Yes, they can be residents of Mexico or Canada and still qualify as a "Qualifying Relative". However, they have to be a U.S. citizen, U.S. resident alien, or U.S. national.
- Some relatives must live with you in your home for the full year, but exceptions exist for close relatives like your parent, grandparent, sibling, niece, or nephew.
For additional information, see
What is the $500 Credit for Other Dependents (“Family Tax Credit”)?
