As you may know, whenever an international transaction is being held, the origination of Income tax depends in the country where the source of wealth relies. In the case of income from salaries and in general from the provision of a subordinate personal services by residents abroad, it will be considered that the source of wealth is in national territory when the service is provided in the country, hence subject to tax.
In the following, we will present some rules and particularities for the payment of the tax on salary income when the source of the wealth is originated in Mexico, according to the Mexican Income Tax Law.
Determination of income and tax
For purposes of determining the amount of income, only income from salaries and other benefits, (even those considered exempt or those that result in decreasing its expenditures) derived from the employment relationship that are attributable to the activity carried out in national territory by the resident abroad, will be considered.
The tax will be determined by applying the following rates to the income obtained:
The person making the payments must also withhold the tax when they are a resident in Mexico or a resident abroad with a permanent establishment in Mexico to which the service is related. In all other cases, the taxpayer will pay the corresponding tax by means of a declaration presented to the authorized offices within 15 days after obtaining the income.
Individuals residing abroad who are obliged to pay the tax may choose to pay the tax in any of the following ways:
- Through withholding and integer made by the individual or legal person residing abroad, for which the withholding agent must submit to the corresponding tax authority the registration application as a retainer in the federal taxpayer registry.
- Through an integer made by the person residing in Mexico in whose facilities the subordinate personal service was provided, or
- Through an integer made by the representative in the country of the resident abroad, assuming joint liability for the payment of the Tax by said resident abroad.
In any of these options, the tax payable by individuals residing abroad must be paid no later than the 17th day of the month immediately following the one in which the payment corresponds. The chosen option when making the first payment, may not vary for the payments corresponding to the following twelve-month period.
Exempted Salary Income
Salary income and in general income from the provision of a dependent personal services 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 such service is not related to said establishment, 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 with 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 tax.
A taxpayer who is required to pay the tax in accordance with this article shall be required to continue doing so until he demonstrates that has remained outside of Mexican territory for more than 183 consecutive days.
Considerations for determining the length of stay in the country
Considering the last paragraph, in order to calculate the consecutive 183 days outside of Mexican territory the day of arrival, the day of departure and the remaining days of the year, including Saturdays, Sundays, mandatory non-business days, holidays, vacations and short interruptions of work such as strikes and sick leaves, shall be considered.
Such calculation shall not include full days when the person has no physical presence in the county due to business trips, vacations, or any other reason. When the person is physically present in the country for part of a day, such day shall be considered for the calculation of the 183 days.
Proof of length of stay in cases of services rendered at a mexican resident’s facilities
For purposes of article 181 of the Law, when dependent personal services, referred to in such provision, are rendered at a Mexican resident’s facilities, it may be demonstrated that the service provider’s length of stay in Mexico was less than 183 calendar days, consecutive or not, in a 12-month period, provided that the following comply:
- The Mexican resident in whose facilities dependent personal services were provided shall keep a record which shall be part of his accounting records, containing the name, domicile and tax identification number granted by the residence country, of each foreign resident providing services at such facilities, as well as the name, domicile and corporate name of the foreign residents that pay him the remuneration for his dependent personal services. Such record shall also indicate the calendar days of physical presence in the country of each individual, in accordance with article 251 of these Regulations. The Mexican resident shall keep a photocopy of the document used by each foreign resident to prove his tax identification number, as well as the document where the latter provides under oath the information necessary to complete such record.
- The Mexican resident in whose facilities the service was provided shall issue quarterly to each of the foreign residents who provided dependent personal services at his facilities, a certificate that shall be delivered to each of the persons in April, July, October and January. Such certificate shall contain the information described in the record referred to in (I) of this article, as well as the number of worked days. For purposes of the calculation mentioned before, full months shall be counted.
In cases where a foreign resident provides dependent personal services at the facilities of more than one Mexican resident, each of such Mexican residents shall issue the certificate described in this article. Likewise, the foreign resident shall be required to inform to new Mexican residents in whose facilities services are provided, about the cases where in a same 12-month period, services were provided at the facilities of other Mexican resident enterprises, indicating the name and domicile of the latter, and providing a copy of the relevant certificates. For purposes of the issuance of the certificate described in this article.
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.
