or online entrepreneurs or professional services providers, that this is a great option.
Right.
Emily: Obviously. I didn’t know. It’s a great news because I don’t know how many from expats already engaging in startups and small business development activities in Mexico, maybe because they don’t know about it. I believe this information, my. Kind of inspire some people really rather than and we know that just salaries in Mexico, not a very high I would say, but if you have some ideas, some spirit entrepreneurial spirit I believe, and maybe taking advice from you guys, how to set up the company and have some strategy.
Thank It, it’s a great opportunity. I even didn’t know, like, don’t know what other countries are offering such a good, I mean, low taxation level for entrepreneurship.
Miguel: Yeah. Yeah. This is something that is very attractive to, to entrepreneurs because like the, the income gap, the income threshold in order to apply for this regime is not earning more.
If you’re an individual, not, not earning more than $200,000 a year. So if you earn less than $200,000 a year US dollars you’re able to apply to this regime. Right?
Emily: And so Mexico, I think $200,000. It’s a, it’s a really high threshold, specifically for startup for many years till you will get to the, to the level.
And it’s applicable to expats as well?
Miguel: This is a very interesting question. So, That’s the other consideration that every expat needs to know about this regime. In order to apply to this regime, you need to cease being a foreign tax resident. So if you are a Canada citizen and you want to apply to this regime, you have to cease being a tax resident in Canada.
Emily: Meaning you need to live more than six months in Mexico, correct?
Miguel: Yes, yeah, in Canada, Canadian law, you need to cease being a tax resident under Canadian law in order to apply.
Emily: It’s more complicated. You need to cease all your ties with it’s a process.
Miguel: You can be, you can be a Canadian citizen, but you have to cease being a Canadian tax resident.
For Americans, they are always a tax resident. They always tax you.
Emily: But it’s in any country. In any other countries.
And you mentioned double taxation treaties, and I know that they exist between Mexico and the United States and Mexico and Canada. And I believe that these treaties are helping kind of to lower the tax burden, yes?
Miguel: Yes, yes. For instance earnings from credit loans, earnings from real estate investments, earnings from different types of investments, they tend to usually be lower under the tax treaties that under Mexican regulations, so you could apply for this tax tax benefit under the convention. For instance, if Mexico regulates 25% tax for real estate income capital gains from selling a house here in Mexico, and the treaty says 15%. You are able to apply what the treaty says, so you’re able to save 10% of the taxes, right, through this operation, for instance.
So it’s a great option to have knowledge of the tax treaties and to know how to apply them.
Emily: There is a difference between temporary residents and permanent residents. Tax resident in this regard tax?
Miguel: For tax purposes, it’s not the immigration status per se. It’s more the center of low of vital interest.
This’s called so in which ever place. You have more than 50% of your income in whichever place you have a permanent residence in whichever place you have a habitual residence. That’s the place that the treaty is going to consider you a taxpayer of. All right. These are like the tiebreaker rules.
So it’s not specifically being a temporary or permanent residents because these types of Mexican immigration residencies. Allow you to come in in and out of the country freely, right? So it’s up to you whether you apply into a different tax taxpayer tax resident tiebreaker rules.
It’s up to you whether. You are living in the, in Canada or the USA or in Mexico, most of the time where you have most of your income coming from, and it’s not based just on immigration status alone.
Emily: Why I was asking this question because I remember like discussion between expats about actually selling the property in Mexico being temporary resident.
Or permanent resident, because I think there is different taxes here in this particular scenario.
Miguel: Not particularly. It is it is a difference whether you are a tax… Tax resident or not, it’s not just purely based on your immigration status. Mexican law differs in, in terms of taxes based on your residence, right?
If you’re a tax resident here or not.
Emily: Last year, I think if I’m correct, Mexican government kind of demand or would say all permanent residents and temporary residents to get taxation numbers at a fast number.
Miguel: Yes. Yeah. So the permanent residents, all the residents of Mexico, even the temporary ones have a court.
Which is CURP, which is the citizen identification number similar to social security number, right? But with the temporary residence, this number is temporal with, with the permanent residence. This number is permanent, right? And the RFC is automatically derived from the CURP, right?
So if you are a permanent resident your taxpayer id, your RFC. That’s what it’s called. It’s going to be automatically derived from it, and it’s going to be the same taxpayer ID forever because you’re a permanent resident. So yes, that that is a difference between temporary resident and permanent resident.
However, in Mexico, in order to be formally registered in the taxpayer registry and the taxation system, you need to be formally registered. In the taxpayer ID that that’s not, and that it’s usually done by you personally, it’s not common for you to be registered without even knowing it, right?
Either you have worked in Mexico, either some bank has asked for this taxpayer ID before and you apply for it. But it’s not standard practice, or it’s not even, I think, possible for you to have an RFC involuntarily, completely, without your, of your knowledge, right?
Emily: No, no, but you need to have it because now banks are asking for it when you sell or buy property, I understand.
Yeah, yeah. It’s one of the first questions, so it became kind of a necessity. Yeah.
Miguel: To have you will eventually get it if you plan to engage in economic activities here.
Emily: Okay, thank you.
And maybe related question. It’s what I was thinking yesterday about what in case employee, I mean living in Mexico, consider it to be non resident for Mexico tax purposes, meaning I understand like, like me who live in part time
in Canada and another country or online entrepreneur. I don’t know what in this case, because we live in one country, but our business is online and clients are coming from different countries.
Miguel: Yeah. So this is a great question. I really like it because this is the new paradigm with the online and remote work, right?
This is a great. So in Mexico, you need to pay taxes based on three main hypothesis or conditions, right? There’s three of them. So if you are a Mexican resident, I’ll get into what that means in a bit. You need to pay taxes. If you acquire income from Mexican sourced wealth, I’ll get to what that means in a bit as well, you need to pay taxes.
Or, if you have a permanent establishment here in Mexico as, as an expat, like, as a foreigner entity, as a foreign entity, if you have a permanent establishment in Mexico, you need to pay taxes. So, what does these three categories mean? Part from the specific case of the remote worker, right, you’re a remote worker, and you need to figure out in which of these three categories you fit and if you need to pay taxes or not, basically.
So, in the first category, if you’re a Mexican resident, or not, this is determined the rule of thumb, the general rule of thumb is whether you have a whether is your residence, your permanent residence situated in Mexico. So, if you have a permanent residence, you live permanently in Mexico, you will need to pay taxes.
Right? However, this is ambiguous because global citizens unlike remote workers, digital nomads, they’re citizens of the world. So, what exactly does it mean to have a permanent residence in Mexico? Is it six months? Is it one year? Like, who knows? However,
Emily: You should have a card. Actually, you cannot live more than six months as a tourist.
Miguel: Yeah, exactly. Exactly. So, for instance, there’s this in the immigration side of things as a tourist, you’re not allowed to live more than 6 months. So a cue for you to maybe consider if you are a permanent resident of Mexico, is that whether you live or have lived for more than 6 months here, right?
In a, in a fixed way, but the thing that true is the truth is, I mean, all honestly, is that these laws were not designed to conceive this new online remote phenomena. Right? That’s the truth. So, let’s move now to the second category, whether you earn income from Mexican source wealth. So, as an online worker, is your employer Mexican?
Are your clients Mexican? If it’s yes to these questions, then you are considered a tax resident for tax purposes. You need to pay taxes. In Mexico. Mexico, if the answer is not my employer is from the US or from other country non-Mexican, that is not Mexican,
Emily: I’m self-employed. I’m self-employed, for example.
Okay?
Miguel: If you are, for instance, if you’re self-employed, are your clients Mexican? So regarding your Mexican clients, you’ll need to pay taxes for your Mexican clients. That’s an obligation. For example, if you’re self employed, like a typical case artists, right? Artists that come to Mexico and perform.
Their clients, if they come to Mexico and perform here, their clients are Mexican, basically. They’re earning income from Mexican source wealth, so they need to pay taxes. That’s the same with the freelancers, right? If your clients are Mexican, you have to pay taxes regarding your Mexican clients. Not all clients, just the Mexican clients, right?
And the third one is if you have a permanent establishment here. And that is more the case for entities, for corporations, companies, right, legal entities. If a legal entity comes in Mexico and does business here, conducts its operations here, it will have to, it will be considered a tax resident if it has a fixed place, like an office, or a fixed person, which engages in the entity’s business model or, or business Activities of this entity in Mexico in a fixed place, right?
For instance, if the DHL, right, has an office, a permanent fixed office here, and it’s conduct, it conducts its business through these offices, then you’ll have, it’ll be considered a taxpayer for the income generated in Mexico. for its income. And so no matter that it doesn’t matter that the DHL is a German company, it will pay taxes because it has fixed offices here in Mexico.
Emily: Okay, great. I learn a lot and I believe listeners get valuable examples and explanation. Obviously we cannot touch and shouldn’t touch all for this purposes, there was membership program of outbound Mexico because there are, and would be many different questions. And I believe to get even clarification of, you know, how correctly approach like personal matters.
So business matters in Mexico it’s better to, to have legal support, I would say.
And then last questions I’ve had, like what if exists, the investment opportunities for retirees, I mean, expat retirees in Mexico.
Miguel: Right. So I was actually talking to a financial broker in Mexico from a company called Kempton, which is a UK based financial company and institution, sorry, financial institution. And there’s a lot of options. I think what most of my clients have been looking out for is diversifying their income because as retirees, you don’t want, you know, to put your, all of your eggs in one basket.
So I think it is important that if you are retiring in Mexico, you look to diversify your income. For instance, you can invest in, in government issued bonds, Mexican issued government bonds, which are called CETES. These are good because they have. A bit of a higher they, they’re like on the 10% or a bit above 10% a return on the year, yearly return. Yeah.
Emily: I’ve never heard about such a return lately from any government.
Miguel: Yeah. Mexican bonds are high because the, you know, the, the central bank. This, the central bank rates are high, right? And thus, giving your money to this central bank of the Mexican government right now, it’s a good option.
But of course, that’s only a few options, right? You can also invest in Fideicomiso, which is like bank trusts. And Fideicomiso, for example, that engage in real estate. Which is a pretty stable source of investment. You could also diversify…
Emily: Sorry, I’ve never considered having Fideicomiso. I’ve never considered that it’s my investment.
I just knew that I need to pay. Obviously, there is a purpose for having this Fideicomiso. Like, you know, real estate, this part I appreciate. Yeah. But rather than paying yearly Fee for Fideicomiso. I didn’t know that I have any advantages.
Miguel: Well, there’s different types of Fideicomiso as a bank trust, right?
The bank trust you’re talking about is the typical trust you need as a as an expat to acquire land in Mexico and acquire Land in the beaches, coasts, you know, the borders. However, there’s all other types of investment trusts, right? Which you could spend a little money in. I mean, I’m talking about diversifying your portfolio, which are flexible vehicles for you to participate in real estate investments.
For instance, here in Mexico. And some investment opportunities are growing a lot in Mexico. Of course, this is not, I’m not a financial professional advisor. So I’m just talking about general options. I’ve seen my clients done before and regarding Kempton, this UK financial institution. They actually provide services for Mexican residents and Latin American residents who wish to invest in accounts outside of Latin America as so to minimize risk and diversify their earnings and their income because, you know.
Some clients may be a bit paranoid in having all their money set up just in a Mexican bank. Right? So Mexican banks, for instance, just cover you up to. It is like $150,000, right? That’s American dollars, 150,000 American dollars. So if you have earnings or savings in your bank accounts, that’s the maximum amount Mexican government is going to cover you if the bank goes to bankrupt.
If the bank.
Emily: The same as in Canada, just speaking about Canadian dollars.
Miguel: Oh, the same economic security. Okay. So yes. So if you have more than that, I will highly recommend you to diversify your portfolio. And yes, in Mexico, there are different types of investment opportunities you can you can seek.
And the just I named a few, but there’s more, right? And obviously, always, always seek legal and financial advice prior to making a big investment, right? Never do it on a rush, always take your time, consider your options. And yeah, so you, I mean, one hour consultation with a professional, I think is way, way better worth than just taking a decision on your own and maybe leave it up to, to luck, right?
Emily: Tell me, please, like outbound Mexico can advise on this particular questions as well and connect with a financial advisor.
Miguel: Yes, exactly. So we can give legal advice for you to have the legal certainty in which activities you’re engaging in so that everything is legal and that everything is done in a correct way.
And secondly, that we can connect you with, in financial advisors and, and finance financial investment options.
Emily: Great. Thank you very much. I learned a lot. And I can tell you that I’m more confident now in Mexico future and Mexico economy. No, seriously, when I see kind of new generation of Mexican professionals active.
Really patriots of the country who really want to bring own country on the different level and working hard to achieve it. It’s not just words. I know that you guys are very active in many different fields. Like, I feel really… Good personally as a as a spot. In Mexico and just small side question.
We’re out of time. I was expecting personally, it’s no question to you, but maybe, you know, about digital nomads specific visa coming from the Mexican government, like in other countries, it was issue. Obviously, digital nomads as of today, last year’s coming and they can get temporary residence visa and it’s Kind of the same, why Mexico is, didn’t issue this specific a visa, digital nomad visa to attract more, you know, entrepreneurs and actually digital nomads, maybe with, to compete with Costa Rica, I would say Columbia and other countries in this regard.
Miguel: Well, I think we sort of have it right. We, I mean, I don’t know if it’s what’s on purpose or not, but we sort of have a, a digital nomad visa. And I think it’s just a temporary resident visa via income, monthly income economic criteria. So if you have a US employer with a certain level of monthly income, you can apply for a temporary residency.
Emily: Maybe just method to rename it because when I’m looking at statistics and, you know, in all digital nomad like sources, they speak about digital nomad visas, this, this, and this, and kind of know Mexico. And I know that exists in Mexico, but because it’s officially doesn’t have this name coming under kind of General umbrella, it’s kind of out of the touch Or knowledge of many people, but I would like for All of our listeners who might be not familiar with the topic to know that digital nomad visa remote work visa retirees visa And many other kind of a visa exist in Mexican, Mexican immigration law.
And actually people can apply and if they have any general questions, they can connect with me. If they have specific question, they can connect with Outbound Mexico.
Thank you very much. It was very informative very inspiring. And I… I believe that many listeners will value your information and will learn a lot and actually will be familiar with new concept of a membership legal shield program and with new outstanding legal company in Mexico, outbound Mexico.
Founding Partner at Outbound Mexico | Leading Expert in Relocation, Tax Management, Job Search Assistance & Investment Advisory for Foreigners in Mexico | Personalized Solutions for Seamless Integration & Financial Growth in the Mexican Landscape.
Embarking on the expat journey to Mexico is a venture laden with excitement, opportunity, and the prospect of a vibrant cultural immersion. However, behind the allure of pristine beaches, rich traditions, and delectable cuisine lies a complex tapestry of legal intricacies and nuanced challenges. Unraveling the misconceptions and uncertainties that often shroud the Mexican legal system is crucial for expats seeking to establish their lives in this diverse nation.
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