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
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.