Tax
Incentives & Issues on 50+ to Retiring in
Mexico
By Mauricio Monroy
As the North American 50+ population
looks to retire after the pain of a severe global economic
crisis, retiring in Mexico will offer the benefits of a
hospitable low-cost environment in the charm of pristine
beaches with either lush tropical or desert surroundings and
the of Mexico’s interior colonial towns. The good news is
that under provisions of the US-Mexico and Canada-Mexico tax
treaties to prevent double taxation, pensions and annuities
received by residents of the US or Canada, are taxable only
in the US or Canada, not in Mexico. It is important to
confirm that, although “retired in Mexico” the
beneficiaries of the pensions or annuities are still
considered either US or Canadian residents for tax purposes,
otherwise, if considered Mexican residents for tax purposes,
the treaty benefits would not apply. There are some
aspects that deserve special attention to enhance the
position of Mexico
as a destination for retirement and health tourism in the
years to come that include:
VAT on hospital services
Health tourism, as far as
Mexico
is concerned, implies that a non-Mexican resident comes to Mexico to
receive medical treatment. After the treatment, the patient
stays in Mexico a few
more days and goes back to its country of residence. It may
be said that the patient will actually enjoy the benefits of
the medical treatment in Mexico back in
his or her country. However, under the Mexican Value-Added
Tax Law (VATL), hospital services, not including medical
fees that are exempted, are subject to value-added tax.
Hospital services including ancillary services such as X
ray, lab analysis, MRI, etc. provided to a “health tourist”
are conceptually services that are exported, since the
patient ultimately enjoys back in his or her country the
benefits of the service received in Mexico. Accordingly, following the
spirit of the VATL, they should be subject to a 0% VAT rate.
In other words, the patient should not be paying VAT to the
hospitals and labs.
Cross Border Social Security
Benefits
Back in 2004,
Mexico
and the United States
signed a
Social Security Agreement that would permit a cross
granting of social security benefits between
Mexico
and the
United States. These
types of agreements, which have been in existence since the
1970s, are also known as Totalization Agreements. The
US
has entered into this type of agreement with various
countries and about 20 of such are in force, including
Canada
since 1984. Hopefully, the Senates of Mexico and the
US
will soon approve the 2004 Agreement and possibly a similar
agreement could be reached between
Canada and Mexico.
Sale of residential property in
Mexico
Under current law, US and Canadian
residents, among others, owning residential property in
Mexico
are subject to tax when they sell their Mexican residential
property. On the other hand, Mexican residents are not
subject to tax when they sell their home under certain
conditions. Although it may be interpreted that both
Canadian and US residents should be given the same treatment
as the Mexican residents, the law is not explicit and
clarification of the Mexican domestic law is needed if US,
Canadian and residents of other Mexico treaty countries are
not to subjected to tax when they sell their residential
property in Mexico.
(Adapted from “Tax Incentives and the
50-Plus To Retire In Mexico)
http://seniorhousingnews.com/2010/06/08/tax-incentives-issues-on-50-to-retiring-in-mexico
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