Property
taxes are
very low in Mexico as a whole. The property tax,
known as a predial is .1% of the assessed value.
Taxes are paid annually, with the assessed value
determined at the time of sale. If you purchase
a property with an assessed value of $100,000US
dollars your annual tax rate would be $100.00US
dollars. The reason taxes are so low is due to
the fact that they have never been a source of
revenue for the Mexican government
Real Estate Acquisition
Tax (transfer tax): Individuals
or companies purchasing real estate, consisting
of land, or land and its improvements in Mexico,
are subject to the payment of a real estate acquisition
tax calculated at the rate of 2% of the value
of the property (the rate may vary from state
to state from 2% to 3.3%). All purchasers of
real property must pay this tax whether the acquisition
is carried out through a purchase and sale agreement,
donation, trust, assignment, mergers of companies,
split-off, or payment in kind.
Mexican real estate is subject
to a 20% capital
gains tax on the gross proceeds from the sales
without any deduction. There is another option,
net basis taxation up to 35% (depends on the
state and the interpretation of the notary).
Under this tax plan, gain is calculated by deducting
from the gross proceeds (1) the original cost
of acquisition, (2) the cost of improvements,
(3) notarial expenses and other costs of sale,
including appraisal costs, and (4) commissions.
The original cost is separated between land cost
and cost of buildings, with at least 20% allocated
to land. The cost of buildings and any other
improvements is then decreased at 3% per year
between the date of acquisition and date of sale,
but the cost is not decreased below 20% of the
original amount. The cost of the land is increased
based on changes in the National Consumer Price
Index.
Formula for capital gains tax: AV2(appraised
value 2) -AV1(appraised value 1) ?Improvements
- Cost of the Sale=Taxable Amount x 35%=Tax Due
Your FM2 or FM3 can help you to avoid capital
gains taxes when selling your property. If someone
proves they were living on their property for
two years in Mexico, they can avoid paying any
type of capital gains.
Individuals in the restricted zone, who are residents
of Mexico (have an FM3), and who rent their rights
in trust property (fideicomisos) must make provisional
payments on their Impuesto Sobre la Renta (Tax
on Rents) for income generated from cash deposits,
credits, exchanges coming from rents or sub-rentals.
The calculation will be based on one of two methods;
one option is to pay 1% (on average, based on
state) of the gross amount received during a
three-month period, or you can opt to pay around
35% (on average, based on state) of your net
profit.
In order for any authorized expense to be deductible,
the taxpayer must obtain an official invoice,
which is known as a FACTURA. This receipt must
be printed on the press of a government-authorized
printer and will contain the RFC number (taxpayer
ID number) of the individual or company issuing
the receipt.
Authorized items for deductions are the
following:
1. Property taxes, as well as any contributions
or local taxes for improvements, planning or
public works expenditures.
2. Maintenance costs that are not related to
improvements or additions; water payment when
not paid by the tenant who occupies the property
3. Interest paid for loans obtained for the purchase,
construction, or improvements of the property
4. Employees directly employed at the rental
property. Salaries, commissions and /or fees
are deductible, as well as taxes and benefits
paid on those salaries.
5. Insurance premiums on the properties
6. Investment in construction, including additions
and improvements (these expenses are amortized
at the rate of 5% per year for construction and
10% for installation expenses or improvements.
Mexican residents must file a declaration with
authorities by the 17th of each month. An annual
declaration is due no later than April 1st the
following year and the difference between provisional
payments made and total tax due, based upon global
Mexican income, is due with the annual return.
Mexico has signed a number of treaties to avoid
double taxation with other countries and their
benefit can be applicable depending on the type
of transaction. Taxes that are paid on Mexican
income are generally deductions on U.S. and Canadian
income. It is wise, however, for the foreign
taxpayer to check with his or her personal accountant
to determine how to declare these foreign tax
payments. |
