The following are simple guidelines about the process of buying real estate in Mexico. Please remember to consult with your own agent, attorney and accounting specialist for further detailed information.

Unlike the common misconception, foreigners CAN own real estate in Mexico. Outside the restricted zone a foreigner or foreign corporation can acquire any type of real estate, holding the property as a direct owner complying with Mexican law.

A Restricted zone as defined by the Mexican Constitution regulates ownership of land and states "…100 kilometers along the border or 50 kilometers along the coast, a foreigner cannot acquire the direct ownership of the land." However, according to the latest Mexican Foreign Investment Law, enacted December 28, 1993, it provides a solution in the form of a Fideicomiso. Within the Restricted Zone, a foreigner or foreign corporation can obtain all the rights of ownership with a bank trust, known as a Fideicomiso.

To set up a Fideicomiso the buyer simply requests a Mexican bank of his choice to act as a trustee on his behalf. The bank obtains the permit from the Ministry of Foreign Affairs to acquire the chosen property in trust. The bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary, who has all the benefits of a direct owner, including the possibility of leasing or transferring his rights to the property to a third party or pre-appointed heir. The trustee is responsible to the buyer/beneficiary to ensure precise fulfillment of the trust, according to Mexican law, assuming full technical, legal and administrative supervision in order to protect the interests of the buyer/beneficiary. Fideicomisos are not held by the trustee as an asset of the bank.

A Fideicomiso can be established for a maximum term of 50 years, and can be automatically renewed for an additional 50-year period. During these periods the buyer has the right to transfer the title to any other party, including a member of his family.

Currently, the bank charges for the Fideicomiso include an initial fee, approximately $500.00 USD for drawing up the agreement and establishing the trust, plus a percentage based on the value of the property. In addition, the bank charges an annual fee based on the value of the property to cover its services as a trustee.

Multiple Listing Service

A buyer may search for real estate properties through a couple of electronic multiple listing services (MLS) currently operating in Mexico. One of those MLS services is www.mlsvallarta.com

Escrow/Public Notary

In Mexico, there are few escrow companies because it is the Public Notary who commonly acts as a “Holding Agent” for the involved parties. A Public Notary is a government-appointed lawyer who processes and certifies all real estate transactions, including the drawing and review of all real estate closing documents. The Public Notary is also responsible to the government for the collection of all taxes involved. Upon request, the Public Notary receives the following official documents required by for any transfer:

• A non-lien certificate from the public property registry, based on a
  complete title search;
• A statement from the treasury or municipality regarding property
  assessments, water bills and other pertinent taxes that might be due;
• An appraisal of the property for tax purposes.
  

Purchase/Sale Process

After a written purchase offer is accepted by the seller and when a purchase-sale agreement (promissory contract) is signed by both parties, the transaction is opened, and in most cases a deposit is required by the broker to transmit the offer to the seller, similar to the real estate practices in the United States.

Closing Costs

It is common practice that the buyer pays the transfer of acquisition tax and all other closing costs, including the Notary’s fees and expenses, while the seller pays his capital gains tax and the broker’s commission. Each of the Mexican states may determine its own tax; the range may be from 1-4% of the tax appraisal value, which is generally less than the sales value. Other closing costs vary from 3-5% or more of the appraised tax value, depending on the particular state. These percentages are applied to the highest value of the following:

• The amount for which the property is sold,
• The value of the official tax appraisal,
• The value designated by the property assessment authorities.

Capital Gains Tax

In Mexico, capital gains tax from the sale of property is treated as normal income at a tax rate of up to 35%. To determine the gain, the following costs and expenses are deducted from the amount for which the property is officially sold:

• The original land cost and the depreciated construction cost, based on
  the number of years the property was held and adjusted for inflation
  according to the official consumer price indexes;
• Additions, modifications and improvements, but not maintenance, made
  on the property (construction), adjusted as above;
• Commissions paid to real estate brokers by the seller;
• The closing costs, including all expenses, taxes and fees paid by the
  seller.

The Notary will retain the calculated gain after deductions, forwarding it to the Mexican tax authorities. The seller will then deduct this amount against his annual tax return, which becomes an adjustable tax credit in the United States.

Also note that there is no capital gains tax in Mexico if there is conclusive proof the seller has used the property as his primary residence.