Legal Information

Purchase-Sale

Most real estate transactions are "opened" after a written purchase offer is accepted by the seller and when a purchase-sale agreement (promissory contract) is signed by both parties. In most cases, a deposit is required by the broker to transmit the offer to the seller. (If the transaction is being conducted directly with the seller, it is highly recommended that a real estate broker or lawyer be consulted before signing any papers or handing over any money.)

It is common practice to deliver to the real estate agency or an escrow agency, as an advance payment (deposit) the equivalent of 10% or 20% (depends of the owner) of the total price upon signing the purchase-sale agreement, which should contain a penalty clause applicable in the case there is a breach of contract by one of the parties. Normally, when signing the escritura or official deed, which needs to be certified by a Public Notary, the balance is paid and the property is delivered. This should not take more than 45 days. It is recommended that an escrow account be used for all real estate transactions.

The Public Notary

A Public Notary is a government-appointed lawyer who processes and certifies all real estate transactions, including the drawing and review of all real estate closing documents, thus ensuring their proper transfer. Furthermore, all powers of attorney, the formation of corporations, wills, official witnessing, etc. are handled and duly registered through the office of the Public Notary, who also is responsible to the government for the collection of all taxes involved.

In connection with real estate transactions, the Public Notary, upon request, receives the following official documents, which, by law, are required for any transfer:

• A non-lien certificate from the public property registry, based on a complete tide search;
• A statement from the treasury or municipality regarding property assessments, water bills and other pertinent taxes that might be due;
• An appraisal of the property for tax purposes.

Closing Costs

It is common practice that the buyer pays the transfer of acquisition tax and all other closing costs, including the Notary's fees and expenses, while the seller pays his capital gains tax and the brokers commission.

Since January 1, 1996, the federal law regarding the real estate acquisition tax, which was 2% for all the Republic of Mexico, was modified to allow each of the Mexican states to determine its own tax. The range now may be from 1-4% of the tax appraisal value, which is generally less than the sales value.

The rest of the closing costs, which exclude the transfer cost mentioned above, vary from 3-5% or more of the appraised tax value, depending on the particular state. These percentages are applied to the highest value of the following:

• The amount for which the property is sold,
• The value of the official tax appraisal,
• The value designated by the property assessment authorities.

Bank Trust (Fideicomiso)

The trusteeship of Real Estate contract is the only legal instrument and the most advantageous for foreign investors that wish to buy real estate or invest in tourist developments or industries, which could be found at all parts of Mexico, including prohibited or restricted zone, for 50 years renewable at the ending time

Trust Cost

Acceptance (One time every 50 years): $ 500 usd
Annual Fee (every year): $ 500 usd

Notice for Federal Registration Office and Bank Autorization(one time every 50 years): $1,000 usd
Permit Foreign Affair Ministry (one time every 50 years): $ 400 usd

These amounts could vary, depending of the bank that you will use to create your Fideicomiso. This is an estimate and these amounts are included in your closing cost.

Capital Gains Tax

In Mexico, the concept of capital gains tax does not apply in the same way it is determined in the United States. Here, the gain from the sale of property is treated as normal income at a tax rate of up to 35%.To determine the gain, the following costs and expenses are deducted from the amount for which the property is officially sold:

• The original land cost and the depreciated construction cost, based on the number of years the property was held and adjusted for inflation according to the official consumer price indexes;
• Additions, modifications and improvements, but not maintenance, made on the property (construction), adjusted as above;
• Commissions paid to real estate brokers by the seller;
• The closing costs, including all expenses, taxes and fees paid by the seller.

The Notary will retain the calculated gain after deductions, forwarding it to the Mexican tax authorities. The seller will then deduct this amount against his annual tax return, which becomes an adjustable tax credit in the U.S.A.

For a foreigner to be exempt from capital gains tax on a Mexican residence, he must have a permanent visa, such as an FM2 satisfy the notary with documentation of expenses, that the seller has used the property as his primary residence for the last six consecutive months, such as gas or electric bills for the property that he is selling.