7 July 2017
As per today, Mexico has a very loyal tax law for those foreigners who decide to invest in the Mexican real estate. This is due to the fact that the Mexican government has been committed to make the country attractive for the investments. As a result, in the last decade there has been a boom in the construction of new real estate properties.
Foreign investors, especially US citizens, are willing to buy the property on the coast and come for vacation to relax with their families for a long time. And there is a logical explanation for this: the beaches of Cancun, on the Caribbean coast, are among the ten most beautiful places to relax in the world. Both these factors, the low taxes and excellent natural environment makes Mexico one of the fastest growing countries in Latin America.
So, there are two types of taxes that which have to be paid while buying a property. The first is the so-called change of ownership tax on the purchase of an asset. This is not a very significant amount - only 2% of the declared estimated cost of housing. However, even here you can save a lot. The fact is that usually the estimated cost is greatly underestimated-sometimes more than 2 times. A house for 100 thousand dollars is usually estimated at 40-50 thousand. As a result, the tax will be about 800 USD which cheaper than one plane ticket from Europe to Mexico. Technically, this is prohibited by law, but this is the reality of Mexico, the seller tries to reduce the tax burden on the buyer as much as possible, and the regulatory authorities do not pay much attention to such minor violations. Perhaps this is for the time being, but so far this practice is present in almost every transaction.
The second type of taxes is the annual taxes that are levied on real estate. Here you should also highlight the tax on property ownership (quite ridiculous 0.12% per year), as well as annual deductions for the maintenance of a Bank trust or your company, depending on how you buy real estate. The fact is that under the Constitution, foreigners are prohibited from buying objects and land in the coastal zone or near the state border of Mexico. This rule has been in effect since the middle of the last century and is more related to the country's national security and methods of combating smuggling. However, the government itself has proposed a loophole that can be easily circumvented. For example, it is allowed to buy the same objects, but through either a Bank trust or opening your own company. In this case, the rights are issued either to the company or to the trust. In both cases, 100% of the property is owned by either you or anyone from your family. We can't say that there is any significant difference between these two options. In any case, each of these methods is good in its own way. The only difference is that the contents of the trust will annually cost about 500 USD, and for his own company will have to pay about 600-1200 USD a year. And by the way, we can help with finding an accountant or submitting reports.
That's all for now. In the next article in this series, we will try to figure out how much it will cost to support a real estate purchase transaction not taking in account the taxes which would be due to be paid.
