NEW TAX LAW CHANGES AFFECT REAL ESTATE
By Cheryl Miller
As verified with attornies, notarios, SAT and AMPI
A few years ago, the Mexican IRS, known as the Hacienda or SAT, made sweeping changes in their tax system. The system they created became geared to electronic filings and the use of computers/internet for all acceptable documents, reports and files. Since then, many changes have occurred. Among them is the requirement for all taxpayers to have electronic signatures, an RFC or Taxpayer ID number, to pay all taxes through the internet (cash at a bank is no longer allowed), to receive electronic official receipts for purchases of goods and services in order for them to be allowed as possible deductions from income tax or capital gains tax, when a property is sold..
This past July another change, without pomp, circumstance or notification, was passed that became effective September 1st of this year. This change affects ALL real estate purchases, and ALL buyers and sellers who are foreign or national.
In a nutshell, all real estate purchases after September 1st now require both buyer and seller to obtain official electronic facturas for the real estate transaction. The facturas are to be issued through the Mexican Notary Public (Notario Publico) who formalizes the transaction. But, it is important that the Buyer receive this document and its two electronic files (one is an .xml file and the other a .pdf file), and save them for the time when he or she may sell. If you are a Buyer make sure you ask for them and that you save them. It is the property owner’s responsibility, not the Notary’s. Nor is it the real estate agent’ responsibility to obtain and keep these files, although a good agent will prompt you to do so.
The days following the notification of this change, the actual dynamics and process of this new law were in confusion and there was a lot of doubt because of the implications to foreign buyers. In order for a foreign buyer to receive a Tax ID number, a foreigner would have needed to obtain official immigration status here, receive his official Taxpayer ID number and then receive his official tax (RFC) number through SAT. In addition, the foreigner would then be required to make tax filings to the Mexican Government on a periodic basis.
However, this is NOT THE CASE. Recognizing the confusion and implications of the original draft of the law, an amendment to the law was issued subsequently, allowing the continuation of the use of a generic RFC number that was especially created for foreign investors. AS LONG AS YOU DO NOT HAVE AN IMMIGRATION STATUS or LIVE IN MEXICO, the use of the generic RFC will be honored for tax deductions. This generic number is XEXX010101000. SAVE THIS NUMBER.
In order to receive legitimate deductions against the capital gains tax when you sell, you now must receive electronic facturas for materials, labor and other recognized deductions in the form of an electronic factura with your name (same as on the fideicomiso or escritura), the legal address (same as on the fideicomiso or escritura), the TAX ID number and save the electronic files that will be submitted to the Notary for use in the calculations of the capital gains. Electronic filing of facturas only has been in effect since 2013 and only electronic facturas are acceptable after that time. However, before that deadline, any handwritten facturas you may have will be honored. ALWAYS KEEP originals of your handwritten or non-electronic facturas before electronic filing was the requirement. ALWAYS KEEP the electronic files on a memory
stick or a safe place. Unlike the United States, copies are not acceptable proof of your payment of the goods/services and the IVA and copies cannot be used by the Notary as a deduction.
Since the Capital Gains tax is substantial – 35% of the difference between the amount registered in the deed and the selling price, less any documented costs of purchase and any sales commission paid with factura, being diligent and taking the time and energy to receive these electronic facturas for any improvements, construction, or legal process done on the property is well worth the energy. Check with a Notary or Mexican accountant to determine the current allowable deductions for capital gains. As you can see, the requirements change from time to time, so it is worthwhile to check in yearly with your tax expert.
Many times, I have seen selling clients who have spent literally hundreds of thousands of dollars improving their Mexican properties but have not saved their documents nor have obtained their official tax receipts. Sadly, when selling, they receive zero deductions and end up paying dearly on their sales price in enormous taxes. I have always said, “Its better to pay 16% IVA now, than 35% in taxes later!” It’s just simple math.
Also, henceforth, the facturas when you purchase allow you to deduct the purchase price from the sales price. Without it, there will be no deduction. So imagine selling a property you paid $100,000 dollars for $200,000 USD and instead of paying taxes on the difference less deductions, you end up paying taxes on the full amount? Be proactive, be sure and ask for your factura!
By Cheryl Miller, Broker, Baja Realty and Investment. www.forsaleinbaja.com 624-122-2690