I have edited and updated a few article to include new tax laws and closing costs for the Yucatan Real Estate region.  These updates will compliment my article I posted last 14th of June.

To see this post please click here (Yucatan Real Estate Capital Gains Tax).

The updates for 2010 include a capital gains tax of 29% as well a regulation that home owners who qualify to avoid a percentage, or all of the ISR,  are allowed to exercise that privilege once every 5-years.

CORPORATION CAPITAL GAINS taxes are a little more complicated.   If you are holding title by utilizing a FOMC (Foreign Owned Mexican Corporation) it will be most beneficial to employ a sharp accountant.  They will counsel you in order to reduce your ISR obligations to the minimum possible when you sell your Mexico real estate.

Mitch Keenan has been a Licensed Broker in the United States since the 1980s. He holds a GRI and a CRS from NAR (National Association of Realtors). With over ten years of living and working in the Yucatan real estate industry, Mitch brings American business ethics and Mexico business experience together to give buyers unparalleled service. 512-879-6546

THE www.TOPmexicorealestate.com NETWORK

“Mexico’s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!”

Related posts:

1. Yucatan Real Estate Tips
2. Yucatan Real Estate Property Taxes
3. Rule of Thumb on Capital Gains Taxes on the Sale of Mexico Real Estate

Linda Neil is one of our Top Brokers who has just written another informative piece regarding Mexico Real Estate issues such as taxes as seen below in her article called “Tax Obligations for foreigners in Mexico Death and Taxes…both are inevitable”.  Linda has been working in the La Paz real estate industry for over 30 years and has tremendous experience in the issues that most effect new non-Mexican property buyers. 

Whether a property owner or just the occasional visitor to the La Paz real estate region on the beautiful beaches of Mexico, everyone pays taxes, natives and foreigners.   Some of the taxes are hidden and others are not.   The purpose of this article is to touch on some of the important taxes levied and paid in Mexico.

            WHO COLLECTS TAXES:   The SAT (Servicio de Administracion Tributaria), also known as Hacienda, is the federal tax collector.   It collects all federal taxes such as the ISR (Income or Capital Gains) tax, the IVA (Added Value) tax, the IDE (Tax on Cash Deposits) and the IEPS (Special Tax on Production and Services).  Each state government has its own taxes such as the 2 to 3 percent tax on lodgings and tourism.   The municipal governments assess and levy taxes on real and personal properties.

            IVA TAX:   This is the Value Added Tax which is charged on goods and services.   The only exemptions are medicines and food.   Often this tax is INCLUDED in the price of food served in a restaurant, legal services, and the items purchased in a department or clothing store.   The business owner and tax resident is obligated to file a monthly declaration with Hacienda and pay the tax on earnings.   Credited against this tax are IVA taxes paid on goods and services acquired.  

            There is no IVA tax on the sale of vacant Mexico land or on the sale of residential dwellings.   The tax is levied on all commercial construction when it is sold or transferred, at the rate of 16% of the value of construction, regardless of where the property is located.  

            IVA tax is charged on lodgings, hotel rooms and furnished homes which are rented.

            As of January 1, 2010, this tax has been increased from 15% to 16% in the interior of the country and from 10% to 11% in the border zones.

            IEPS TAX:  This is the Special Tax on Products and Services which is a new tax for 2010.  It will cover certain internet and cable TV services, alcohol, cigarettes, and gaming.

            PROPERTY TAX;   This is a municipal tax with assessments on properties generally being made annually.   The tax can be paid in six installments (every two months) but probably should be paid in full within the first two months of the calendar year to obtain a discount.   Rates vary from area to area but are often far lower than U.S. or Canadian property taxes.

            ISR TAX;   Literally the Tax on Rents has been described as both an income tax and a capital gains tax.   It is complex and a subject of confusion.

            ON INCOME.   Any income generated from sources within Mexico, is taxable.   From business or salary, the rates are variable depending upon the amount of income received.

This is the end of Part I, and you will be able to see the finishing paragraphs in a separate article by the end of the week.

Linda Neil has over 35 years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR, and FIABCI and PROFECO Certificate 00063/96. Current member of the national advisory board of AMPI she is the owner broker of LINDA NEIL PROPERTIES for more information (512)-879-6546 THE www.TOPmexicorealestate.com NETWORK

“Mexico’s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!”

Related posts:

1. Q: Do you Pay Mexico Capital Gains Taxes in Your Home Country Too
2. Paying Taxes from Mexico, It s that Time of Year Again Part II
3. Mexico Real Estate Tax Requirements in the U.S.

U.S. taxpayers are required to file certain reports with the U.S. government if they own property in Mexico, have a business in the country, or are shareholders in Mexican corporations Uncle Sam, U.S. tax watchdog, has instituted a voluntary disclosure program for those people who may have omitted reporting in the past. This program is designed to limit penalties that may be imposed on those U.S. taxpayers who have failed to make the required declarations previously.

A tax specialist, familiar with the law and reporting requirements in both the U.S. and Mexico can provide details. However, the most common issues that need to be addressed are the following:

Property owned in a Mexico Bank trust (fideicomiso): Under Mexican law, any residential property located in therestricted zone when foreigners are involved, must be placed in a Mexican bank trust, fideicomiso. Therestricted zone is an area 50 kilometers (approximately 30 miles) wide along all the Mexico real estate coastlines and 100 kilometers (approximately 60 miles) from the Mexico U.S. and Mexico-Belize borders

Under the U.S. regulation section 6048 (b) Taxpayers must report ownership interest on Form 3520-A yearly and on form 3520 initially and if there are any changes The penalty for failing to file these information returns is five percent of the gross value of trust assets determined to be owned by the U.S. taxpayer.

Bank and Financial Accounts: U.S. taxpayers must annually report direct or indirect financial interest in a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000.00 USD at any time during the year. This report of Foreign Bank and Financial Accounts is commonly known as an FBAR, and the penalty can be as high as the greater of $100,000. USD or 50% of the total balance of the foreign account if the failure is deliberate omission (Sec.31 U.S.C. 5321(a)(5) Nonwillful violations are subject to a civil penalty of not more than $10,000.00 USD.

Shares of Stock or Interests in Mexican Corporations and/or partnerships: Generally shareholders or partners with a 10% or greater interest in the partnership or corporation must inform the IRS of same through Forms 5471 or 8865 Failure to file can be quite costly.

As in most countries the U.S. tax regulations are complicated, especially when dealing with properties or assets located outside the United States. Accountants, tax advisors and tax preparers do not always know the rules regarding filings for international assets nor the ramifications of failure to file. For this reason it is highly important that the US taxpayer consult with experts in these bi-national transactions.

TAX OBLIGATIONS IN MEXICO:

Any foreigner with real property or business income in Mexico must also plan to pay taxes in Mexico. The good news! When paid with the proper receipts, certain of these taxes can become a CREDIT or a DEDUCTION in the country of tax residence!

For example:

Mexico Property Taxes: Whether in the La Paz real estate market, in Cancun, or in Huatulco, taxes are due and payable every two months, or can be paid in one annual payment, usually with a substantial discount, during the first two months of each calendar year Property taxes are based upon the value declared by the property tax office where the property is located and are generally relatively low in comparison with rates in the U.S. and Canada.

On-going taxes on business income: If you have a Mexican corporation or partnership, no matter what the activity, a monthly declaration must be filed for IVA taxes (Added Value Taxes) and for Impuesto Sobre La Renta which, in this case, is more like an income tax. A local Mexican accountant should be hired to review the accounting procedures and to prepare and file the monthly declarations. The monthly tax payments are generally considered as provisional and an annual declaration will show either a refund or a payment due These taxes can also be a credit or a deductible expense in a home country, depending upon how the companies are established. An attorney-accountant with international expertise in this will be an important advisor to help avoid double taxation on profits.

Impuesto Sobre La Renta when a property is sold: is a capital gains type of tax. For foreigners who are tax residents of another country, the tax is calculated in two ways:

1. It is a flat amount of the total selling price; without deductions, or

2. It is a percentage of the difference between selling price and the tax basis shown in the seller s deed, less allowable deductions.

The Notary Public should also provide the seller with a copy of the tax payment for use with the tax authorities in seller s tax residence country.

Impuesto Sobre La Renta when income is received from a rental of Mexican property:

All income received from Mexican property is taxable in Mexico, regardless of the nationality of the owner Thus, the US or Canadian citizen who rents a condominium or home regularly, or occasionally, through a property manager or via internet, is obligated to file declarations MONTHLY. Failure to declare income can cause very high penalties. The good news taxes paid are credits or deductions in taxpayer s home country.

LINDA NEIL is the founder of The Settlement Company, which specializes in real estate transfers, escrows,and consultations Just added as a new service, Settlement will now prepare monthly tax declarations, file them and perform additional essential landlord accounting services

Author Linda Neil has over 35 years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR, and FIABCI and PROFECO Certificate 00063/96. Current member of the national advisory board of AMPI she is the owner broker of LINDA NEIL PROPERTIES for more information (512)-879-6546 THE www.TOPmexicorealestate.com NETWORK

“Mexico s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!

Related posts:

1. Taxes and the Mexico Real Estate markets Part I
2. Q: Do you Pay Mexico Capital Gains Taxes in Your Home Country Too
3. Mexico Real Estate Purchasing Process; The Foreign Relations Permit

I have written several articles on the Yucatan real estate purchasing process here in Mexico Articles about the role of the Mexico Notary Public, about rectifying property measurements, and even about Mexico real estate taxes Below are the last points I wish to share with you before covering other topics dealing with owning property in Mexico

CORPORATION CAPITAL GAINS taxes are a little more complicated. If you are holding title by utilizing a FOMC (Foreign Owned Mexican Corporation) you are definitely going to want to employ a good accountant He or she will be able to help you reduce your ISR debt when you sell.

TITLE INSURANCE

Title insurance is available in Yucatan and Quintana Roo Advise your agent and notario that you would like title insurance.

MEXICO MORTGAGE LENDERS

There are mortgage lenders that will loan to foreign buyers Ask you agent for a reliable lender Keep in mind that lenders in Mexico usually require a minimum 30% down stroke, interest rates are typically higher than in the USA, there are many hoops to jump through and junk fees are pricey Deals that involve a mortgage usually take more time to close and often cause a lot ofbrain damage for all parties.

Mitch Keenan has been a Licensed Broker in the United States since the 1980s. He holds a GRI and a CRS from NAR (National Association of Realtors). With over ten years of living and working in the Yucatan real estate industry, Mitch brings American business ethics and Mexico business experience together to give buyers unparalleled service. 512-879-6546

THE www.TOPmexicorealestate.com NETWORK

Mexico s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!

Related posts:

1. A Few Updates on Yucatan Real Estate Taxes
2. Yucatan Real Estate Property Taxes
3. Yucatan Real Estate on the Gulf Coast; Cheap is the Word

Mexican law says that Mexico real estate taxes must be paid on the higher of the following: purchase price OR appraised value Since many appraisals in the La Paz real estate market are lower than the actual selling price your taxes will be condisderably lower if the appraisal value is declared Payment on this basis has taken place for many years in many parts of the country It is, however, illegal

Should you choose to pay your Mexico real estate taxes based upon this basis, please be aware that: 1. it is violation of the law and 2. your tax base will be low for declaration of value in the property when you sell it Furthermore, if you are financing your property through an institutional lender, full value must be declared

Mexico Official Appraisal:Most appraisals in the La Paz real estate region are made by an appraiser who is usually an architect and who is recognized as a Perito Valuador, Official Appraiser, by the property tax authorities in the municipality where the property is located This is required prior to completing any transfer of title If an institutional lender is involved, a commercial appraisal may also be required You can follow more of these tips at TOP Mexico real estate blog

Author Linda Neil has over 35 years of hands on experience in all aspects of Mexican real estate. She holds membership in AMPI, NAR, and FIABCI and PROFECO Certificate 00063/96. Current member of the national advisory board of AMPI she is the owner broker of LINDA NEIL PROPERTIES for more information (512)-879-6546 www.TOPmexicorealestate.com

“Where 11 TOP real estate experts from ALL regions of Mexico come together to share their Tips & Knowledge to help you buy safely !”

Related posts:

1. Purchasing Your Mexico Dream Home; Real Estate Closing Costs in Mexico -Part 2
2. What are Estimated Mexico Closing Costs
3. Taxes and the Mexico Real Estate markets Part I

MEXICO REAL ESTATE CAPITAL GAINS TAXES

(called ISR or Impuesto Sobre la Renta)

An update to this article on 2 items have been included on a post of 1 of March.  Click Here to see (Yucatan Real Estate Taxes Update)

In the Yucatan real estate market, including other regions of Mexico, ISR are assessed when you sell a property The current rate is 28% of the gain (some states might have an additional one or two points) The calculation used to arrive to this Mexico real estate tax owed will depend upon several factors:

1 Years of ownership

2 Citizenship or immigrant status

3 Title held in a Mexico Bank Trust or corporation or

4 Square meters of property

5 Square meters of construction

6 Electrical or Telephone receipts in Owner’s name that reflects the address of the property

7. Proper ID of the Seller that reflects the property address.

If the Mexico property qualifies as your primary residence you can usually avoid a substantial amount of the ISR To qualify for this exemption, as a foreigner, you will need to have the following:

1 A current FM-2 visa that reflects your name and address as it appears on your escrituras/Fideicomiso.

2 Electrical and/or telephone receipts that also reflect the name and address recorded in the escrituras.

3 The property must be held in a Fideicomiso (corporations do not qualify to avoid the ISR tax).

Prior to closing, the seller needs to provide the Mexico notary public with the documentation mentioned above The notario is going to follow a formula (calculation) to determine the amount of ISR owed by the Seller.

The calculation is based upon the square meters of construction in relation to the square meters of the entire lot The notario will multiply the square meters of construction by 2 If the result is larger than the square meters of total land, the entire ISR may be avoided by the seller.

If the amount of land is greater than 2 times the size of the construction, the remainder of the property will be subject to ISR

Mitch Keenan has been a Licensed Broker in the United States since the 1980s. He holds a GRI and a CRS from NAR (National Association of Realtors). With over ten years of living and working in the Yucatan real estate industry, Mitch brings American business ethics and Mexico business experience together to give buyers unparalleled service. www.TOPmexicorealestate.com 512-879-6546

Related posts:

1. Q: Do you Pay Mexico Capital Gains Taxes in Your Home Country Too
2. Mexico Capital Gains Tax
3. A Few Updates on Yucatan Real Estate Taxes

ANNUAL PROPERTY TAXES in the Yucat n real estate market and even in Quintana Roo are very reasonable.

Example: A Mexico real estate property in Yucatan, with an appraised value of, let's say, $1,000,000 pesos will be assessed annual property taxes of, more or less, $2000 pesos Probably less.

It is important to remember that Mexico property taxesare based upon the Catastral appraised value of the property If at closing, the buyer decides to record the purchase at the actual sales price, (instead of the Catastral appraised value) the actual sales price will be recorded on the new deed and that will be the new value in which annual property taxes will be assessed Food for thought…

The homeowner should receive a predial (tax bill) every year that shows the property tax that has been assessed Usually, if you pay the tax early you receive a discount.

Mitch Keenan has been a Licensed Broker in the United States since the 1980s. He holds a GRI and a CRS from NAR (National Association of Realtors). With over ten years of living and working in the Yucatan real estate industry, Mitch brings American business ethics and Mexico business experience together to give buyers unparalleled service. www.TOPmexicorealestate.com 512-879-6546

Related posts:

1. A Few Updates on Yucatan Real Estate Taxes
2. Yucatan Real Estate; Rectifying the property measurements
3. Rule of Thumb on Capital Gains Taxes on the Sale of Mexico Real Estate

A couple of weeks ago, we had an interesting question be sent to our panel of experts The seller of a property wrote to ask,

Q. “What happens when I make some profit on the sale of Mexico real estate, we paid the Mexico capital gains tax, do we still need to pay taxes on the capital Gains in my home country too

A. Linda Neil from Linda Neil Properties in the La Paz real estate region advises the following “If you have property in a Mexican bank trust it is necessary to file a form annually with the US IRS and, yes, the profits or losses from the sale of your Mexican property must be declared on your US return. It is important, however, to obtain the tax declaration made in Mexico to be presented with your US return to obtain a credit or deduction for the Mexican tax paid.”

A. Ivan Castillo regional director and practicing Mexico real estate lawyer from Stewart Title answers” I m not an expert on taxes out of Mexico, nevertheless I don t think there is double taxation. If you pay Capital Gains in M xico and it is properly documented, the receipts can be used in the US in order to avoid paying taxes again.”

A. Cozumel Capital broker/owner Rita Sheese who works in the Cozumel real estate market outlines the following about these taxes “If a property in Mexico is sold, the capital gain realized by the seller (whatever nationality) is subject to Mexican capital gains tax. Then, the American seller when declaring that income in the states, would also declare the taxes that were already paid on this capital gain in Mexico Formal tax treaties exist between the US and Mexico to avoid the taxpayer paying double tribute, and so what you have already paid in Mexico will essentially be deductable from what is due in terms of US capital gains tax.

For more reading material click here Mexico Real Estate Questions and Answers

Or to read another Question to the Experts click hereMexico Bank Trust

Related posts:

1. Mexico Capital Gains Tax
2. Rule of Thumb on Capital Gains Taxes on the Sale of Mexico Real Estate
3. Taxes and the Mexico Real Estate markets Part I

THE MEXICO REAL ESTATE BUYING PROCESS PART II (Fideicomiso or FOMC)

This is a continuation of my previous post- Buying in The Yucatan Real Estate Market

While touring Yucatan properties with your agent, you will want to engage in a conversation about Fideicomisos and FOMC (Foreign Owned Mexican Corporations) to determine which is the best vehicle for you to utilize to hold title. Both have advantages and disadvantages.

The Fideicomiso (bank trust) is a trust agreement that you establish with a bank to hold title of the property with you (you and the bank are both named in the title documents). The bank has a fiduciary responsibility to represent your interest in the property.

Advantages of the Fideicomiso:

* The Fideicomiso gives you the rights and the vehicle to hold the property in perpetuity. It is a 50-year trust agreement that is renewable every 50 years by you or your heirs.

* You may also transfer your rights in the Fideicomiso to another foreign buyer

* You may rent, sell, remodel or dismantle the improvements on the property.

* Your heirs may inherit the rights to the Fideicomiso, effectively by-passing probate, should you depart without a proper will

* There are tax advantages pertaining to Mexico capital gains taxes when you sell

* The Fideicomiso is easy to maintain by paying the annual fee to the bank

If the title papers, property dimensions and corresponding documentation are not in perfect agreement, the bank will not issue the Fideicomiso. A rectification of the property measurements will be required We will discuss this in a moment.

The main disadvantage of the Fideicomiso is that it is restricted to a property of NO MORE THAN 2000 square meters.

Note: There are exceptions and you can request a permiso for acquiring a Fideicomiso that allows for a property larger than 2000 square meters. This is a complicated process requiring an investment plan, time line, inspections, architectural renderings, business plan and plenty of governmental red tape. The exception is designed for an investor that plans to make a significant investment in the property.

Another disadvantage of the Fideicomiso is that it is limited to one specific property. Sometimes you can put two adjoining properties into the same Fideicomiso. But, generally speaking, the Fideicomiso is only designed for an individual property.

The FOMC (Foreign Owned Mexican Corporation) is a vehicle that allows foreigners to open a business and work in Mexico. The corporation is a Mexican entity, and as such, has the right to hold title to real estate. An attorney or Mexico notario can help to set up your corporation It is important to know what your goals are in respect to the property, business and type of Mexico real estate investment prior to setting up the corporation.

Creating the corporation requires a minimum of two individuals (stockholders), of any nationality, that are at least 18 years of age. One of the stockholders will be required to be the managing partner. The managing partner will be required to acquire and maintain a Mexico FM-3 visa. The visa must be renewed every year. Additionally, the corporation is required to make monthly reports to HACIENDA (the Mexican Department of the Treasury) reporting income and expenditures. The reporting needs to be done by a certified accountant.

Advantages of the FOMC:

* Allows for the purchase of properties larger than 2000 square meters

* No limit to the number of properties it may own

* Allows for one or more of the stockholders to legally live and work in Mexico year round.

Disadvantages of the FOMC:

* The corporation requires more hands on attention than the Fideicomiso.

* Does not have the ability to avoid capital gains taxes when it sells property

* Requires a managing partner with an FM-3 visa

* Monthly reporting of financial activity is required through a certified accountant.

Mitch Keenan has been a Licensed Broker in the United States since the 1980s. He holds a GRI and a CRS from NAR (National Association of Realtors). With over ten years of living and working in the Yucatan real estate industry, Mitch brings American business ethics and Mexico business experience together to give buyers unparalleled service. www.TOPmexicorealestate.com 512-879-6546

Related posts:

1. Q: In the Mexico Real Estate Market, Can we Use One Bank Trust to Own Several Properties
2. What is a Mexico Bank Trust, Fideicomiso
3. How to Buy Property in Mexico; The Mexico Bank Trust Part II

Mexico condos are popular investment options for Americans, Canadians and British and even more so those which are in the pre construction stages But identifying the risks and knowing how to manage such risks are important factors to ensure good returns and avoid costly surprises

One question was brought to our attention from a reader which is listed below:

Q.) I have a question I'm wondering if you can answer about tax implications for pre construction condo purchases. I entered into a contract in July 2007 for a unit a Mexico real estate project X It was still in with a good reduced price when I purchased They required a 30% down payment and a final payment of 70% at close My contract is all in US dollars. My question is “What will be the peso amount captured on my Mexico title deed given that in 2007 the Mexico exchange rate was $10 pesos and in 2009 the exchange rate is $15″

A.) Linda Neil of Linda Neil Properties from the La Paz real estate market advises the following:

“the 30% paid in 2007 should be shown at the exchange rate the date paid and the remaining 70% at the rate on the date of that payment. Acquisition taxes will be paid on the total amount but that is only 2% of the total.”

A.) Ivan Castillo, regional director and practicing Mexico real estate lawyer from Stewart Title responded:

“Even though the purchase price was set in US Dollars, the deed by which the property is transferred will mention Pesos It s important that the purchase price calculated is well determined, since it could affect the parties when calculating closing costs.”

A:) Thomas Lloyd from Lloyd's Real Estate in the Playa del Carmen real estate market included the option “there are money exchange homes that can lock in exchange rates for future payments If you see your currency is slipping in strength, this may be a viable option Write us and we can give you more details”

A.) Linda also included that “This figure, plus allowable deductions, creates basis for the eventual sale of the property so it is not a negative to show the higher peso amount.”

For more reading click here for Mexico Real Estate Questions and Answers

Related posts:

1. Todays Mexico Exchange Rate and the Effect on Real Estate
2. Mexico Real Estate and Exchange Rates
3. A Mexico Real Estate Investment Question Regarding Preconstruction Condos