FINANCING IN MEXICO
Financing is now available to USA and Canadian Citizens in Mexico with as little as 20% down. We can offer assistance with mortgage financing for the purpose of purchasing your Mexican home. The primary goal, aside from funding your loan, is to provide an unmatched level of service and care. Since closing procedures, laws and fees are different in Mexico than in the United States, our REALTORS®, lawyers, and closing agents, work together throughout the entire process to make sure purchasing your Mexican home is safe, easy and worry-free.
We work with a variety of providers that enable us to customize a financing option that is perfect for your purchase. For more information on the options offered by these providers, please contact us today.
THE HISTORY OF MEXICAN LAND
It is important to understand the history of property ownership and its evolution in Mexico. In 1517, when Hernandez de Cordoba sailed from Spain to the Yucatan Peninsula, foreigners laid claim to Mexican lands. Spain decided that since they had landed here, it was now theirs. It was not until 1822 that Mexico declared its independence from Spain, much like the U.S. declared independence from England, but even with this new independence, the lands of Mexico were still owned by wealthy foreigners, the Mexican upper class and the Church. Porfirio Diaz, a former President of Mexico for over 30 years, nearly sold all of Mexico to foreigners during his term.
The end result was the Mexican Revolution, which cost over one million lives and was the basis for the Federal Constitution of 1917. The new constitution imposed new laws and restrictions on foreign ownership and ownership of lands by the Catholic Church. Article 27 of the constitution allows Mexican Nationals and Mexican Companies to own property; however it restricts foreigners from owning land with the restricted zone. This "restricted zone" is defined as property within 60 miles from any Mexican border or within 30 miles of any Mexican coastline.
Not until the 1930's did the Mexican people truly see the property being returned to them. President Lazaro Cardenas disassembled the large property holding and distributed them in the form of cooperative farms or "Ejidos". The people were given ownership of these properties and were allowed to farm and cultivate them and receive the profit from their efforts. After nearly 4000 years, over 50 million acres of land was back in the hands of the Mexican people, however, it was still owned by the Federal Government.
Even though the people were allowed to farm the properties and profit from their work, it was not until 1992 that they were allowed to sell the properties. The 1992 Agrarian Law recognizes property rights within the Ejido and allows for the owner of record to sell or lease the property to a non-Ejido member. The property can be removed from the National Agrarian Registry (removed from Federal Control) and placed in the public land registry allowing it to be sold or leased. Today, thousands of acres are being removed on a daily basis from the Ejidos, added to the public lands and being sold or leased. There are well over 50 million acres of land that will go through this process to be either leased or sold over the coming years.
MEXICAN PROPERTY TRUSTS (Fideicomiso)
In 1994, amendments to the Constitution permitted foreigners to purchase and own real estate in Mexico located within the "restricted zone" which is all land within 60 miles of a national border and within 30 miles of the Mexican Coast. This Law permitted ownership through a land trust or "Fideicomiso".
A "Fideicomiso" is a Mexican Trust. The way it works is the Mexican Government issues a permit to a Mexican Bank of your choice, allowing the bank to act as purchaser for the property. The bank acts as the "Trustee" for the Trust and you are the "Beneficiary" of the Trust. The "Beneficiary" rights are very similar to Living Wills or Estate Trusts in the U.S.
The law authorizes Mexican banking institutions to act as trustees. A trustee takes instructions only from the beneficiary of the trust (the foreign purchaser). The beneficiary has the right to use, occupy and possess the property, including the right to build on it or otherwise improve it. The beneficiary may also sell the rights and instruct the trustee to transfer title to a qualified owner.
Many people refer to the trust arrangement in Mexico as a lease agreement... this is not true. The home or property that you buy will be put into a trust with you named as the beneficiary of the trust - you are not a lessee. You have all the rights that an owner of property in the U.S. or Canada has, including the right to enjoy the property, sell the property, rent the property, improve the property, etc.
The initial term of the trust is 50 years. An investor can renew the trust for an additional period of 50 years within the last year of each 50-year period, and this process can be continued indefinitely, providing for long term control of the asset.
TAXES
The Mexican tax system has been subject to comprehensive tax reform legislation enacted principally in 1986 and 1988. Although this tax law is subject to change we have supplied this information to better help our customers understand the basic tax laws with the emphasis on your real estate purchases and sales. Taxes are always to be considered in your real estate transactions and this is even truer when as a foreigner it is possible that two countries may claim tax jurisdiction over you and your property. Various taxes and procedures with regards to your transactions are calculated somewhat different here in Mexico, with the key points being; can you claim as a tax resident? When is a property subject to tax? And to know exactly what taxes you can be subject too. As always Dorado Properties Loreto feels it is very important to always consult with a local tax consultant or Notario for up to date information.
Understanding the tax laws of Mexico is an extremely important part of real estate ownership here in Mexico.
What you do today will greatly effect your tax liabilities for tomorrow.
Purchasing Taxes:
The acquisition tax in Mexico is a relatively low rate of 2% of the purchasing
price. It could be said that the most important thing that we can stress is
to always properly record your purchase price at full value and pay this tax.
It is not a good idea to save a little by recording a lower purchase price as
this can often be heard as a suggestion but should never be considered. If a
lower sales price is registered, basically the seller will avoid some of their
30% capital gains tax and in the future when it comes time for you to sell,
you will be forced to pay a higher amount of capital gains tax that is not necessary.
Pay the 2% tax and avoid the 30% tax.
Facts about purchasing:
- Never record a lower purchase price
- This purchase price will NOT affect your property taxes.
- Always check your Fideicomiso (bank trust) to make sure the purchase price is correct. (Have the Notario write down exchange rate for future reference)
- Pay your 2% tax as soon as possible to begin receiving your inflationary credit.
Inflationary Credits:
As soon as you have paid your 2% acquisitions tax you are now eligible to receive
an inflationary credit for every year you own your property. This credit will
be added to your base purchase price when you sell your home, and can be very
substantial in some cases.
Capital Gains Tax:
Mexico tax law states that that tax is owed on any profit received when you
sell your home or property. By law you have two options to calculate this tax
and can use whichever is the lesser of the two options.
OPTION 1: 25% of the gross sales amount with no deductions
OPTION 2: 30% of the net profit (with deductions)
The key to understanding these tax laws is to understand how to maximize your
cost basis before you buy and not at the time when you decide to sell.
Capital Gains Tax Exemption:
Mexico provides its residents with a tax incentive for residents that sell their
personal residences. The law states that after 2 years of ownership you may
sell your personal home and be capital gains exempt. This tax exemption is for
Mexican Nationals but also applies to some foreigners with their primary residence
here in Mexico.
Dorado Properties Loreto has provided a quick review of some tax laws that a person is likely to encounter during their purchase or sale of a property here in Mexico . It is important to note that if you are a resident of the U.S and Mexico you may be subject to some tax laws for both countries and it is recommended that you always consult a qualified tax consultant on these applicable laws.
IMMIGRATION
It is not necessary to have a special Immigration Visa at the time of purchase of real estate. When you have decided you want to stay for extended periods of time or are thinking of immigrating to Mexico you may request from the authorities the corresponding immigration permits, which are the FM2 and the FM3.
- FM3
As a holder of an FM3 you are allowed to stay in the country as a NON IMMIGRANT for a period of one year. This permit may be renewed annually. After the fifth year you may be interested in acquiring the next immigration status (IMMIGRANT) or simply continue as an FM3 holder. - FM2
This document applies to the IMMIGRANTS. As an immigrant you're not a permanent resident but you are eligible to apply to become an INMIGRADO (permanent resident - for residency in Mexico).
There are advantages to having a FM2/FM3 such as importing household goods and vehicles, creating residency status, and being entitled to leave and enter the country freely. You can obtain the application forms at your local US Mexican Consulate or Immigration office in Mexico. Be prepared to wait 30 days or more for the application approval.
Disclaimer: *ALL INFORMATION IS TO THE BEST OF OUR INFORMATION AND SUBJECT TO CHANGE. PLEASE CHECK WITH YOUR LEGAL AND TAX EXPERTS FOR MOST CURRENT RULES.
