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MEXICO MAGICO
Capital Gain Taxes |
By Prof. German Estrada - March 2007 - Photos by Jesús de Avila. |
At the end of 2006, the Federal Government of Mexico has issue strict orders to everyone involved in the Real Estate business, notaries, brokers, etc, stating that from then on, NOBODY can be exempted of paying Capital Gains Taxes, if the seller CAN NOT prove that he/she, first, is the “physical” owner of the property and, second, that can prove that the property that is being sold was the “primary residential” property where they lived permanently. This is NOT a new law…., they are simply enforcing it this time!
The FM3, a Visitors Visa, can not be used anymore as proof of residency, and as the Bank is the sole owner of the property through the Trust, and as a “moral” person can not be exempted of such payments, ALL foreign persons that bought a property within the Restricted Area of Mexico --- that is, 100 kilometers from the Border, and 50 kilometers from the beach---, will not be able to avoid paying Capital Gains –if any--- at the time of the sale.
When I wrote my book in the year 2000, “Mexico Magico, Everything You Wanted To Know”……But Nobody Told You…. there were -–there are--- 30 plus pages related ONLY to Buying Real Estate in Mexico. In it, one could find information that not even the notaries or most of the lawyers and, of course, brokers, knew about.  The difference between having a Board of Directors, or a Vigilance Committee, buying within the Restricted Area, and out of it, etc., and a lot of other information. Well, most people involved in this business, as well as many foreigners that bought it, either didn’t understand what I wrote there or, I’m afraid, they did decided not to pay any attention to it. They were buying in “Fantasy Island”, and that was enough for them. Besides, the “gossip” around the pools…, and during the “happy hours”, always gave them the “real” information about anything they wanted to know…….. SO????
In my column with the PVMirror, we wrote in 2004 the following: Many people, especially Lawyers and Notaries in PV, have tried to “interpret” these Laws. However, as far as we know and have been told by the highest echelon of Officials in the Secretaría de Hacienda, SAT (IRS), as well as many other Notaries in and outside of the coastal areas, “Fiscal Laws are to be strictly applied, and not to be interpreted”….; consequently, if one of these Notaries allows you not to pays this Tax, even in cases where you have a Bank Trust, it is them, the Notaries, the ones that will bear the responsibility for applying such exemption, as they are co-responsible, together with the seller, to pay it.
If they take this risk, let them, eventually, pay the price!
This brings us to something else connected with Real Estate business; for many years, many of the Mexicans buyers, as well as foreigners, under the advice of brokers, or the same “sellers” that are selling the property to them and, some-times, even notaries, have accepted to “lower” the price that has to be written in the Escritura (what for foreigners would be the Deed), in order to save the “buyer” higher Property taxes, but also to save the “seller” for paying higher Capital Gains. In the past, everybody was trying to avoid those Capital Gains Taxes, and everybody involved in “the game”, was trying to help. Usually when one buys any property, especially in a beautiful place like Vallarta, one is so happy that most of the time one does not pay attention to these little things, and accept any suggestion that is being made to them. Most foreign b uyers do not speak the language, do not know the laws of the country, neither the System, etc., and leave usually everything, all the bothersome process, in the hands of lawyers, brokers, notaries and what not. The consequences of this attitude has been that, many times, especially when the brokers do not speak Spanish, any mistake done by the notaries can not be “pint-pointed” by them, and, consequently too, can not be corrected in time. Years later, when the buyer becomes a seller, is when the “little mistakes” come into light, and bring some problems with them.
Prof. German Estrada
E-mail: estradanav@yahoo.com
Note: This article is re-printed every year –since 2004--for the benefit of the new readers of the PVMirror.
Prof. Germán Estrada is the author of the best selling book, México Mágico: Everything You Wanted To Know About... But Nobody Told You..." available in Puerto Vallarta at The Book Shope, Libreria Guadalajara, as directly from his website.
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