Whether you are a Mexican resident that hires a foreign independent service provider, or a resident abroad that travels to Mexican territory to render a professional independent service, fees for independent personal services are also subject of tax if the source of wealth is considered to be in national territory.
In the following article we will review some particularities to consider when paying fees for independent personal services to foreign residents and its corresponding Mexican income tax implications.
Source of wealth
In the case of fees income and in general income for the provision of independent personal services, the source of wealth shall be considered to be in Mexican territory when the service is rendered in Mexico.
The service shall be presumed to be rendered totally in Mexico when a portion thereof is shown to be rendered in Mexican territory, unless the taxpayer demonstrates that a portion of the service is rendered abroad, in which case, the tax shall be calculated on the portion of the consideration corresponding to the part of the service rendered in Mexico.
Payments to related parties
Unless demonstrated otherwise, the service shall also be presumed to be rendered in Mexican territory when said service is paid by a Mexican resident or a foreign resident with a permanent establishment in Mexico to a foreign resident that is a related party in accordance with article 179 of the Income tax law.
Income tax withholding
The tax shall be calculated by applying the 25% rate to total income earned, without any deductions; and such tax shall be withheld by the person who makes the payments if he is a Mexican resident or a foreign resident with a permanent establishment in Mexico to which the service is related. Otherwise, taxpayers shall pay the corresponding tax by filing a tax return at the authorized offices within 15 days following the day when income is earned.
Taxpayers who receive income of the types set forth in this provision shall be required to issue tax invoices.
Exempt income
Fees income and in general fees for the provision of an independent personal service paid by foreign residents, whether individuals or legal entities, that do not have a permanent establishment in Mexico, or that do have such an establishment but the service is not related to said establishment, shall be exempt from the tax set forth in this article, provided that the service provider remains in Mexican territory less than 183 calendar days, whether consecutive or otherwise, in a twelve-month period.
The provisions of the preceding paragraph shall not apply when the person who pays for the service has an establishment in Mexican territory to which said service is related, even when the establishment is not a permanent establishment, as well as when the person rendering a service for the aforementioned establishment receives complementary payments from foreign residents, in consideration for services for which the service provider has earned income subject to withholding in accordance with the third paragraph of this article.
A taxpayer who is required to pay the tax shall be required to continue doing so until he demonstrates that has remained outside of Mexican territory for more than 183 consecutive days.
Learn more about Income tax and VAT in Mexico
Contact us for questions or more information,
Tax Partner CPA Mario Enrique Morales mario.morales@bmtc-dfk.com
Senior Tax Comunications CPA Carla Torres carla.torres@bmtc-dfkc.om
The purpose of this article is merely informative. BMTC-DFK nor any of the firms affiliated with DFK International is responsible for the decisions made based on what is described in it.
