Structuring a Residential trust
(FIDEICOMISO EN ZONA RESTRINGIDA)
Legal context and the so-called “Restricted Zone”
Basic Structure
Intended Structure
Title Insurance
Compliance
Protection of Private Information
Validation of Foreign Legal Documents in Mexico and Apostille
Standard Taxes and Contributions in a Residential Transaction
When buying, the purchase of a property causes a local tax, normally municipal, which is calculated at about 2% of whichever is the highest value between the purchase price of the transaction, the cadaster value of the property, or the value determined by the appraisal commonly obtained for this type of transactions. Normally, in high-end residential property transactions, the transaction value is the highest of the three. This tax is known as the “Acquisition Tax or Transfer Tax”.
When selling, a federal tax may be assessed if a profit is obtained from such sale. The Notary Public formalizing the transaction is responsible of calculating and withholding said tax, to be further paid to the corresponding authorities (in Mexico, a Notary Public is an attorney with a special license designated by the State Government to validate, execute and formalize real estate transactions). This tax is known as Capital Gains Tax. This tax will be the equivalent to 25% of the gross price of the sale transaction, or 35% of the profit determined by the transaction, whichever is lower. Payment of this tax is final and definitive concerning the transaction in question and requires no follow-up in an annual tax return at the end of the corresponding fiscal year in Mexico.
Property Tax, is a municipal tax payable bimonthly in advance. It is common for the Municipality to allow payment of this tax annually in advance and will apply discounts when so paid. Property taxes are calculated based on property values predetermined by the Municipality and updated yearly and a certain rate that is applied to such values; this rate may vary according to the type of property and construction. Property taxes are estimated on a case by case basis; however, it is safe to estimate 0.25% to 0.35% of the fair market value of the property.