Over the next few days we’re taking an orderly look at buying property in a number of countries, of which Mexico is the first. We hope that this logical approach will tick the right boxes for readers and give some ideas for comparing different countries and setting about gathering similar information for countries we haven’t covered. We’d love to hear from others with hands on experience of the process.

Where to Look

The Yucatan Peninsula and Baja California are especially popular with Americans (though there are problems with buying in coastal regions – see below). San Miguel de Allende in the state of Guanajuato (north west of Mexico City) is also popular.

Snags, Points to Remember, Legal and Otherwise

Foreigners are prohibited from owning property within 100km of the frontier and 50km of the coast but the law does allow them to hold property on lease from a Mexican bank trust in an arrangement known as a fideicomiso. This will require an initial charge and an annual commission payable to the bank of, say, $600 and $800 respectively and both of these will be subject to VAT at 15%.

Investors are strongly recommended to follow Mexicans’ example of doing business with people they know and are sure they can trust.

The professional body for estate agents is the Mexican Association of Professional Realtors (Asociación Mexicana de Profesionales Inmobiliarios), known as AMPI (Spanish language only) .

Property Taxes

Property related taxes in Mexico are complicated and different specialists interpret the likely effects in slightly different ways. Longer term further harmonisation with the US and Canada can be expected. The basic picture is as follows:

Acquisition Tax: A state tax that is normally, depending on the state, in the region of 2% of the value of the sale. This tax is paid whether the property is sold, transferred, donated, placed into trust, split off or merged.
VAT: No Value Added Tax is payable on residential property. Commercial Property transactions are liable to VAT in addition to the Acquisitions Tax.

Appraisal Tax:The Tax Authority may choose to perform a commercial appraisal of the property after you purchase it. If the appraisal value is more greater than 10% of the price you paid for it, you will be asked to pay 20% tax on the difference between the two amounts. So this is like a capital gains tax that has to be paid before the gain has been realised and, what’s more, it becomes due immediately the assessment has been made. The purpose of the tax is to stop property being undervalued at the government’s expense so the appraisal would normally occur shortly after a purchase has been made.

Registry Fee:A 1.3% fee is paid by the buyer.

Predial: Property taxes on real estate in Mexico, called predial, are low compared to other parts of the world. Depending on which part of the country you live in, you may not necessarily receive a bill in the mail. You may need to go to the local property tax office to request a bill.

Capital Gains Tax:Non-residents must pay either 25% of the gross amount of the transaction or the amount resulting from applying the highest marginal income tax rate in Mexico to the gain, whichever is lower.

What to Read

“Cashing in on a Second Home in Mexico” by Creekmore & Kelly. The Mexperience site is also well worth a visit as is for the Forbes- Douglas 2003 Mexico Real estate E-Guide.

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