Mexico welcomes foreign investment in its real estate market. There are no restrictions on foreigners owning and investing in property here. To uphold the constitution of the country, foreigners will need to become primary beneficiaries within a trust held by a Mexican bank.
The Mexican Constitution prohibits foreign nationals from directly owning land in restricted zones, which are areas within 50 kilometers (about 31 miles) of the seashore or 100 kilometers (about 62 miles) of any national border.
Are there potential risks associated with owning a property in Mexico?
There are the usual issues that must be seriously addressed such as legal notarizations and registration procedures which exist to protect the buyer and seller. The tax and income laws of the country need to be understood.
There needs to be a good source of labor available and infrastructure is maintained. All markets go up and down, so keeping the property in good condition is important. This risk assessment is needed when the buyers are foreigners. Learning about how business and social systems work where they have their property is also essential.
An example of a problem would be a rental owner not knowing he needs to pay taxes on rental income wherever the home or condo exists. Even if the income from the property is paid to a bank account in another country, the owner needs to pay taxes first on the property in Mexico. Where the money is deposited or what bank account receives the rental income does not release the owner from owing Mexican income taxes.
¨Where the rental property exists is the territory where the tax is owed on income first.”
Speaking of Taxes
Mexicans and Foreigners with real estate ownership or beneficiary rights have no inheritance or estate tax to pay upon the death of the principals.
However, gifts may be treated as income under the income tax law. Gifts may be tax-exempt if determined so by the current border authority. Income received by a Mexican resident from an inheritance is exempt from income tax at this time.
Mexican Residency
How can you become a Mexican resident? If you are here as a tourist with the appropriate visa you received when you arrived, you can still buy property in Mexico. You must become a permanent and fiscal resident to save more on capital gains. Being a permanent resident is like having a green card in the US. If you follow the laws, you can come in and out without permission and stay for an undetermined time. You may work and pay income tax. To explore the strategies involved with ISR or capital gains tax you wish to reduce, you need to know what requirements are in effect at the time you are considering selling your property. These requirements come from the notary, who is also a lawyer and a judge. A permanent visa and RFC tax number with the Constancia (legal agreement) are the two important fiscal and immigration documents you need.
¨Being more than a tourist visa resident is required if you want to receive a more favorable (to you) calculation of capital gains tax.¨
Less income or capital gains tax may come when there are currency fluctuations in what is paid in pesos and other currencies. You have deductions for goods or professional services such as accountants, attorneys, engineers, architects, and real estate agents. Your payments to them should give you deductions as these services require payment of sales tax paid to claim the deduction. There are also other cases of deductions upon the sale of a property. Ask the notary authorities and legal and real estate team to help you.
This article is based upon available legal data, current practices, and my personal experiences. I recommend that each potential buyer or seller of real estate conduct his own due diligence and review.
