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Realtors’ and lawyers’ fees in Mexico and other property purchase costs
Transaction Costs
% / Fee / Who Pays?
Acquisition Tax / 2.00% / buyer
Public Notary / 1.50% / buyer
Registration Fee / 1.30% / buyer
Bank Trust / US$350 - US$750 / buyer
Foreign Office Permit / US$150 / buyer
Title Insurance / 0.50% - 0.55% / buyer
Lawyers' Fees / negotiable / buyer
Agents' Fees / 3.00% - 6.00% / seller
Costs paid by buyer: 6.00%
Costs paid by seller: 3.00% - 6.00%
Roundtrip transaction Costs: 9.00% - 12.00%
Property purchase process in Mexico
Property purchases by foreigners in Mexico take place through the fideicomiso system. The Constitution of 1917 proclaimed that all land in Mexico would be “ejido” (communal), or owned by Mexican nationals only. Ejido land was given to every village and could not be sold.
In 1973, a constitutional amendment known as the Foreign Investment Law allowed foreigners to purchase real estate anywhere in Mexico except the restricted zone that consists of areas within 100 km (64 miles) of international borders or within 50 km (32 miles) from the coastline at high tide. In 1993, Mexico amended the constitution to allow foreigners to purchase real estate within the restricted zone by means of a fideicomiso.
The fideicomiso is a bank trust wherein the bank (trustee) holds the trust deed for the purchaser (beneficiary). While the trustee is the legal owner of the real estate, the beneficiary retains all ownership rights and responsibilities and may sell, lease, mortgage, and pass the property on to heirs. The fideicomiso is authorized by the Mexican Government under the Ministry of Foreign Affairs
The bank is required to check ownership and insurance, and to verify that the property is free of liens. A trust is granted for a 50-year period. The trust is renewable at any time (for another 50-year period) by submitting an application to the bank. If the 50-year period expires without renewal, the owner has another 10 years in which he may submit an application to renew the trust. If property is purchased that already has a fideicomiso, the existing trust may be transferred to the new owner and will be good for the remainder of its 50-year period, or the trust may be renewed. If property is already in a fideicomiso, probate and transfer tax are avoided when the property is transferred.
A Mexican corporation may be 100% foreign-owned, and may purchase property in a restricted zone without a fideicomiso. But property owned by a corporation is commercial property, and pay higher water, electric, and telephone rates. However, a Mexican corporation may not own a single-family residence.
The Tax Authority may choose to perform a commercial appraisal after the purchase. If appraisal value is 10% greater than the declared value, the difference between the two amounts is subject to 20% Appraisal Tax, payable within 15 days after the appraisal.
No Value Added Tax (Sales Tax) is payable on residential property. Commercial Property transactions are liable to VAT at the current rate in addition to the Acquisitions Tax.
Once the property price has been agreed, a “Convenio de Compra/Venta” is drawn up, which includes deadlines. This is the written initial agreement to sell/buy. A 5%-10% deposit is expected from the buyer.
Obtain a permit from the Foreign Secretary’s Office. The buyer will be required to sign the “Calvo Clause”, stating that foreign jurisdiction will not be sought to deal with the property transaction. The seller will then have to provide a copy of the Land/Property Deed. It is important to hire a lawyer to review the document.
Once the deed is transferred to the buyer, the buyer will have to turn over the payment to the seller. Cash or monetary instruments of any kind over US$10,000 must be declared when entering Mexico. There are no limits on how much can be transferred in or out of the country.
The whole process of registering a property can be completed in around 74 days.
Inheritance
Nonresident individuals inheriting Mexican property are taxed at a flat rate of 20%. The tax base is the official assessed value of the property. No deductions are allowed.
No inheritance tax is levied on the gross inheritance of nonresident individuals, other than on immovable property located in Mexico.
Resident Foreigners
Inheritance or gifts of residents are not subject to tax in Mexico.
Mexico, make your dream investment come true. |
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