US-Mexico tax issues and planning:

Deferral of Mexican income from US tax:

If you are planning on making a living in Mexico or setting up a new business in Mexico it’s important to recognize that any of the income that you make in Mexico can still be taxed under US taxation especially if you are a resident of the United States or your initial location is in the United States.

The nice part about the deferral of Mexican income from the US taxes that you can start paying each taxable year after income taxes deferred. This means that in six taxation years you can defer your Mexican income from the US tax so that you no longer have to pay the extra taxation fees. Although this can be a little more expensive upfront this is one of the best ways that you can enjoy less taxes on your living in Mexico. Starting off with 25% in the first two years, 20% in the third year and then 15 in the fourth and fifth year you can reduce your income taxes substantially differing your US taxable income and ensuring greater income potential.

Permanent establishment in Mexico:

Creating a permanent establishment or permanent business implores a whole new set of taxation rules. Even if your company doesn’t have a physical office or location in Mexico, if you’re performing a number of business activities there on behalf of the company you could be recognized as a permanent establishment. Any permanent establishment is required to pay taxes in Mexico.

In order to condone a permanent establishment for your business and individual working for your company will need to be staying and working within Mexico for 183 days within a 12 month period. This rule also applies if companies are sending multiple employees for the same number of days. It’s important that companies prepare for this as all income that they earn within Mexico could be heavily taxed under Mexican taxes as well as US taxes.

US foreign tax credit rules:

When it comes to making a living in a different country, any employee will fall under foreign tax rule especially when they work for a number of days or experience a certain amount of gains for their business.

Gen. foreign tax credit rules assume that if you accurate any foreign taxes, a foreign source of income or you paid any type of foreign taxes you are also subject to paying US taxes on the same income. The nice part about these taxes however is that you can receive a reduction in US taxable income which is taken as a credit because you have already paid a substantial amount of tax to another nation. While you still will have to pay some form of US tax, the credits that you receive can sometimes balance out to an overall reduction in your US taxable assets and income.