Tax Incentives and the 50-Plus to Retire in Mexico

By: Mauricio Monroy
Mauricio Monroy Contadores Ibáñez Soltero Gómez Paz y Monroy, S.C.

The North American 50 Plus Community will retire in an specially peculiar economic environment after a severe global economic crisis. Retiring in Mexico will not only offer the benefits of a hospitable low-cost environment in the charm of pristine beaches with either lush tropical or desert surroundings, or the charm of Mexico’s interior colonial towns. 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. Furthermore, common sense dictates that after the economic crisis, among many other matters to revise, tax systems should be a must. Mexico should not be the exception. The challenge though, will be to balance en effective tax policy to secure the much needed tax revenue, with a key factor to boost growth: tax investment incentives. Discussing this matter would require various volumes of essays and research papers. In this brief note, I want to simply enumerate some aspects that, in my opinion, would deserve special attention to enhance the position of Mexico as a destination for retirement and health tourism in the years to come.

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)1, hospital services, not including medical fees that are exempted, are subject to value-added tax. It seems to me that 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. But this is, again, just an area of opportunity for lobbying before the Mexican tax authorities. 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 (ask for Mauricio Monroy Contadores analysis of the Agreement to: info@monroycp.com). These types of agreements, also known as Totalization Agreements, are not new. Since the 1970’s the US has entered into this type of agreements 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. Furthermore, it is desirable that Canada and Mexico competent authorities will sit down to negotiate a similar agreement for the benefit of the citizens of their countries. 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 under treaty provision it may be interpreted that both Canadian and US residents should be given the same treatment as the Mexican residents, and thus allowing them not to be subject to tax when they sell Mexican residential property, the law is not explicit. It would be advisable to clarify in the
1 Value-added tax is a sales or use tax levied at the rate of 15% but at 10% in certain areas including the US Mexico border area and all of the Baja peninsu

Mexican domestic law that US, Canadian and residents of other Mexico treaty countries are not subject to tax when they sell their residential property in Mexico.
As stated above, it is evident that after as a severe economic crisis as the one that seems to be overcome, a congruent tax system should be enacted to balance the need of raising tax revenues and the reality of the need of tax incentives to investment, tourism, and to contribute to the attraction of US and Canadian 50 plus to consider their retirement in Mexico.