Tax Residency in Mexico
1. Criteria for Determining Tax Residency in Mexico
According to Article 1 of the Mexican Income Tax Law (Ley del Impuesto sobre la Renta), an individual is considered a tax resident in Mexico if they meet any of the following criteria:
- Physical presence in Mexico for more than 183 days during a calendar year.
- Establishment of a permanent home in Mexico.
- Economic interests in Mexico, such as a business or employment.
For entities, tax residency is determined based on their legal domicile in Mexico.
2. Impact of International Tax Treaties on Tax Residency Criteria
Mexico has entered into numerous tax treaties with other countries to prevent double taxation and promote cross-border trade and investment. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
Key Provisions in Tax Treaties Related to Tax Residency
- Article 4 of the Mexico-United States Tax Treaty: This article provides a tie-breaker rule for individuals who are considered residents of both Mexico and the United States under their respective domestic laws. The individual is deemed a resident of the country where they have a permanent home. If they have a permanent home in both countries, they are deemed a resident of the country where they have the closest personal and economic ties.
- Article 4 of the Mexico-Canada Tax Treaty: This article provides a similar tie-breaker rule for individuals who are considered residents of both Mexico and Canada. However, it also includes a provision that allows individuals to elect to be treated as a resident of one country for the purposes of the treaty.
Rationale and Objectives of Treaty-Specific Modifications
The treaty-specific modifications to the criteria for tax residency aim to provide clarity and prevent double taxation by establishing clear rules for determining tax residency in cases involving cross-border activities. They reflect the mutual agreement between Mexico and the other treaty countries to facilitate tax compliance and enhance economic cooperation.
If delving into the depths of Mexican tax rules and regulations isn't your style, and you'd rather have experts take the reins, then Heavnn is here to help.
Let us simplify your tax planning journey. Access Heavnn's blend of professional expertise and cutting-edge technology by clicking the button below.
