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Questions about Real Estate in Mexico.
By Harriet Murray
December 27, 2003 |
1. How do leases work in Mexico?
 There are written leases that are long term and holiday
or resort leases for short-term. The law has changed
recently and there are more details about the difference
in taxes owed by the owner of furnished property versus
unfurnished property. If you are an owner leasing your
property, you need expert advice from an accountant
or attorney. If you are a renter, you need to learn
your rights. Owners and renters should both know that
there are laws affecting the leasing of the property,
whether there is a written lease or a verbal agreement.
You need to become informed.
2. What taxes do I owe if
I own or rent in Mexico?
If you own property in Mexico, when you bought you
paid a transfer or acquisition tax. This tax in Jalisco
is a percentage of the tax value of the property.
As an owner, you also owe yearly property taxes. If
you pay in January, you will pay a lesser amount than
later in the year. Do not expect to receive a tax bill
in the mail. It is your responsibility ( you or your
designee) to go to the tax office to request your property
tax bill. In Puerto Vallarta, the Presidencia Municipal
is off the main plaza. You will go there to the office
of Catastro to request your predial, or tax bill. Your
clave or file number enables the tax office to identify
your account. This number is on the predial or tax
statement. Ask for a copy of the seller's predial before
you complete your purchase. The notary will make sure
the taxes have been paid, and they will have an official
receipt of payment at the closing.
The tax year is divided into
6 parts. You can pay your prorated tax every two
months or pay any portion or the entire total at
one time. 1/2003-6/2003 means a 12-month period.
The name on the account will be the bank holding
the fidecomiso, so your name is not going to help
you get the clerk behind the desk to find your tax
bill. The record keeping system is not categorized
in that way. The street address and colonial or building
subdivision will also be on the bill. Your account
cannot be looked up from this information. "Recibo
Oficial del Impuesto Predial" should be an important
receipt you get every year.
The tax rate in 2003 for residential
property in Puerto Vallarta was .0012 percent of
the "valor fiscal" or
tax value of the property There are cases in the past
when someone who was not an owner paid the taxes on
the property for a term of years, and eventually their
name appeared on the tax receipt as the owner of the
property. They, indeed, became the owner of the property.
Pay your taxes, review and keep your receipts.
Other than acquisition and yearly real estate property
taxes, you pay iva and income tax when applicable.
Iva or sales tax is 15% in Jalisco, but the states
vary. Cabo is 10% iva when I last checked. A commercial
property, upon sale, can be charged sales tax (iva)
in addition to capital gains tax. Nationals and foreigners
owe capital gains tax unless they are exempt. Nationals
and foreigner alike owe iva or sales tax and income
tax when applicable.
You pay iva when you purchase goods and services.
The owner of property is responsible for paying the
iva on rental income. Besides sales tax or iva, income
tax is due from the owner on income earned. There are
allowable deductions against income before the tax
is computed. You need to learn how to properly deduct
expenses. Find an accountant whom you trust to guide
you properly. In order to use deductions against income,
you need to be registered in Mexico as a business and
file tax returns in Mexico.
3. How does inheritance
of property work here?
Your fidecomiso document names your beneficiaries
in the event of your death. The notary will request
this information and your heirs will be named in the
escritura filed in the public registry. This fidecomiso
then becomes your will for the property you are purchasing.
You are the primary beneficiary named in the fidecomiso
and receive the right to buy, sell, remodel, rent,
gift from the Mexican bank administering your trust.
The secondary beneficiaries are the persons you name
as your heirs who will receive the property upon your
demise. Their inheritance of your property through
this instrument does not require additional transfer
or acquisition taxes at this time. The heirship you
name in the fidecomiso is superior to other documents,
such as separate wills in Mexico or elsewhere.
Your heirs do not have to pay for a new trust, as
they are already named in the existing fidecomiso.
In order to amend the trust, the bank needs to be notified
whereby the new primary beneficiaries are named in
a letter signed by the bank and properly certified.
If your beneficiaries have died and you have not changed
your fidecomiso, you have no heirs named for your property
in the document. A separate will can then be considered
as your directive. You may choose other secondary beneficiaries
and amend your fidecomiso properly. You can also change
your mind and replace the existing secondary beneficiaries.
You have to amend the trust to correctly do this. The
bank will charge for this additional work.
4. How are the purchase
funds sent and paid to the seller?
Purchase funds for the property have to be sent to
the seller at the correct time. It is common in Jalisco/Nayarit
for the buyer to make a deposit of a portion of the
sales price when an agreement to sell a particular
property has been reached. Real estate brokers cannot
legally hold funds in their bank accounts.
There are very few sources for legal escrow accounts.
Certain Mexican banks are given government permission
to hold and administer escrow funds in US dollars.
These funds are to be disbursed under the terms of
a detailed escrow contract, which is signed by the
buyer and seller. The seller is the beneficiary of
the escrow contract. Mexico has enacted very strict
laws regarding the receipt and distribution of these
funds. The bank charges a fee to administer the escrow.
This is separate from the yearly administration fee
the bank charges to administer your fidecomiso. The
bank administering the escrow account can be different
from the bank, which is administering the fidecomiso.
Some title companies in the USA are approved to legally
hold escrow funds for Mexican property. This escrow
account is separate from title insurance and there
is a charge to administer this escrow account.
The notary collects funds from the buyer to order
the permits, tax appraisal and the no lien certificate.
Holding purchase funds is not part of his responsibility.
The buyer's notary costs to purchase property are in
addition to the purchase price owed to the seller.
The property transfer occurs
when the banks sign the trust. The bank trustees
are not always at the notary office when the seller
signs the agreement to transfer. The notary is in
charge of having the transfer signed as soon as possible
by the appropriate bank trustees. Currently, Jalisco
has a procedure of "preventive notice." When
the notary receives the details of the purchase and
starts his paperwork, he files a notice in the public
registry where the property is located, to put on notice
that the property is being sold.
To complete the transfer of property in the case of
fidecomisos, the bank trustee of the seller must agree
in writing dissolve one fidecomiso. The buyer's bank
trustee must sign acceptance of the new trust. Until
this work is done, the fidecomiso cannot be registered
in the public records.
The seller can receive his funds at closing in the
form of proper checks or wire transfers. If the escrow
company is holding the entire funds, they can wire
to the seller's account or writes checks that are paid
out at closing. The escrow company or bank will require
copies or originals of certain documents of the transfer,
before they will release funds. Sometimes cashier's
checks are made out to the seller for the deposit and
the balance of the funds are wired at the time of the
seller signing the escritura.
For those of us use to separate closing statements
for buyer and seller, they are not often done separately.
The disbursement letter or agreement is a consolidated
closing statement showing buyer and seller costs and
net proceeds.
Be aware that the American custom of allowing a third
party or broker to hold any part of the purchase price
is not an assumed way of doing business in Mexico.
The concept of a third party escrow has not been historically
the way to buy and sell property. The seller was the
only proper person to hold the deposit from the buyer;
there was not a third party to the transaction. Options
are now available to purchasers to put their purchase
funds into a legal escrow account
5. Who should your trust?
My opinion is that you need to use the same method
that you follow anywhere, including your native country.
Get references, interview people, and think about the
questions that you need to ask. If you are considering
buying in Mexico, read and learn as much as you can
before you start shopping for property. The more you
know, the more you understand.
6.What have I forgotten to ask? One reader has reminded
me that you can request quotes from more than one notary
and more than one bank in order to compare costs. Be
aware that price alone is not the only reason to make
a decision. You want to find out if the professional
you are going to hire is able to take care of your
real estate purchase efficiently and timely. Bi-lingual
people on staff may be important to you, also.
Perhaps some other readers would like to send in their
suggestions to me.
Note: Jalisco and Nayarit have different laws regarding
real estate. You need to abide by the laws of the particular
state where you are purchasing property.
This article is based upon legal opinions, current practices
and my personal experiences in the Puerto Vallarta-Bahia
de Banderas areas. I recommend that each potential buyer
or seller conduct his own due diligence and review. Harriet
Murray, Broker
For additional information on properties for sale or
lease within the bay, please call or e-mail me at: harriet@casasandvillas.com
Thanks and until next week.
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