Tax Incentives & Issues on 50+ to Retiring in Mexico

By Mauricio Monroy

(Adapted from “Tax Incentives and the 50-Plus To Retire In Mexico)

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.