Taxes on Rentals (Long-term and Vacational)

If you are planning to invest in real estate property or you already own a property in Mexico, you should know that there are different types of taxes that apply related to real estate rentals:

  1. Capital Gains Tax. Capital Gains Tax (CGT) is a federal tax applicable on all income received and arising from any source, including rental income. CGT on rentals for non-residents is 25% of the property’s income, without deductions. CGT on rentals for Mexican residents can be up to 35% depending on the property’s income, with the possibility of deducting certain expenses or a blind deduction of 35% might be applicable at owner’s election (individuals). CGT is paid directly by the owner every month together with the corresponding filings.
  • Value Added Tax. Value Added Tax (VAT) is a federal tax applicable to the lease of a house or a condo with furniture and appliances based on a 16% tax rate over the rent. If the house or condo is leased without furniture, this tax does not apply. VAT is paid by the tenant with the rent and reported every month by the owner together with the corresponding filings.
  • Lodging Tax. Lodging Tax is a state tax applicable to the lease of a house or a condo on vacation rentals based on a 3% tax rate over the rent. Vacation rentals are for tourist purposes only, meaning people traveling temporarily out of their primary residence with recreational or any other purpose. Vacation rentals always include furniture and utilities (water, gas, electricity, Wi-Fi, among others). Lodging Tax is paid by the guest with the rent and reported every month by the owner together with the corresponding filings. Some online platforms, such as Airbnb and Vrbo collect and pay the Lodging Tax on behalf of the hosts at the time of booking.

If you own a real estate property in Baja California Sur and you wish to obtain a profit from it, you have two options to pay your taxes: A) Appoint a personal representative, who will issue receipts, pay taxes and present the corresponding filings on your behalf; or, B) Change your immigration status to a Mexican resident and request a taxpayer number, to comply with your tax obligations and contribute with Country’s development.

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Ejido Land in a Nutshell. 7 Basic things to understand before investing:

A vast majority of beaches and country side land around urban areas of Baja California Sur are “Ejido” land. If you are looking to invest in one or more of these properties, here are 7 basic things you must know about “Ejido” land:

  1. The “Ejido” is a legal entity.
  2. Mexico’s Federal Government is allowed to transfer Real Estate property to “Ejidos”, with the ultimate goal of achieving the people’s and Country Agricultural development.
  3. The “Ejidatarios” are rightful members of the “Ejido”, with use and voting rights over the “Ejido” land and its water.
  4. Only Mexican Citizens are allowed to become “Ejidatarios”.
  5. The “Ejido” land is not private property and it cannot be sold while it remains under the “Ejido’s” domain.
  6. Only a democratic resolution from the “Ejido” members can authorize the disincorporation of a parcel or portion of the “Ejido” land, in favor of an individual “Ejidatario” to own it as private property.
  7. “Ejidatarios” are allowed to transfer title of a parcel subject to certain legal requirements, such as the right of first refusal “derecho del tanto” of the family members and the “Ejido”.

When purchasing properties coming from “Ejido” land, only after the “Ejido” requirements have been met according to the Agrarian Law, a regular closing process must be completed to obtain title to the property by means of a Trust “Fideicomiso”, Mexican Corporation or any other legal vehicle to own property according to the purchaser’s needs.

CA’A Conde, Alvarez & Asociados, Attorneys at Law.  www.calaw.com.mx

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State Law for Real Estate Professionals

By Jorge M. Conde, Esq.

If you are entering the real estate market, the first thing you will encounter while trying to find help for buying, selling or renting a property is a Real Estate Professional; yet only 17 out of the 32 states in Mexico regulate the services of Real Estate Professionals.

The state of Baja California Sur has recently joined the list. On June 27th, 2017 the local Congress approved the “Law to Regulate Real Estate Professionals in Baja California Sur”, which requires all Real Estate Professionals to obtain a License and register before the local Registry of Real Estate Professionals, to provide brokerage services to the public.

To obtain a License, legal entities (brokers) and individuals (agents) shall submit among other documents, legal documentation evidencing their existence/identity, Tax Registry Number (RFC), a certificate of criminal background check and most important, evidence their professional qualifications (exceptions apply during 2019). Legal entities with a License bears responsibility for the actions of the real estate agents or advisors working under its supervision, who should also suffice the same adequate training as the licensed individuals.

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Buying a Timeshare? Five red flags to watch for

What is a Timeshare? Timeshare also known as “Vacation Ownership” is basically where you buy the right to spend a certain period of time (typically a week or more) at a specific hotel resort in exchange for an initial buy-in amount plus an annual maintenance fee .

The sale of timeshare in Mexico is well regulated as the Federal Consumer Law requires for specific provisions to be included in all timeshare agreements which protect the consumer. To ensure the above, all timeshare providers must register their timeshare agreement before the Federal Consumer Agency (PROFECO) and prove that they can provide said services. When buying a timeshare ALWAYS LOOK FOR THE REGISTRATION NUMBER ON THE TIMESHARE CONTRACT.

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Despite the efforts to regulate the timeshare industry, there are many unregulated “timeshare providers” operating in Los Cabos, looking to make a quick buck by defrauding their clients. Here are 5 red flags to watch out for before purchasing a timeshare.

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Landscape and Ocean View Protection

By Jorge M. Conde, Esq.

The Municipality of Los Cabos has an extension of 119 miles of coastline between the Migriño area (at the Pacific Ocean) and the Buena Vista area (at the Gulf of California).

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With approximately 15,000 hotel rooms and 2,500 more currently under development, Los Cabos is one of the tourist sites most preferred by visitors to Mexico by foreign tourist and also at the national level. This nature sanctuary has stunning natural landscapes and impressive biodiversity that combines the ocean and the desert like few places in the world, as well as offering unsurpassed weather conditions irresistible to the visitors.

Despite the benefits that provide the protection of landscape in environmental, social and economic levels, the growth of the local economy is accelerating the transformation of various landscapes, in some cases degrading, with the corresponding consequences to the community. Therefore, the landscape has become an important element of protection embraced in the human right to a healthy environment, health, culture and identity. Continue reading

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What to expect when buying real estate in Baja

By Jorge M. Conde, Esq.

Mexican real estate transactions are not carried out in the same manner as United States real estate transactions.

The Mexican Federal Constitution declares that foreigners are not allowed to hold direct title to real estate property within the restricted zone. The restricted zone encompasses all land located within 50 kilometers (about 31 miles) of any Mexican coastline inland and 100 kilometers (about 62 miles) of any border. We are talking about most of the territory of Baja California and Baja California Sur. This limitation comes from historical reasons of military protection.

los-cabosNonetheless, under Mexican law, Foreigners are entitled to acquire real estate property within the restricted zone through a “Fideicomiso”. Fideicomiso is a Mexican type of contract. There are three main parties involved in the Fideicomiso for real estate acquisitions for foreigners: (i) The seller, which is called: “Fideicomitente”; (ii) a Mexican Bank, called “Fiduciario”; and (iii) the foreigner purchaser called: “Fideicomisario” or beneficiary.

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