Mexican Government wants more control on taxpayers in order to increase tax collection; the measures taken in 2014 to reach that goal translate in complicated regulations that are affecting buyers and sellers on real estate transactions whether they are Mexican citizens, residents or foreign nationals.
Rules are not simple and they are changing constantly which creates a lot of mis-information and confusion on the internet. Now more than ever in Mexico it is a MUST to be well informed and work with professionals before engaging on buying or selling real estate.
What you should know?
For buyers: Foreign nationals are allowed to buy real estate in Mexico. They are not required to have a temporary or permanent resident status, neither a CURP number or a tax ID (RFC) like some sites have posted incorrectly. Foreign Investment law allows foreigners to acquire assets and real estate, simple rule contained on a Federal Law. The regulation is on the “method of payment” to comply with Money Laundering law; Cash transactions on real estate above 40,000 USD are forbidden. This translates in control for the tax payers, sellers must declare the real price on the real estate transaction and should receive payment on a bank account… consequence? increase of tax collection and a safe transaction for the buyer.
In case of American Nationals, this rule will be in accordance to USA Patriots act of 2001.
What is new? Sellers are obliged to issue a digital invoice for the sale to the buyers, these are called “…comprobante fiscal digital por internet…” or by it’s initials CFDI. Also the Notary for the closing should issue one called “complemento” and all should be part of the contract and must be kept for future transactions regarding the property.
It is relevant to the buyers because such CFDI for the sale will be indispensable whenever they want to sell the property and will be taking into count for capital gains tax calculation.
Article 29 A of the Federal Tax Code lists the requirements for the CFDI to be deductible.
For sellers: By general rule, according to new tax regulations the sellers on a real estate transaction , must issue a CFDI to the buyers with the legal description of the property, price, method of payment, date of payment, etc. If the seller is not a tax payer in Mexico (individual or corporation ) the Notary of the closing will be responsible to issue the CFDI on behalf of the seller.
Article 93, Section IXI, subsection a) of the Income Tax Law (known in Spanish as Ley del ISR) provides the exemption by which owners of property in Mexico and residents will not pay capital gains for a single transaction over a 5-year period for the sale of their home.
I have listed this information on previous newsletter but I consider relevant to mention here as well.
Article 9 of the Federal Tax Code describes who are considered residents in the Country.
a) Affirm under oath to be a resident of Mexico, that over 50% of the income received generates in Mexico and that the primary business activities are in Mexico.
b) Have a Tax ID Number, or “cédula de identificación fiscal” (RFC). To obtain such a CURP number is needed. Temporary residents or permanent residents will obtain the CURP when receiving their immigration status.
c) Prove that the business address is different than the property being sold.
In case of capital gains tax exemption, the taxpayer has the obligation to report the sale of the property in his/her annual tax return filed before the SAT and inform that he/she availed himself/herself of the tax exemption , otherwise shall be subject to a fine.
The above statements are only required in case the seller qualifies for the tax exemption; like we said, all the measurements are with the purpose to reduce tax exemptions and increase the tax collection creating more control, avoiding money laundering and providing buyers better protection.
Contact us for advise.
Attorney at Law