Saturday, May 03, 2008

Don't Believe Everything you Hear or Read

This town is alive with rumors. Some of them are started by word of mouth and some of them you read in the newspapers or see on TV.

For about three years San Miguel's city government has been warning residents/ex-pats who rent their houses that they need to register with Hacienda, the Mexican version of the IRS and pay taxes on the money they make in Mexico. Most of the rental agencies had been collecting and paying the hotel tax on the rentals that they arrange, but the payment of taxes on money earned in Mexico was left to the individual homeowners to pay. The City kept telling people that Hacienda was investigating and making lists of houses that were advertised on the net. I know of some people who registered and paid their taxes but many just kept rolling along ignoring the tax man.

Well there was a little shake up this week with an article in our local English newpaper Atencion. Just click on "continue" and scroll down until you find it. There is a more detailed article in Spanish in El Sol del Bajio.

The Yahoo email groups of expats were abuzz that Hacienda came knocking......not on just any rental house, but casa grande that rents for $10,200 USD a week. That is right, A WEEK. But that isn't exactly what happened. One of the house rental agencies has responded......

Just for the record, the Casa is indeed registered with Hacienda, and the owner is paying taxes. The crackdown was NOT for not paying taxes, rather it was because the house wasn't correctly permitted with Desarrollo Urbano (the city's urban developement office) for its commercial use (it's a popular venue for weddings). That situation has now been rectified, and the house has its proper permits all in order. It has not been closed. The information on the Spanish TV and in Atencion was not completely correct.

I'm sorry for the embarrassment that this may have caused this Mexican-income-tax-paying expat but I hope that it scares some of the people who are renting their homes and not paying any tax on their rental income into registering with Hacienda and paying their fair share of Mexican taxes. And if it doesn't, somehow I just believe that one of these days Hacienda will knock on some doors. We would certainly expect the IRS to collect taxes on income earned by foreigners in the USA.


Steve Cotton said...

Billie -- I am no big fan of taxes, but I have always supported paying for what I use. I have the impression that the Mexican governments (at every level) are starting to figure out how to collect a fair share of income from foreigners who use services without paying. The recent crackdown on the capital gains exemption for home sales is a perfect example.

Billie said...

Steve, the tax issue is really big here in Mexico. Not just for the expats but for the Mexicans who have basically paid no taxes. But from what I read, as profits fall from Pemex, the Mexicans may be subject to more taxes. That isn't going to sit well with them.

wayne said...

Sensitive issue for me since I own rental property. We are registered properly with a rental agent, who collects and pays taxes on our behalf. The problem arises when we rent it directly. There is no way for us, as individuals, to pay taxes. Only a registered corporation can do that. Fearing this crackdown, we have been trying to register our property as a private corporation and pay our own taxes on it. Guess what? Nobody knows the correct procedure for doing this (not even our attorney!) AND they say we can't even register to change our FM3 to go along with this (we would have to get working FM3's) until they expire this next September. It is not always easy to try to be a law abiding citizen here.