Real Estate in Yucatan: Closing Costs
Editor's Note: The following is a synopsis of the expenses that you might incur when you sell your home in the Yucatan. Most, if not all of them, are applicable to anywhere in Mexico that requires a fideicomiso for a foreigner to own property (anywhere within 30 miles of the country's border). Because laws change regularly, the costs change also. Our friend and real estate broker Jennifer Lytle, of Tierra Yucatan Real Estate, (who can be reached in Merida at (011-52-1) 999-923-7615 or email@example.com) pulled this information together for us. And between us, we will do our best to keep it updated as things change.
If you have questions or something to add, we welcome your comments!!
In real estate, as in Life itself, it pays to be prepared. But it is also wise to remember that anything can happen. The only thing constant is change, and all that. So with the following information, you should be able to get an idea of what it will cost to actually sell your house in Merida or elsewhere in the Yucatan. If you bought without a fideicomiso, then you can just subtract those costs, but the other costs will still apply. If you are buying real estate in Yucatan or in Mexico, there are closing costs for you too. And for both buyer and seller, it is good to understand what the costs are for the other, as these can be points of negotiation.
Long Term Planning
We all know that in most things, but especially in all things Mexican, nothing stands still for very long. This information is good as of December 2015. (We will review it periodically and update that month and year when we do.)
For foreigners owning or buying property, long term tax planning is important, as the Mexican government is always for ways to increase revenues. And taxing real estate sales is one sure-fire way to find some tax dollars.
Buyer’s closing costs
Foreigners buying less than 2000 square meters within 50 km of the coast of within 100 km of the border are required to use a bank trust or fideicomiso for the purchase. You DO own the property and the term of the trust is 50 years with a 50 year automatic renewal. If your heirs still own the property at the end of the term (and a trust is still required), they would simply form a new trust. There is talk in the Mexican government of doing away with the fideicomiso requirement, but at this time that is still just talk and not a reality.
If the property you are buying already has an existing fideicomiso, this can transfer to you. This is a better way to purchase a property if you have that option, as it is a less time consuming process and a slightly cheaper process as well.
Another thing to note are the utility costs, especially electricity. It is the seller's responsibility to provide proof that the CFE bills have been paid on a property. We encourage you to check that carefully. Also, keep in mind that sometimes there are more than one electrical or water meter in a given property (especially a large property that might have at one time been two separate properties). If you buy a property and there is money due to CFE or JAPAY, the buyer must pay what is owed before the service can be changed into your name.
New Fideicomiso permit fee to the government…………………………….. $1,100.00 USD
Bank set-up fee…………………………………………………………………… 650.00 USD
First year management fee for trust………………………………………….. $ 650.00 USD
Attorneys fees (based on purchase price, approximate)………………….. $ 1,500.00 USD
Recording fees, appraisal, miscellaneous…………………………………….$ 500.00 USD
Purchase Tax (impuesto de adquisicion) In Merida and most áreas... 2.5% of purchase price
In Progreso, Chelem, Chuburna ..........................................................3% of purchase price
In Telchac Puerto ..................................................................................4% of purchase price
Note: Fees to the bank, notary and government may be higher as they are based on the amount named on the new title as the “purchase price”. They also vary depending on the attorney and bank you choose. This is just a rough guide, and this is an important detail. It is advantageous to the seller to put the lowest purchase price possible, as they fewer taxes. Conversely, it is advantageous to the buyer to have a higher registered purchase price, as when they sell their property, they will have a lower capital gains that will be taxed.
Seller’s Closing Costs
When you are even starting to consider selling your home, there are very important steps you should take if at all possible! Basically, it pays to be a resident of Mexico.
If you do not already have some sort of residency in Mexico, it is vital, to avoid extremely heavy taxation, that you apply at your local Mexican consulate for a Temporary Residence Visa for Mexico. To activate the visa once it is issued, you must spend a month, perhaps more, in Merida. This is the time needed to get the visa activated at the Immigration offices here. The process in Progreso is slightly faster, and much will depend on time of year and how many others are in line. Requirements for application can be found online at the Mexican Embassy's website for Canada and for the USA. (For other countries, check the Mexican Embassy website for your country).
Once your visa is active, you will need to apply for an RFC (Registro Federal de Contribuyentes), basically a tax ID. You must also go to the CFE (Comision Federal de Electricidad) and insist that they make you active to receive a FACTURA for your electricity bill. You will need to provide your RFC to do this. This is a brand new requirement! You will also need to provide an alternative address IN MEXICO where you can be contacted after the sale. This can be any friend here in Yucatan with whom you have contact and where you can receive mail.
After taking these steps, you are all set. The good news is that as a temporary or permanent resident, you are now exempt from taxation. You are exempt from both ISR (Impuesto Sobre La Renta) and from Capital gains tax. But note that you are only exempt on the sale of ONE RESIDENCE in any five year period under current law (Note: This law MAY have changed to three years. We are working on getting the latest info and will update this when we do).
Non-Resident Seller's Closing Costs
Capital gains tax (ISR mentioned above) is about 30% of the difference between the purchase price put on your title (deed or fideicomiso) when you purchased the property, and the price your buyer puts on the new deed at closing. Before you sell, it is very important to check your deed. It used to be common practice in Yucatan to put an artificially low price to avoid acquisition tax, so that the seller paid minimum capital gains. Many homeowners are unaware of this. Sellers were certainly told at the original closing, but that detail is often disregarded or not even understood. This is an important point, as 30% of the difference can be many thousands of dollars!
Don’t assume that if you bought a hurricane damaged wreck for $50,000 and have invested $120,000 in remodeling that this can be credited towards your capital gains tax. There IS a process wherby an appraiser can adjust your property value to reflect the improvements. The process is called an Avaluo de Referido. However, this appraisal is very expensive (typically 10 to 15% of the amount of tax saved). Without a residence permit, you will still have to pay 25% of the unadjusted tax. The appraiser will need documentation (photos) of the house in its original condition and a copy of the original tax valuation assigned (the old cedula catastral), as well as photos of all the improvements, plus the NEW cedula catastral.
And there is more! There is still the Impuesto Cedular to pay. This applies to everyone who does not have a residence permit or who owns through a corporation (including those with residence permits and Mexican nationals). This tax is a charge of 5% of the value of the property as shown on the new deed as the sales price. If your sales price is $100,000 dollars, then Impuesto Cedular will be $5,000 dollars. Again, if you have a residence visa and you do not own your real estate through a Mexican corporation, you are exempt from this tax.
Owning Your Property in a Corporation
You will certainly need to consult with your accountant and attorney in this case, as there are many questions. For instance, it needs to be decided if you are selling the shares in the corporation to the buyer. If the buyer of the property is willing to buy on these terms, this is the simplest way. However, I would recommend that the buyer have their own accountant and attorney check the status of the corporation before taking it over. Any tax or other legal obligations charged at a later date to the corporation would be the responsibility of the new owner/partners.
If the corporation is selling the property and the corporation will then be closed, this process will of course incur taxes. These will have to be calculated and paid by your accountant and are not paid at closing.
Buying a Commercial Property
If you are buying property that is not just land and not a private home, then you are buying commercial property. If the property is a shop, a hotel, or any sort of business, the uso de suelo will be "commercial". Even a parking lot with a few tin roofed structures will be considered a commercial property. Usually, commercial properties are owned in corporations, not in fideicomisos. In this case, the buyer will also be charged IVA (Impuesto de Valor Adicional or Value Added Tax). This is 16% of the tax appraised value of any construction on the land. This is regardless of your visa status!
Save A Headache
As you can see, planning ahead can save you headaches, heartache and a huge hole in your bank account. There are techniques available under certain circumstances that can reduce the tax burden if you are non-resident or otherwise not tax exempt, but it is getting harder to do this all the time. In any case, in addition to working with an experienced real estate agent or broker, you should always consult your personal accountant in Mexico, as well as a lawyer.
Bookmark this page to check for future updates. If you have current questions, feel free to ask them in a Comment. If you have more information that you think should be added to this list, we welcome that as well!