BY LINDA JONES NEIL
Mexican law says that taxes must be paid on the higher of the following: purchase price OR appraised value. Since many appraisals are lower than the actual selling price, your taxes will be considerably lower if the appraisal value is declared. Payment on this basis has taken place for many years in many parts of the country. It is, however, illegal. Should you choose to pay your costs on this basis, please be aware that: 1. it is a violation of the law and 2. your tax base will be low for declaration of value in the property when you sell it. Furthermore, if you are financing your property through an institutional lender, the full value must be declared.
Following is an example of some of the steps involved in obtaining a registered title. The costs for the same will vary with the property and a written estimate should always be obtained before initiating the process.
OFFICIAL APPRAISAL: The appraisal must be made by an appraiser who is often an architect or civil engineer and who is recognized as a Perito Valuador, Official Appraiser, by the property tax authorities in the municipality where the property is located.
This is required before completing any transfer of title. If an institutional lender is involved, a commercial appraisal may also be required.
FOREIGN RELATIONS PERMITS: If the property you are purchasing is already in a trust (fideicomiso) you may either: request assignment of the rights to you or may request a new trust for fifty years. If a new trust, a permit from the Secretary of Foreign Relations is required.
Whether a new trust or an assignment of rights, the deed in the new buyer’s name must be registered in the National Foreign Investment Registry. When considering a new trust or an assignment of rights, the factors to be considered are: 1. Remaining term of the existing trust - when will it need to be renewed? and 2. What are the annual bank fees under the existing trust?
If the permit has an unexpired term of less than fifteen or twenty years and/or the annual bank administration fees are more than $500.00 U.S. it probably makes sense to obtain the permit for a new fifty-year trust with a bank offering more attractive fees.
NOTARY FEES: The Mexican Notary Public is an attorney who has practiced his profession for at least five years and has been appointed by the governor of the state in which he is practicing. His duties and obligations include drafting the deed, calculating of seller’s capital gains taxes and buyer’s acquisition taxes and "give faith" to the validity of signatures. The persons signing before him must prove they are who they say they are. Because the responsibility and potential liability for the actions of the Mexican Notary Public are considerably higher than those of Notaries Public in the U.S. and Canada, the notary’s fees will also be substantially higher than those charged on the other side of the border.
These fees are based upon a rate schedule reviewed and approved annually by the College of Notaries Public and are tied to the amount declared in the property transfer.
I.V.A.: The Impuesto Sobre Valor Agregado (I.V.A.) is a value-added tax which is charged on all services. It is 16% of the value of services provided. IVA taxes must be paid on services provided by the Notary, the appraiser and any other professionals whose services you use.
BANK ADMINISTRATION FEES: If title to your property is in a bank trust there will be annual fees for the administration of same. Over the past few years, there has been a substantial decrease in annual fees and it makes sense to shop around for the most favorable rate for the property being purchased if a new trust is contemplated. If an assignment, new rates may also be negotiated.
Traditionally, trustee banks have not sent annual statements. It is important to request a statement from your trustee bank at least 90 days before the anniversary of the trust and pay on time to avoid penalties, or to contract with a company providing this payment service.
PROPERTY TAXES: are municipal tax and income benefits for the municipality. Typical rates for residential dwellings are 6.5 (pesos) per 1,000 and 13 per 1,000 for properties destined as rental units.
Vacant lots are rated at 26 per 1,000 with an increase of 2.6 per annum for each year there is no construction declared on the lot. The maximum amount is 52 per 1,000. Valuations for property tax purposes are generally made every two to three years or at the time of sale of a property. Property taxes must be brought current before the transfer of the title.
ACQUISITION TAX: The acquisition tax, or transfer tax, is generally paid by the buyer. It is currently between 2% and 3.5% of the declared value of the property in most parts of the country.
CAPITAL GAINS TAXES: A foreigner who sells property in Mexico is liable under special rules, much like the United States, for the payment of the I.S.I.R. (Impuesto Sobre la Renta) which is the Mexican equivalent of the Capital Gains tax.
Liability is either 25% of the declared value of the transaction or 35% of the gain, taking into consideration the length of time held, the improvements made, commissions paid and other allowable expenses. The formula is complicated and the tax should be figured both ways and confirmed by the Notary Public who will be having the documents recorded and making the tax payments. This is a seller tax and the title cannot transfer to the buyer until this tax has been paid.
SETTLEMENT FEES: Attorneys and Notaries Public often oversee parts of the previously described required steps to a transfer. The buyer, however, usually has to do a certain amount of his legwork and can certainly do so if he has a good command of the Spanish language. Unless the buyer has a lot of time to spend on the activity, it may make sense to hire a company whose sole purpose is to supervise and coordinate the permits, tax payments and other details necessary to obtain the full legal right to the property being purchased. Fees for these services will vary with the value of the property and the complexity of the situation. It is important to always request a written estimate of all the expenses before beginning the transfer!
ABOUT THE AUTHOR: Linda Jones Neil is the founder of the settlement company. It is the first company in Mexico dedicated to counseling buyers and sellers and to supervising the closings and registrations of real estate for non-Mexicans. The company provides title investigations, due diligence and legal services for buyers and sellers, as required, for properties and corporations holding real estate located anywhere in Mexico. For further information and references, please contact E-mail info@settlement-co.com, website: www.settlement-co.com
Copyright, 2004-23, Consultores Phoenix, S.C. Reproduction prohibited without permission.
