Legalex - International Law Firm

Legalex

Mexico Frequently Asked Questions

LEGAL ACQUISITIONS OF NON-RESIDENTS

Q: Can a non-Mexican individual buy property in Mexico?

A: Yes. However, the procedure for buying and acquiring property in Mexico in areas close to the borders and on the seashore can only be done by way of setting up a trust and by a system of administrative permits. So, two basic aspects must be understood:

a) - The title holder to the property can only be a trustee which under Mexican law must be a recognized banking institution strictly regulated by the Ministry of Finance and Public Credit, the Bank of Mexico and the National Banking Commission.

b) - An administrative permit to buy must be applied for. The duration of the permit is of 50 years.

Q: How can the permit be renewed? Upon application? Automatically?

A: The permit is renewable upon application three months before expiry for successive 50 years terms so long as the purpose of the trust remain the same (holding the property).

Q: What circumstances on the part of the Mexican Government might withhold the renewal of the permit?

A: Only if the application is not renewed on time or the purpose for which the trust has been set up is modified.

Q: How many times can the trustee or/and the beneficiary renew it?

A: It can be automatically renewed for successive fifty years terms. The Foreign Relations Ministry must issue a new trust permit

THE TRUST

Q: What guarantees has the beneficiary in the case of bankruptcy of the bank?

A: The apartment held in trust by the bank is never an asset of the bank so it can never be part of bankruptcy proceedings or any other losses suffered by the bank holdings.

Q: Can the trustee sign and enter into rental agreements, mortgage applications or use the property as a guarantee without the intervention of the trustee bank?

A: Yes. He does not require for any of these acts the intervention of the trustee bank.

Q: Does the beneficiary require any special authority by the trustee bank to act as above?

A: No formality is required.

Q: In the event of a sale before the expiry or renewal of the 50 years period, will the price be negatively affected by this?

A: No, as the seller transfers the possibility of a fresh renewal of the 50 year-permit and as many extensions of this period as the number of years the property is held.

THE CONTRACT

Q: What are the guarantees against any defects hidden or apparent on the construction after delivery?

A: In accordance with the Civil Code of Campeche, claims for damages against defects of the construction must be made within a period of one year from completion and delivery of the property. However, the quality of the construction will be supervised and certified by the reputable quality control Company“ Bureau Veritas” who will be issuing periodic certifications.

Q: Is there any legal obligation to ensure the property by the buyer once he is in possession? Who sub- scribes the insurance the buyer individually or the Owners’ Association?

A: There is no legal obligation in Mexico to ensure buildings after completion. The insurance must therefore be taken out by the Owners’ Association for the fabric, structure and common parts of the building. Each owner must take out an individual policy for contents.

TAX ISSUES

Q: What are the taxes at the time of completing the transaction?

A : Transfer tax in Campeche is levied at 0,5% on the value of the property, Notary’s fees representing 0,3%-1% of the value and finally Land Registry fees of 1%. Apart from these and in case of the constitution of a mortgage guarantee, the Notary and Registry costs will involve an additional cost of approximately 1%.

Q: Are there any others expenses?

A: Those relating to the management of the site payable through the Owners’ Association.

The purchaser also has to take into account the costs of constitution and maintenance of the trust.

These will be of 1.500 USD for the obtention at the Foreign Relations Ministry of the licence and the inscription of the trust at the National Registry of Foreign Investments. An initial 500 USD fee is payable to the trustee Bank for the acceptance of the trusteeship.

An annual maintenance fee of 500 USD is also payable to the Trustee Bank.

Q: What are the taxes due on a yearly basis on the property?

A: Local rates or real estate tax at a rate of 0,12% on the value of the property.

Q: What is the Income Tax on rentals?

A: The rate of tax on rentals for non-residents is 25%.

Q: What is the level of Capital Gains Tax? What expenses can be deducted?

A: Capital gain tax is levied on the difference between the original price of acquisition and the sale price. The rates applicable are either 29% of the difference between those prices or 25% of the sale price. In both cases the base for calculation are the cadastral values that are much lower than the real value of the property.

Any improvements, legal fees on the purchase (Notary and lawyer) and any other costs that were necessary and are supported by invoice(s) are tax deductible.

Q: In the event of non-payment of the taxes and dues by the beneficiary, can the trustee take any action?

A: The party responsible for lodging the taxes on time is the Notary Public that records the Deeds and he must be put in funds by the beneficiary at the time of completion.

COMPANY

Q: Can the administrative 50 year permit be avoided if the property is bought in the name of a Mexican company with the shares held by a non Mexican resident?

A: Yes if the Memorandum and Articles of Association specifies that the company is a property holding company.

Q: Is there any advantage in acquiring the property in the name of a company and not in the name of an individual?

A: No, a company needs to fulfil a number of administrative and fiscal obligations that result in a high annual maintenance cost in addition to the formalities and the costs of setting it up.

DEATH DUTIES

Q: Does the beneficiary need to make a will or to appoint more than just a second beneficiary in the event of death?

A: The beneficiary can appoint more than one beneficiary and those substitutes will be formally recognized as such by the trustee bank in accordance with the instructions given by the main beneficiary.

Q: How is a new beneficiary being appointed if for any reason the second and/or third beneficiary dies as well as the first beneficiary without a further appointment?

A: In the absence of a living beneficiary, the trustee bank will accept the provisions made by the deceased beneficiary by Will. The Will does not need to be a Mexican Will, only the Will of the country of domicile of the deceased duly translated and legalized to be fully enforceable.