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000136 Visit since
| TAXES, CAPITAL GAINS |
by Prof. German Estrada
January 3rd, 2004 |
I was about to write something
regarding some of the problems that foreigners encounter
while they are in Mexico (not necessarily related
to Real Estate), when it came into my hands a couple
of newspapers that are printed and edited "up north", in Baja California (MEX),
in which both have articles about topics that are "de
moda", that is, that are actual and that, YES, are
part of the problems that you may find here in México
and, especially in the area of Puerto Vallarta and,
yes, they talk about real estate: MEXICAN CAPITAL GAIN
TAX when you sell your property. (again, those ugly
words!).
Some lawyers and notaries
in this area of Vallarta <Bahia de Banderas>, as well as the
representative of the IRS here (and for reasons that
only they know), have come up with a "different" interpretation
of the Fiscal Laws. And I say different, because
it's NOT what the written law says and what the Secretaría
de Hacienda (SAT=IRS) in Mexico City has clearly
stated, or what most other notaries in Mexico know
and legally apply. These people here in PV, have
said that what the main office in Mexico City has
stated is "just an opinion"? (who ever said that
father knows best, or even those who suppose to know
and that are in the top positions of the Ministry..?).
It seems to me that regardless
of whatever their reasons are <here in PV>, they are part
of a minority that tries to interpret laws that should
not be interpreted, but applied. I wonder why this
happens, mainly, in places where there is an increase
in the foreign population.?
In these long news articles
about Capital Gain Taxes and Rental Taxes, they explain
very clearly the whys and why-nots of these hated
themes; I will only transcribe some excerpts that
I found very interesting with regard to Capital Gains
Tax, or ...what is the
value declared in your Deed $:
"Just as in the United States or Canada, the
foreigner selling his trust rights in real estate
must pay a tax on his profits to S.A.T., previously
known as Hacienda, Mexico's version of Uncle Sam.
None of us like to pay taxes but we've become accustomed
to paying them in our own countries and, believe
it or not, Mexico's tax is probably no worse than
what we would pay in our own native countries...;It
is critically important to know how to structure
the purchase and sale. For this reason it is recommended
that professional advice be obtained both at the
time of purchase, and at the time of sale".
Then they give some examples
of what can happen when one does this or that...,etc., but the important
parts of these articles, I believe, is when they
write about ..."those buying property today should
INSIST upon having the full purchase price, or its
equivalent in Mexican pesos, declared in their Deed
when made before the Notary Public. This means they
will be paying more in acquisition tax when they
purchase. This levels the playing field, however,
and sets the scene for fair and reasonable tax treatment
when the property is sold..; and they continue with.
In this transition period between DECLARED
value and REAL value, buyers may need to be prepared
to assist sellers caught in this bind, with their
capital gains tax payment in order to make the purchase.
The Mexican government is enforcing the law as written.
Foreigners buying properties need to be aware of
this law and set the stage at purchase in order to
avoid financial loss when selling
Buyers who insist on declaration
of their full purchase price will meet resistance
from sellers however, who ignore or were unaware
of the law when they, the sellers, purchased..
and then they go on to clarify
what some people in PV and surrounding area refuse
to understand..
Sale of Primary Residence (1)
Mexican citizens who are selling
their primary residence are permitted an exemption
from the IRS (capital gains tax). Many accountants
and notaries have tried to obtain this exemption
for foreigners who have Mexican resident immigration
status and who can prove they lived continuously
in the home as Mexican residents for more than two
years. The tax authorities however, have ruled that
this is incorrect when the property being sold is
in a Mexican bank trust (fideicomiso). Income from
the sale does not come from the sale of a real property,
authorities declare, but from the sale of trust assets,
and therefore is not exempt. Since the only legal
way for a foreigner to acquire residential property
in the "restricted" zone
is through the Mexican bank trust (fideicomiso),
it would seem this would be a violation of equal
rights under the law as provided in the Mexican Constitution.
Until this point is addressed and changed through
legislation or through the tax courts, however, a
capital gain tax exemption for properties in trust,
is NOT permitted by Mexican tax authorities".
Note: (1) If it cannot be
done in the "Sale
of a Primary Residence", less possibilities should
apply to the "vacation home or property.
This article was written by
Linda Neil with Lic. Mario Valdéz, fiscal
advisor, and appeared in the California Sun. You
can contact them at: info@settlement-co.com or
at the website www.settlement-co.com
There is an interesting Editors
Note at the end of this article that says.."The above
article is excellent information. What I have observed
during my scant years in Mexico is that foreign buyers
are frequently willing or be induced or convinced
(or suggest themselves) that a lower value be declared
on the property they are purchasing in order to pay
less taxes, and therefore the seller pays less Capital
Gains.
In the case of Mexican property
purchase, it is far better to " bite the habanero " when
you make the original buy, that to suffer the resulting
financial hemorrhage when you sell.."
And I only would add to it, Amen!
Note:This article was written sometime ago,
but some readers have asked me to print it again. gestrada@pvnet.com.mx
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 Net House, Mail Boxes, Etc., Books,
Books as well as directly from the author by internet.
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