Mexico’s gambling landscape is evolving and complex, with a mix of historical regulations, modern reforms, and ongoing challenges. While Mexico has a regulated online gambling market, several established offshore gambling sites cater to Mexican players. Mexican citizens can legally gamble at offshore casinos, however, these sites must be properly licensed by the Mexican Government.
Mexican Law states that all income, including from offshore gambling, is subject to income tax. However, the tax authorities have not provided specific guidance on the applicable tax rates and reporting requirements, which if unreported, could subject players to tax investigations. How do the laws impact offshore gambling winnings?
Legality of Offshore Casinos
The Mexican government, through the Secretariat of Interior (SEGOB), is responsible for regulating, authorizing, and enforcing gambling activities in the country. Offshore gambling is allowed as long as these sites are properly licensed and regulated. Andrew O’Malley from Business2Community recommends these offshore casinos since these sites operate with proper licensing, have proper security measures in place, and have 24-hour customer support to ensure player safety.
The government has taken steps to block and restrict unlicensed offshore casinos since they are considered illegal. Despite these restrictions, offshore gambling sites without proper licensing are estimated to dominate around 60% to 90% of the online gambling market in the country.
Taxation on Offshore Winnings
All winnings from gambling activities are considered taxable income in the country. Players are required to report these winnings on their personal income tax returns. Typically, there is a 1% federal tax and an additional 4% to 6% state tax that must be paid on gambling winnings, depending on which state the player resides in.
Although unlicensed offshore casinos are considered illegal, all winnings derived from online gambling at these offshore and unlicensed sites are also subject to federal and state income tax rates. All players are required to declare and pay taxes on these offshore gambling winnings. However, this law is in contradiction to the tax reporting requirements and gambling laws surrounding offshore casinos.
Issues with Tax Reporting Requirements
Casinos located within Mexico have a tax reporting obligation to collect player information before making payouts. Whereas offshore online casinos that are not licensed in Mexico, do not have any tax reporting obligations, but the onus is on the Mexican players to report their offshore gambling winnings as part of their income tax filings.
The Mexican tax authority (SII) has formally acknowledged they lack visibility into the earnings from offshore gambling sites. They face challenges in effectively enforcing the reporting and payment of taxes. The SII has warned that failure to report these winnings could potentially result in tax investigations.
Contradictions and Lack of Regulations
Mexico does not have clear regulations on the taxation of winnings from offshore casino gambling platforms. The laws are more focused around the regulation of gambling operators rather than the individual player’s activities. Income Tax Laws in the country state that individuals residing in the country are obligated to pay income tax on the totality of their income, regardless of the source. This suggests that the Mexican government and SII expect casino winnings from offshore casinos should be declared and taxed. However the 1% tax rate mentioned only applies to winnings from legally authorized gambling activities in Mexico.
While the law implies that offshore casino winnings should be declared and taxed, the precise tax treatment is unclear due to the lack of specific regulations. This creates a contradiction between the general income tax requirements and the legal status of offshore gambling activities for individual players. Regardless of the lack of clarity regarding offshore gambling winnings, the federal and tax laws in Mexico require players to report these winnings.
