Closing on Mexico Real Estate

. A notario must be involved in the closing of the transaction for a sale to be legal. The time and date of the closing is set by the Notario and physically takes place at his office. The Notario obtains the signatures required for the deed of conveyance which authorizes the execution of the escritura. He collects from both the buyer and the seller the applicable taxes owed. The buyer makes his Mexico real estate payment via a wire transfer or certified check. However, beware that the seller may be reluctant to sign the deed of conveyance until a wire transfer appears in the seller’s account, which is usually the next business day. Find mexico real estate for sale is the hard part closing is a series of steps.

The buyer brings to closing:

Payment for the property
Identification documents such as a passport, visa/tourist permit, and marriage certificate
Payment for fees and taxes

The seller brings to closing:

Deed
Identification documents
Tax records
Paid utility and other property-related bills
Spouse and marriage certificate

After the closing, the Notario records the deed in the Public Registry (Registro Público de la Propiedad). However, a buyer should confirm that it is in fact recorded because a deed is not defensible until it is recorded. It can take up to two weeks before the registration can be verified using the file number recorded on the property tax stamp. A completed copy of the deed should be provided to the buyer by an attorney or a supervising settlement company.

Absent Buyers or Sellers/Power of Attorney and the Apostille Process

It is not necessary for a buyer or seller to be present at the closing. A power of attorney may be granted to a third party who will act on their behalf. After the power of attorney is signed before a notary public it must then be “apostilled” by the Secretary of State in the county in which it is to be executed. The grantor should grant the grantee sufficient authority to carry out the intended action, but no more should be granted than necessary.

The apostille, evidenced by a brief document, is an internationally recognized form of notarization. It acts to legalize or authenticate a document it is attached to. The Convention Abolishing the Requirement of Legalization for Foreign Public Documents was enacted in 1981 and functions to establish mutual recognition of a participating country’s public documents when properly authenticated by an apostille.
Participating countries include:

Mexico
USA
Germany
Argentina
Austria
Australia
Spain
Israel
Bahamas
France
Greece
Norway

Countries such as Canada who are not signatories to the Convention must authenticate documents by obtaining a ratification or a legalization from the Mexican Consulate. A list of sample signatures of authorized notaries is maintained by the Consulate so that it may ratify the authenticity of the notary’s signature.

A closing company may assist the buyer or seller in preparing the appropriate power of attorney.

Visit www.apostilleinfo.com for downloadable apostille forms or more information on signatory countries.

Supervision of the Closing

To protect your interests, a foreign buyer should engage a real estate attorney or a settlement company to supervise the closing in order to assure that all steps in purchasing mexico real estate of the process are adequately completed and complied with.

Closing Costs

Buyers Costs
You can expect closing costs for a real estate purchase in Mexico to average around six to eight percent of the cost of the property. Some fees are arranged on a flat-fee basis or may be based on a percentage of the property’s declared value. The buyer normally is responsible for all fees and acquisition costs. The following are common closing costs a buyer is expected to pay:

Escrow Service: $750
Title Search: $500-$1500
Registry: .05%-.06%
Notario: 1%-1.5%
Trust fees:

$500 to establish
$400-$500 or .05%-1% annual maintenance fee subject to reappraisal

Acquisition tax: 2% of appraised value
National Foreign Investment Registry (RNIE): $500
Foreign Relations Permit: $1,500
Title Insurance: $5.00 per $1,000 value
Supervision of closing by settlement company or attorney: $2,000-$5,000
Agent’s Commission: Negotiable and subject to IVA tax
IVA tax: Value added tax applicable to professional services

Baja Peninsula, Cancún, and Rivera Maya: 10%
Elsewhere: 15%

Appraisal: Based on the value of the property ($150 – several thousand dollars)
Federal Maritime Terrestrial Zone (ZoFeMaT) Annual Fee: right-to-use concession fee applying to waterfront properties

Unimproved: $10
Improved: $25

Sellers Costs (Capital Gains Tax) on Mexican Property

A seller’s main expenditure in a sale of real estate is the Capital Gains Tax. At the time of closing, two formulas for calculating capital gains tax in Mexico are applied to the gain and the seller pays the lower of the two amounts:

After application of deductions and adjustments to the cost basis, 30% of the net gain.
With no deductions, 25% of the gross gain on the sale

Basis adjustment can be made for items such as transaction expenses and capital improvements. One adjustment that can add up to a significant amount over time is an annual one to two percent inflation adjustment allowed as an addition to basis.

Homestead Exemption

Residents, whether nationals or foreigners, who have lived in a home in Mexico as a primary residence for two years are given a homestead exemption and do not have to pay any capital gains tax. Foreign owners claiming this exemption will have to prove Mexico as their tax home. This exclusion is intended to benefit actual residents, not those who own property as a second home. Immigration status is not a determinant.

To qualify for a homestead exemption you must:

Live in Mexico full-time (more than 183 days annually)
Have a resident visa
Have owned and lived in the home as a primary residence for more than two years
Not have a primary residence in another country

Declared Value vs. Purchase Price
Both the capital gains tax and the annual real estate taxes are calculated using the declared value. Declared value, not purchase price is used in calculating the basis. Thus, the declared value must match the price paid on the escritura. A low declared value should not be recorded to simply keep your yearly property taxes and acquisition taxes low. This is because when the property is sold in the future, the low declared value will produce a low cost basis for calculating capital gains tax. If declared value is understated, you have essentially accepted the seller’s capital gains tax liability as well as your own. You should also keep in mind that acquisition taxes are only two percent and yearly property taxes are equally low. However, capital gains taxes can be as high as thirty percent.

Write the Exchange Rate on the Deed
The exchange rate on the day of the transaction as well as the amount paid in both pesos and dollars should be noted on the deed in order to establish the cost basis for taxes due upon its future sale.

Tax Issues on Mexico Property

Because of the complexity of tax issues, it is recommended that you seek the advice of a tax professional in both your home country and Mexico in order to guarantee compliance with tax regulations and procedures. Taxes applicable to real estate include:

Income tax on Mexican earnings
Impuesto sobre la renta: capital gains tax on the sale of property
Impuesto sobre valor agregado (IVA): value added tax
Predial: that annual real estate tax based on the catastro value
Acquisition tax paid on the official appraisal value of the property

Income Tax
Payment of income tax is made to the Hacienda. Any foreigner who is a legal resident of Mexico must be registered with the Hacienda. Anyone who earns income in Mexico, including income from rental property, is required to pay income tax on earnings, regardless if you are a resident or visitor. The determinant is whether you earn income, not whether or not you receive. Thus, there is no income tax for pension and social security payments received from outside of Mexico.

Impuesto Sobre la Renta
The capital gains tax is a tax on the gain of the sale and is due when property is sold.

Impuesto Sobre Valor Agregado (IVA)
This is the value-added tax. This tax applies to fees charged by service providers and includes the Notario, appraiser, realtors, and other professionals. The owner of a furnished rental property must collect and pay the IVA to the Hacienda, the federal tax authority. The following are IVA rates:

Baja peninsula, Cancún, Rivera Maya: 10%
Elsewhere: 15%

Predial
This is the yearly real estate tax that is based on the declared value, the catastro. This tax is due at the local tax office on the first of every year. Beware that you will not receive a statement notifying you of this tax

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