# Taxes on non-Mexican income for residents



## Future Retiree (Feb 6, 2020)

Hi. I'm considering retiring to Mexico from the U.S. in a few years, and I was wondering how people who have done so handle their income taxes.

As I understand it, anyone who is a resident in Mexico for more than 183 days/year is a resident for tax purposes, and must pay Mexican income taxes on all income from whatever source, including income from non-Mexican sources. That would include things like Social Security, interest from U.S. bank accounts, freelance income, etc.

I also understand that some or all Mexican income tax payments may be used as a credit on U.S. taxes because of a treaty between the two countries.

This all sounds very complicated, and potentially expensive.

So my question is how it works out in practice, and how most expats in Mexico, especially retired ones, handle all of this.

Thanks.


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## lat19n (Aug 19, 2017)

Future Retiree said:


> Hi. I'm considering retiring to Mexico from the U.S. in a few years, and I was wondering how people who have done so handle their income taxes.
> 
> As I understand it, anyone who is a resident in Mexico for more than 183 days/year is a resident for tax purposes, and must pay Mexican income taxes on all income from whatever source, including income from non-Mexican sources. That would include things like Social Security, interest from U.S. bank accounts, freelance income, etc.
> 
> ...


What is the basis of your understandings ? Could you possibly provide sources ?


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## xolo (May 25, 2014)

This is a really good question and is one of those questions that get every possible answer from don't worry about it to you're a criminal if you don't file.

I don't know the answer, but I *think* because of the tax treaty between the US and Mexico, taxation of US citizens (all foreigners with no income generated in Mexico?) is not enforced by the Mexican government, because Mexico would not gain any significant money from doing so.


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## Future Retiree (Feb 6, 2020)

lat19n said:


> What is the basis of your understandings ? Could you possibly provide sources ?


Yes, certainly. I apologize for not including references in my original post.

Note that I realize that I may be entirely wrong. I am not an attorney, tax law is complicated in any country, and more so when it's a country with whose legal system one is not familiar.

There is also the fact that sometimes the way things are on paper and the way things are in practice don't correspond 100%. But I prefer to follow the letter of the law, and taking risks on something this important would worry me forever. (I am known among my friends as a worrier.)

So I would be more than happy for someone with more knowledge to tell me I'm wrong, but here is my current understanding:

*1. Taxes on Mexican residents.
*
According to taxsummaries.pwc.com/ID/Mexico-Individual-Taxes-on-personal-income:

*Resident individuals are subject to Mexican income tax on their worldwide income, regardless of their nationality.*

So that doesn't appear to be in doubt. The question, then, is what constitutes Mexican residency. The same website says:

*The Federal Tax Code provides that a person is a resident for Mexican tax purposes when that person establishes a home in Mexico. If the individual has a home in another country, then the individual is a resident of the country where the individual’s centre of vital interests is located.*

I'm really not sure just what that means, but it sounds as though a person from another country (say, the U.S.) who has sold their home and moved to Mexico permanently could at least in theory fall into that category.

Another website, escapeartist.com/mexico/live/taxation-expats-mexico:

*In most cases, you’re a resident for tax purposes if Mexico is your primary home (your home base) and you spend more than 183 days in the country.*

I have seen similar information on several other websites.

Again, I would be more than happy to be told I don't know what I'm talking about.

PS: Sorry; as a new user, I can't post live links.


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## Future Retiree (Feb 6, 2020)

xolo said:


> This is a really good question and is one of those questions that get every possible answer from don't worry about it to you're a criminal if you don't file.


Thanks. That has been my experience, as well.

I'm not too comfortable with the "don't worry about it" approach. If I sell all my stuff and move my whole life to Mexico (and I'm not going to be financially able to keep a home both places) and then one fine day I find out that my income is going to be reduced by 30%, well, that would be a problem.

(There are also apparently lots of people who live in Mexico on one 180-day tourist card after another. It has worked for years; apparently now, not so much. I can see how the tax thing could become an analogous situation, but with much higher stakes....)


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## Bevdeforges (Nov 16, 2007)

This should give you some idea of the US-Mexico tax treaty: https://www.irs.gov/businesses/international-businesses/mexico-tax-treaty-documents
Normally the "technical explanation" documents are somewhat more readable than the actual treaty.



> The question, then, is what constitutes Mexican residency.


That, you'll have to get from the Mexican authorities. The 183 day thing is normally just a "rule of thumb" - but the PWC document you cite includes the common "centers of interest" clause.

If you move to Mexico, have your "main home" there, you will probably be considered "tax resident" from day one. 

But take a look, too, at IRS Publication 54 on Overseas Taxpayers, too. As a US citizen, you never lose your obligations to the IRS no matter where you live. https://www.irs.gov/forms-pubs/about-publication-54


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## lat19n (Aug 19, 2017)

I was in the process of writing this long response but then noticed that Bevdeforges had chimed in. You, 'Future Retiree', should probably post your tax related questions to ; 

https://www.expatforum.com/expats/expat-tax/


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## dvinton (Mar 8, 2019)

This post is in good timing as my wife and I are moving permanently to Mexico this year.

In my research, I found this link to offer straight forward information on this subject, https://www.expatsinmexico.com/tax-time-for-american-expats-in-mexico/.

My observations and takeaways:

As a US citizen, you must file with the IRS no matter where you live. An exception could be if you're living solely off of Social Security.​
State tax filing requirements will depend on what state you are moving from. We'll be moving from Oregon. We will (eventually) file as an Oregon non-resident having no domicile in the state and no income derived within the state, leaving us with a zero state tax bill.​
I've not had a chance to assess our eventual Mexico tax liability. From what I can tell, our US-based income (Social Security, IRAs, ...) is not taxed by the Mexican authorities. Initially, we have no plans to do anything that would generate income within Mexico that would be taxed by Mexico or the US.*​
As usual, consult your financial and tax advisors.

*Long term it makes sense (at least to me) that if you are living permanently in Mexico but derive all your income from US-based equities, you ought to hedge your bets on currency swings by having some income derived from a peso based investment such as Mexican federal government treasury bills like Cetes. If someone is familiar with Cetes (or other federal bonds) I'd love to get your take.


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## Lawgrrl (Apr 24, 2015)

There is more information directly from SAT (Servicio de Administracion Tributaria) on this page: HOW TO PAY TAXES. Difficult to read or understand. My "impression" from the summaries published by the Big 4 accounting firms is that "all" income earned by permanent residents of Mexico is taxable, but the SAT page seems focused only on income (of whatever type) earned in Mexico. Banamex withholds from the puny interest earned on my savings account with them and gives me a 1099 in English with the amounts converted from Mxn pesos to US$. Anyone who sees it differently, feel free to chime in.


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## Future Retiree (Feb 6, 2020)

Lawgrrl said:


> My "impression" from the summaries published by the Big 4 accounting firms is that "all" income earned by permanent residents of Mexico is taxable.


That is absolutely my impression. In fact, I have seen it so many times from so many authoritative sources that I don't think there is much doubt about it. 

Still, I can't help wondering about a few things.

1. Maybe I'm wrong, but I just can't believe that all (or even most) of the _gringos viejos_ who live around Lake Chapala or San Miguel de Allende are filing all the paperwork with the SAT to pay taxes on their U.S. social security and pensions. The SAT has to know that that is happening. Have they made a decision (formal or informal) not to go after people in that situation?

2. The definition of "permanent resident" seems vague. For example, if a U.S.-based freelancer puts her stuff in storage and rents an AirBnB for 9 months, does that make her a permanent resident? Some sources suggest that probably so, since she will be in Mexico for more than 183 days. Other sources suggest that if her "center of vital interests" remains elsewhere, perhaps not.

Thanks to all who have read and replied, and to anyone who has further comments. Some of my friends call me a worrywart, but I respect Mexico and want to obey the country's laws, and I also don't want to have my financial situation upended at a point in my life when it would be hard to regroup.


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## dvinton (Mar 8, 2019)

More searching lead me to the "UNITED STATES - MEXICO INCOME TAX CONVENTION" treaty.

https://www.irs.gov/pub/irs-trty/mexico.pdf

I think it is fair to say the primary purpose of this treaty is to manage (eliminate?) double taxation.

Since our sources of income will be a combination of SS, public pensions and IRAs this section is of particular interest:

_
ARTICLE 19
Pensions, Annuities, Alimony, and Child Support

1. Subject to the provisions of Article 20 (Government Service):

a) pensions and other similar remuneration derived and beneficially owned by a resident of a Contracting State in consideration of past employment by that individual or another individual resident of the same Contracting State shall be taxable only in that State; and

b) social security benefits and other public pensions paid by a Contracting State to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State._

Section b) seems pretty straight forward, Social Security and US public pension income is taxable only by the US.

Section a) concerning income from an IRA (I'll claim that as a pension) isn't taxable as it's not derived from Mexico. I'll still have a US tax liability, though.

I assume that to keep everything on the up and up, you should file with the Mexican authorities.

And as always, consult your legal and financial advisors.


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## RVGRINGO (May 16, 2007)

In Mexico, you are to file and pay on what is earned and paid IN Mexico.
If a US citizen, you will still be responsible for US taxes, but will not be 'double taxed'.
Permanent Residency is a visa status, which must be qualified for, and applied for, at a Mexican Consulate before you enter Mexico. Permanent Resident visa holders may work in Mexico. Tourists are prohibited from working. Temporary Resident visa holders may work only at specific approved positions with permission from immigration authorities (INM).


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## dwwhiteside (Apr 17, 2013)

First, I am not an accountant, a tax lawyer or any other type of tax professional. Second, I am not attempting to provide you with any direct professional advice. However, I have been living full time in Mexico for the past 7+ years and have spoken directly to representatives of SAT twice.

Both times I was told the same thing; I would only owe taxes to / in Mexico if my income is earned / paid in Mexico. Since I work online for a U.S. company, and my pay is deposited in U.S. dollars in my U.S. bank account, I have no tax liability in Mexico and I am not required to file a Mexican tax return.

I am also told that U.S. Social Security payments or payments from any other type of U.S. based pension are not considered income earned in Mexico. You would still have U.S. tax liability on these and you will still have to file a U.S. tax return every year. But, per my understanding from face-to-face discussions with SAT officials here in Mexico, I owe no Mexican income tax and I am not required to file a Mexican tax return.


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## eastwind (Jun 18, 2016)

I am in the process of buying a condo. I had a discussion with a notario today about whether I could claim the 700,000 UDI capital gains exemption for sale of a primary residence when I sold the condo, and what I'd have to do to qualify for that.

The reason I asked was I had gotten conflicting information from an abogado (not a tax accountant, but the one who's helping me buy the condo) and online. The online info said if I have residente permanente status, live in the house for 3 years as my primary residence, have a Mexican Tax Id (RFC or Registro Federal de Contribuyentes) and some other requirements, then I can take the deduction at the time of the sale (against the tax owed on the capital gain from the sale).

The Abogado had info from an accountant who said it was only available to Mexicans (citizens), but that is apparently incorrect, as the Notario confirmed the online info - he said the important thing was the tax id, which I can get once I have RP status (later this year for me).

So what I'm thinking is that, for myself, I may wish to start filing Mexican tax returns (starting for year 2020) even if I don't have any liability (due to no Mexican income) just to have that RFC against the day when I sell the condo (assuming for a gain).


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## lat19n (Aug 19, 2017)

I am now a Mexican citizen and do not have a SAT issued RFC. We only have passive income. We own our own home now for many years. We were advised by an accountant at a rather large international/Mexican firm that when the time comes that we ever can sell our house, we can be issued a one time/one use official RFC at that time.

We were also advised to not file Mexican returns.

There is a situation you can get into if you have a substantial amount (and there is an official figure) of REAL interest in Mexican investments (over and above inflation) that you ARE required to file a Mexican return and pay more taxes on top of the withholdings at the bank/financial firm.


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## TundraGreen (Jul 15, 2010)

lat19n said:


> I am now a Mexican citizen and do not have a SAT issued RFC. We only have passive income. We own our own home now for many years. We were advised by an accountant at a rather large international/Mexican firm that when the time comes that we ever can sell our house, we can be issued a one time/one use official RFC at that time.
> 
> We were also advised to not file Mexican returns.
> 
> There is a situation you can get into if you have a substantial amount (and there is an official figure) of REAL interest in Mexican investments (over and above inflation) that you ARE required to file a Mexican return and pay more taxes on top of the withholdings at the bank/financial firm.


Out of curiosity, why would you want to get a one-time/one-use RFC. Why not just get a regular RFC and be done with it. 

I also am a now a Mexican citizen. I used to work for the Mexican government. At that time I was here on a permanent visa. I got an RFC and paid Mexican taxes. I no longer earn any money in Mexico, but I still have the RFC. I haven't filed Mexican taxes since I stopped earning pesos. It has been about 10 years and I haven't heard anything from SAT since I stopped working for pesos. It would have been nice to hear from them actually. If I recall correctly, they owed me a tax refund of around $3000 mxn that I never received. I still work for a US company and am paid in dollars.


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## eastwind (Jun 18, 2016)

@lat91n Interesting. I may get directed into that same path, I'll have to see. I certainly wouldn't resist it, it sounds like a lot less hassle that what I was figuring I'd have to do.


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## RVGRINGO (May 16, 2007)

Abogados are poor sources for real estate information. Only Notarios can handle real estate, wills, etc.


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## lat19n (Aug 19, 2017)

RVGRINGO said:


> Abogados are poor sources for real estate information. Only Notarios can handle real estate, wills, etc.


We have used a notary twice. Once for purchasing our house. Then again for our wills. On both occasions, although we shook hands with the notary, it was a lawyer we were interfacing with. The notary's real estate lawyer was incredible. She saved us huge on the taxes related to the transaction. She put us in touch with another lawyer with whom we sued (the state) to get a good chunk of our closing costs returned. The notary, a father/son team, likely has 20-30 deals in process on any given morning. Their name is on the building but it is the lawyers who do the work. 

Our realtor (Canadian/Mexican), the son of the owner for a large US based realty franchise, was also very aware of possibilities. He knew of ways we could save on closing costs, etc. He really earned his commission.


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## RVGRINGO (May 16, 2007)

A Notaria (the office) has a Notario (male) or Notaria (female) as its respolnsible person. Abogados may be employed there in support roles, and such experience is required for them to ever stand a chance of being appointed by the State as notarios themselves. That is probably what you experienced. Then, when you needed to bring suit, a regular abogado would normally be used, and not need to be associated with a notaria.
Real estate offices and agents can also be good sources of information, as one would expect, but one should know that they are comjpletely unregulated in Mexico and no training or licensing is required.


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## lat19n (Aug 19, 2017)

RVGRINGO said:


> A Notaria (the office) has a Notario (male) or Notaria (female) as its respolnsible person. Abogados may be employed there in support roles, and such experience is required for them to ever stand a chance of being appointed by the State as notarios themselves. That is probably what you experienced. Then, when you needed to bring suit, a regular abogado would normally be used, and not need to be associated with a notaria.
> Real estate offices and agents can also be good sources of information, as one would expect, but one should know that they are comjpletely unregulated in Mexico and no training or licensing is required.


Thanks.


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## Lawgrrl (Apr 24, 2015)

Thank you all for your thoughts and experiences! I searched out a Mexican abogado (recommended by a Spanish-speaking California attorney living in Tijuana) for more information on this topic. As @lat19n noted, "There is a situation you can get into if you have a substantial amount (and there is an official figure) of REAL interest in Mexican investments (over and above inflation) that you ARE required to file a Mexican return and pay more taxes on top of the withholdings at the bank/financial firm." According to the abogado I spoke with, "When income in Mexico exceeds 400 thousand pesos, go to a local accountant." He also stated "You should know that if you are an American citizen, you should not declare the income earned from your
pension in Mexico, because they do not come from a source of wealth located in Mexico." So, that's what I'm going with.


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## xolo (May 25, 2014)

RVGRINGO said:


> A Notaria (the office) has a Notario (male) or Notaria (female) as its respolnsible person. Abogados may be employed there in support roles, and such experience is required for them to ever stand a chance of being appointed by the State as notarios themselves. That is probably what you experienced. Then, when you needed to bring suit, a regular abogado would normally be used, and not need to be associated with a notaria.
> Real estate offices and agents can also be good sources of information, as one would expect, but one should know that they are comjpletely unregulated in Mexico and no training or licensing is required.


The office is a notaría (note the tilde, that changes the word, of course, in Mexico few bother with tildes), notaria/notario are the people. In Spanish, the words are not capitalized. And yes, I taught Spanish a few years at a university. OK, I'm admitting in advance I'm a pedant.

The reason they are father/son teams is because, at least in el Estado de México, the children can inherit the post.

I've had tremendously good advice from a regular abogado concerning real estate. (my experience)

In the notario's office, in my experience, the regular abogados do the work. I've actually talked to a notario (Only because I insisted, they probably thought "pobrecito extranjero, no entiende nada") which was great because he explained a ton of stuff.


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## RVGRINGO (May 16, 2007)

Tilde is like this: ñ
Accent is like this: á

I do try to pay attention, but I also miss some things, as you noted. We all do.


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## lat19n (Aug 19, 2017)

RVGRINGO said:


> Tilde is like this: ñ
> Accent is like this: á
> 
> I do try to pay attention, but I also miss some things, as you noted. We all do.


Thanks.


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## TundraGreen (Jul 15, 2010)

xolo said:


> The office is a notaría (note the tilde, that changes the word, of course, in Mexico few bother with tildes), notaria/notario are the people. In Spanish, the words are not capitalized. And yes, I taught Spanish a few years at a university. OK, I'm admitting in advance I'm a pedant.
> 
> The reason they are father/son teams is because, at least in el Estado de México, the children can inherit the post.
> 
> ...


When I bought my house, the notario himself was about 90 years old. He came in for a few hours every day and spent the time sitting in the conference room reading a novel. All the actual work was done by his daughter who was very competent.


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## Meritorious-MasoMenos (Apr 17, 2014)

Well, this thread is mainly about paying Mexican income tax, but to make people feel better, unless they earn north of $100,000 in U.S., they don't own income taxes on any of it. If it's earned income, FICA required. No FICA for Social Security and pensions:

https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion

"If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($103,900 for 2018, $105,900 for 2019, and $107,600 for 2020). In addition, you can exclude or deduct certain foreign housing amounts."

I'm sure tax laws change often but when I worked for U.S. company in Mexico for nine years in 1980s, the employer stopped taking out income taxes on first paycheck in Mexico but did take out FICA.

I was registered as a foreign correspondent with Mexican gov't, which gave me a yearly visa, I guess (I never did anything. Company handled it) and I also got a tremendous "get out of jail free" card, a beautiful "From the President of Mexico's Office," with my picture and name on it, ordering all officials to extend me every courtesy. It did spoil me. I breezed to head of the line at customs (and it was long coming back from Central American wars), showed my pass and strode right through, never any bags checked; cops who stopped me driving apologized and sent me on my way. I did go to Guadalajara in 1985 but fortunately to do stories on city's boom (no one mentioned cocaine) and tequila so left with my head attached. I did visit the shrine to the outlaw Jesús Malverde and did a story on that. Came in handy when DEA agent killed, but I wrote safely from 'DF. But anyway, company also told me Mexican govt never taxed foreigners for income from their home country.

Those of us on retirement visas have to declare income far higher than 70-80% of Mexicans make and this is not taxable in Mexico.

Online income is an evolving situation. Most countries have strict laws on who can work in their countries so as not to take away jobs from locals, but obviously doesn't apply to online work for foreign country for foreign clients with nothing to do with Mexico.

Now in Thailand, I've been reading and corresponding on it. it's like the European countries who are so angry that all the big tech giants are American and they want a piece of it. France passed a law to tax Facebook and Trump slapped big tariffs immediately on French wine. I read on this. Macron has been trying to find solidarity with other EU leaders for joint action against the U.S. but all have told him to go eat snails.

Think about it. Amazon pays sales taxes, but they make their income on electrons beamed down from satellites or across fabric optic cables beneath the oceans that the US and UK laid down. "French ain't done squat." But they just look with envy at the tens of billions of profits made by Facebook, Twitter, Amazon, Uber, Lyft. 

Corollary is that France, Germany and other EU members have invested tens of billions to incubate tech start ups but their regulations kill most. Only the UK and Israel have created true 21st century economies. Israel has one percent of world's population but receives 20 percent of hi-tech patents yearly.

How exactly would a foreign govt, unless it's Chinese, know what you're doing online? The crunch comes if you're seeking a non-retired visa and have to prove income. Again, long as you're living outside the U.S. for I think 50 weeks (maybe 48), you don't owe US income tax, though you must file, for anything up to $107,000 this year, but do owe FICA.

I would just find the closest Mexican consulate, rather than relying on what you find online. Make an appointment for a visa and bring in your proof of income and see tawhat they say about taxes.

Again, even if you have to pay, it might not be as much as US Income taxes. Again my experience from 1980s so outdated but Mexican wife and I set up a retail business that was making money hand over fist (I was just leaving my US salary in the bank), and when we went to pay income tax on it, it was just on the form of the business, not how much made, and the income tax was something like $5.00 US per quarter. We had to keep from laughing as we paid. 

The Mexican govt back then had no idea how to deal with collapse of Mexican peso on world markets. It had to have changed by now. 
Anyway, there are hundreds, even thousands of American, Brit and Canadian digital nomads living in EU or traveling the world. As long as they just stay on tourist visas and move on, they don't face tax consequences unless they're dumb enough to ask pretty please do they owe taxes. The crunch, same as Mexico, would come if they seek a permanent visa.

If the tax bite is high in Mexico, you just might find it easier to live in Mexico on a tourist visa and leave every six months. Unless you come across in rags on foot and look like a druggie, I don't think Mexicans are going to ask Canadians and Americans how they make money for a tourist visa.


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## xolo (May 25, 2014)

RVGRINGO said:


> Tilde is like this: ñ
> Accent is like this: á
> 
> I do try to pay attention, but I also miss some things, as you noted. We all do.


As many of us do (but not all, especially not Mexicans).

In this case, you might be right in English (not sure if the word exists in English) but in Spanish, no, from the DRAE, definition 1:

tilde (de tildar)

1. f. acento (‖ signo ortográfico español). Raúl se escribe con tilde en la u. Era u. t. c. m.


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