Mexican Taxation Law establishes the obligation of the seller of the Real Estate to pay Capital Gain Taxes ( Impuesto Sobre la Renta -ISR-).

The ISR is equal to 28% of the registered price from the day the property was bought and the selling price minus deductions.

Retention of the Taxes

In case a foreigner is selling a Property, only the Notary Public is obligated to calculate and retain the ISR from the Seller, and to pay it to the Treasury Department ( Secretaria de Hacienda y Crédito Público).

Therefore only the Notary Public is the person entitled to determine the final amount of ISR to pay (taking into consideration the deductions if applicable, per receipt of documentation).

The Capital Gain Tax (ISR) could be subject to the following DEDUCTIONS

1. The investments made to the property in constructions, improvements and/or extensions. In this case the Seller needs to provide the Notary Public the appropriate documents to prove the investment made. The appropriate document is the “ Manifestation” received from the Municipality (Dirección de Obras Públicas) at the time the seller informed them of such investment.
2. Notary Public Fees, taxes and governmental fees the seller paid when he acquired the Property. In order for the Notary Public to deduct such fees the seller needs to provide the original invoices and receipts of such payments.
3. The commissions and mediation fees the seller paid at the time he acquired the property. In order for the Notary Public to deduct such fees, the seller needs to provide the original invoices and receipts of such payments.

Capital Gains Tax Exemption

The exemption applies on the sale of the Property considered as the Residence of the Seller. If a Foreigner wants to be exempted of the payment of Capital Gain Taxes, he/she must produce:

•  To be an Immigrant (FM2)
•  To have a Tax ID Number
•  To prove he has been paying taxes in México
•  To have all the utility bills in his/her name
•  To prove he has been paying taxes in México and have registered at least one annual income tax return in México
•  To have all the utility bills of the property in his/her name

Capital Gain Tax applicable to the BUYER

This is an unusual situation. The capital Gain Tax against the buyer, applies when the purchase price is under the official appraisal value.

Capital Gain Tax applicable to a CORPORATION

•  A Mexican corporation will not pay capitals Gain taxes right after the closing. These are paid by March 31st of next year along with their yearly accounting.

•  After 4 years if they have not sold the property, they will be charged the 2% of all the company assests.

•  An U.S. Corporation cannot sell property without paying capital Gain taxes. Mexican Law states if the company holds 51% or more of Property assets in Mexico, (all Capital Gains law apply in case they sell any or all corporation shares) it has to pay taxes in Mexico. They will become deductable in the States.