Question Permanent residency in Mexico, a solution for CRS circumvention?

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DavidS

Active Member
If you are EU citizen and want to avoid CRS. What about registering permanent residence in Mexico and using that as address?

Why is this a good / bad idea?
 

Sols

Staff member
Mentor Group Gold
Then information exchanged under CRS goes to Mexico, and you have to pay Mexican tax, which is not very attractive.

Information might still go to your EU home country, if the bank has doubts about where you live or if you maintain tax residence indicia.
 

Suzy Emerald

Entrepreneur
Besides residency in mx you would also need a tax id so that they can tax you. Without a tax id i dont know how they can tax you. Although the mx government is trying to get extra money from taxes i am not sure if they are capable to do so in an efficient way.
 

DavidS

Active Member
Thank you for all the good info.
How else do you plan on proving to someone that you are tax resident in Mexico? What do you do if a bank or someone asks to see your Mexican tax return or tax residence certificate as proof you're tax resident there?


Relocate to an actual tax haven, not Mexico.
How to arrange papers in a way where you indicate another residency without relocating, but continue living in your original residency?
 

Sols

Staff member
Mentor Group Gold
That's called fraud and is a slippery slope to tax evasion and money laundering.

You can do it, but it's not legal.
 

DavidS

Active Member
That's called fraud and is a slippery slope to tax evasion and money laundering.

You can do it, but it's not legal.
Can't it be done legally?
For example. You live in country A, but go once to country B and get a job there. Since covid, you live in country A and work remotely for job in country B. Indicate tax residency as country B, because you have job there.
 

Sols

Staff member
Mentor Group Gold
In that example, you're still tax resident in Country A. You might also be tax resident in Country B and have to pay tax there as well as in Country A. Hopefully there is a tax treaty or tax credit system you could use so you don't pay double tax.

Tax residence is a fact stemming from circumstances. Do you live in Country A? Then you are tax resident in Country A. Claiming anything else would be fraud and can escalate into very serious crimes.
 

JamesDonkey

Active Member
How else do you plan on proving to someone that you are tax resident in Mexico? What do you do if a bank or someone asks to see your Mexican tax return or tax residence certificate as proof you're tax resident there?
Where are you getting that from? It's none of the bisuness of bank to figure out where you may be a tax resident. The only thing that may matter to a bank is whether you're not a tax resident in a certain country, which is, apparently, often US.
 

Sols

Staff member
Mentor Group Gold
Where are you getting that from?
Speaking and dealing with banks/financial institutions, regulators, and other parties involved in financial services.

It's none of the bisuness of bank to figure out where you may be a tax resident.
It is nowadays. Some take a firmer approach than others and not every customer is treated exactly the same, but banks can be fined for failing to take adequate, reasonable steps to determine where someone is tax resident so it is in their interest to check and even verify.

Banks are increasingly asking to see tax returns, certificates of tax residence, and perform ongoing due diligence (not just at account opening) to ensure they have accurate and up to date information on clients.

The only thing that may matter to a bank is whether you're not a tax resident in a certain country, which is, apparently, often US.
That was the case right after FATCA came out, when banks were afraid of being punished by the US for failing to identify US persons. Now with CRS, the it's similar to everyone regardless of citizenship.
 

daxbr

Entrepreneur
Then information exchanged under CRS goes to Mexico, and you have to pay Mexican tax, which is not very attractive.

Information might still go to your EU home country, if the bank has doubts about where you live or if you maintain tax residence indicia.
If you have residency in Mexico and more than 50% of your income is earned from non-Mexican sources, you are not considered a tax resident.
 

Sols

Staff member
Mentor Group Gold
If you have residency in Mexico and more than 50% of your income is earned from non-Mexican sources, you are not considered a tax resident.
That's not all of it, though. There is more nuance to it.

For one, the 50% rule effectively only applies if you are tax resident somewhere else. If Mexico is your effective primary place of interest (vital interest, economic substance), you are tax resident even if your income is from abroad.

So if you live in Mexico and run a foreign company incorporated outside of Mexico, you may still end up being tax resident as far as Mexico is concerned.

It does open up to a greater degree of flexibility than many other jurisdictions, but it is not quite as easy as settling down in Mexico and not paying tax because your income is from abroad.
 

MONEY

New member
That's not all of it, though. There is more nuance to it.

For one, the 50% rule effectively only applies if you are tax resident somewhere else. If Mexico is your effective primary place of interest (vital interest, economic substance), you are tax resident even if your income is from abroad.

So if you live in Mexico and run a foreign company incorporated outside of Mexico, you may still end up being tax resident as far as Mexico is concerned.

It does open up to a greater degree of flexibility than many other jurisdictions, but it is not quite as easy as settling down in Mexico and not paying tax because your income is from abroad.
That is not correct.

You should read the Federal Tax Code of Mexico, especially Art. 9 (I)(a) Código Fiscal de la Federación (CFF).

Individuals are Mexican tax resident if they have a home in Mexico. If an individual has also a home in another country, it's depending where the vital interests are. The vital interests are considered to be in Mexico if more than 50% of the income within one calendar year is from Mexico or if the primary place of professional activities is considered to be in Mexico.

The Mexican Tax Code requires a "home" somewhere else, outside of Mexican territory, not a "tax residency". It is absolutely not true, that you need to bring a tax certificate for applying this national law. What you need to have is a permanent home established in another country.

A tax residency and a certificate of tax residency in another country is needed to use tax treaties. According to Art. 9 (I)(b) CFF MEXICAN CITIZENS need to provide a tax certificate/ residency to end their Mexican tax residency if they move to a tax haven or if they don't have a new tax residency. This does not apply to foreigners. Therefore only Mexican citizens will be remaining as tax residents in Mexico for the year they left Mexico and terminated the tax residency and the following three years, but this doesn't apply if Mexico has an information exchange agreement or a tax treaty with an information exchange clause with the new country of residence in effect. Again, this is for Mexican citizens only.

To conclude, NON-MEXICAN-CITIZENS (Foreigners) who have also a HOME established OUTSIDE MEXICO don't need a tax residency in the country where the other home is established, to be not taxed in Mexico, if their professional activities are not in Mexico and less then 50% of their income is not from Mexico, because then the requirements of vital interests are not fulfilled. And vital interests in national Mexican law is only the source of income and the centre of professional activities and not the duration of stay, having a home/friends/family in Mexico, etc.

What could be a problem is managing a legal entity permanently from Mexico, because then it can create a tax obligation if the main administration of the business or its headquarters of effective management are considered to be in Mexico, Art. 9 (II) CFF. From a practical point of view this is more a problem for Mexican citizens, not for Foreigners.

If the person has a residency in Mexico but doesn't fulfill the requirements to be considered a resident for tax purposes in Mexico, SAT will put the information they received by CRS to trash and there is nothing to worry about. What should they do with it? Taxing someone they can't tax? Taxing tourists and leisure-residents who bring money into the country and stabilize the Mexico Pesos?

The idea behind this is, that Mexico want to be attractive for tourists and leisure-residents as a (part-time) place of living, even if Mexico doesn't have as many tax treaties as other countries have.

At the end, if the creator of this thread live (also) in another country than Mexico and is not fulfilling the requirements to be considered a Mexican tax resident, there is nothing to worry about from the Mexican side. I have also never heard about problems regarding Foreigners in Mexico, who receive money from other countries but don't pay taxes in Mexico. At the moment SAT is more interested in Narcos laundering money or rich Mexicans who want to hide money. Maybe SAT tries also to become more strict with all the informal employments in Mexico.

I would be more worried that the EU country of citizenship make problems because they still assume a tax residency there... Maybe that's also the reason for this question of the thread opener.
 
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