26/01/2023
REAL ESTATE LOS CABOS
Los Cabos is a paradisiacal place where you can invest in acquiring the property of your dreams. In BAEZCH ATTORNEYS we are committed to advise you legally and provide you with the necessary support to protect your investment.
It is important to know that there are regulatory limitations for foreigners to directly acquire the ownership of real estate located in border areas and beaches, in accordance with Article 27, Section I of the Political Constitution of the United Mexican States, foreigners are restricted from acquiring real estate in the so-called "restricted zone", which is catalogued as the strip of national territory of one hundred kilometers along the borders and fifty kilometers along the coast.
So how is it that your friends and colleagues have acquired properties in Los Cabos, La Paz and all the peninsula of Baja California?
Foreigners may acquire ownership of real estate located in the restricted zone through a legal figure known as "Fideicomiso" (Trust) or the incorporation of a Mexican corporation that should contain a clause for the admission of foreigners.
The “Fideicomiso” is the legal instrument used for foreigners in order for them to acquire a personal right over the property through the trust as trust beneficiaries and be able to use and enjoy the property. Through the Fideicomiso (Trust), the beneficiary has all rights and privileges of ownership, use and control over the property and makes all decisions related to the property, which may include use and enjoyment, leasing the property, making improvements and selling.
It is also relevant to know Owning a property in Mexico, specially in an Irrevocable Restricted Zone Trust (Fideicomiso) in Mexico will have economic implications and responsibilities. This is a brief list of all the taxes and obligations implied:
In case of selling the property, the income tax regulation grants foreign individuals 2 possibilities to pay their corresponding capital gains, one is a 25% tax rate applied on the total price of the consideration paid for the property without any deductions and the other a 35% tax rate applied over the gains with all the authorized deductions declared by law.
On a second level we have the payment of Income tax for renting the property in which the law only grants one possibility to assess the tax by a blind 25% tax rate applied over the total consideration price paid for the rent with no deductions that should be retained by the tenant. In case the landlord is a tax resident of the US, he can be granted by a special benefit from the Double Taxation Tax Treaty subscribed between Mexico and the United States of America, to have the option to be treated as an individual who has a permanent establishment, which will allow him to calculate the tax on a net basis as if such income were attributable to a permanent establishment.
In third place we have the Value added tax for renting the property, it will only be triggered in case you rent the property with furniture, in which case it will trigger a 16% value added tax to be added to the consideration price of the rent and finally the Property tax which is a yearly tax that must be paid to the municipality of Los Cabos for owning private property.
In addition to the aforementioned taxes, the Trust Beneficiary will also have to pay the Trustee bank yearly fee which has an average cost of 600 dollars per year and if the property is located in a condominium, the owner will have to pay the HOA’s fees annually.
In B*H ATTORNEYS we are committed to provide you with professional advice and legal accompaniment to facilitate the process of acquiring the home of your dreams in Los Cabos and all Baja California Sur. https://www.bchattorneys.com.mx
