By Ángel Marín Díaz
Keith from Chicago, Il.
Hi Angel, I am looking to relocate to Mexico, as an expat “first timer”, and I have several questions. I don’t mean to overwhelm you, but if you could please answer what you can as I am sure many others have the same questions.
I have been following the confusion following the new RFC (Registro Federal de Contribuyentes, federal taxpayer registry) requirements. Does this mean that under “universal” Mexican taxation that I will have to pay taxes on my USA-based pension, investments, earning activity, or rental income? Is my Roth IRA safe from foreign taxation?
I contacted an Attorney in Los Cabos on my last trip to Mexico and he commented that there is a 25% death tax paid by the heirs, did I misunderstand or is this correct?
Do you have all the equivalent documents to protect assets in case of death such as colon Last Will and Testaments, DNR, Advanced Medical Directives, and Durable Powers of Attorney, or do I just use the ones I have from the USA?
Sorry for my litany of questions! Thanks, Angel!
Angel responds:
Hello Keith, thank you for your questions, and you are correct they are all extremely pertinent. Here goes…
The RFC is essentially a registration with the tax authority (SAT) that allows the Mexican government to keep better track of their “accounting procedures”. This means that in the case of the “guest community», it doesn’t directly relate to any tax exposure depending on the activities one is carrying out financially in the country.
A foreigner, as I like to call it, as a member of the “guest community” has “universal” tax obligations in Mexico under Mexican taxation standards. Now let’s define “universal”, under Roman law this is the correct wording, though things get fuzzy when translated from Spanish to English. The actual goal is that “all income derived in Mexico by anyone of legal age is liable for the appropriate taxes for the specific activity” (meaning various scales of taxation depending on the income earned and thresholds based on the tabulation). Key words here are “derived from Mexico”, meaning that “universally” (not pertaining to the actual universe), but pertaining to “any and all activities that bear financial gain” within Mexico are taxable.
Rest easy, your 401k, self-directed IRA, Roth account, savings accounts, stock portfolio and pension funds abroad are safe from local taxation.
Questions B and C are a little less complicated and yet of even greater importance in my opinion. First, be wary of anyone that mentions a death tax, because in Mexico a death tax DOES NOT EXIST.
Having said this, there are many costs and procedural elements that are quite involved when a member of the guest community passes away in Mexico.
I highly recommend to all guests that own property or have liquid, or hard assets here to have a policy similar to, or equivalent to the AfterLife™ program offered nationally now.
The main documents that you will want to have in place of, or in addition to your country-of-origin documents are the Will, the Advanced Medical Directive, the Durable Power of Attorney, and if you so choose an end-of-life document such as the DNR.
Please remember these are very specific documents that are made for you or your spouse specifically and none of them cover both parties. The documents must be registered on a municipal, state, and at the federal level to have true intrinsic legal value nationally.
Also, as a footnote, there is a common misconception about the month of September being a “discount” month for all these documents.
First, the discounts are only for Last Wills and Testaments and of the simplest version of a will, known as our Testamento Universal the Universal Will, (there’s that word again).
Second, this is a federally subsidized program for Mexican National Senior Citizens.
Third and lastly, the discount (subsidy) does not apply to the “guest community” although some notarios give a perceived discount on this simple “universal will” to foreigners even though it is the wrong will and the most penetrated transfer of assets document available, (this is not a good thing).
The rumor mill has created the acceptance of this commonly spread misnomer, about “cheaper” wills, but as Grandma said, “cheap can be dear”, buyer beware.
Also, always make sure that English versions of any/all documents are made available to you, that you understand what you will be signing and that there is a certified translator at the signing of these documents, or it could be argued that they are not legally valid posthumously.
Thank you all for your questions this week. For more specific information on Inmtec Legal Services™, Estate Planning, Asset Protection, and AfterLife™ Medical Advocacy by Inmtec™, please contact the author, Angel Marin Díaz, at info@inmtec.net, 415 121 9005
