Estate costs

Property taxes in Mexico and property purchase costs

When you buy a property in Mexico you will have to pay additional agent fees and taxes on your purchase. Although these associated estate costs are a lot lower in Mexico than in many other countries, you should still take them into account when evaluating your total property cost.

Estate costs

Property tax in Mexico

Local property taxes in Mexico are called predial and are paid annually. The predial depends on the catastro value of your property, which is used by the public notary to access the value of a property for property tax. The catastro values are set by the municipality without any inspection of the property, and are usually only a fraction of the commercial property value. This is one of the reasons why the local property tax in Mexico is extremely low compared to other countries.

Costs of buying property in Mexico

When buying a property in Mexico you will be faced with additional one-off fees and taxes that go together with an estate purchase. These include the following:

Acquisition tax: The acquisition tax is paid on the sales value of a property and is about 2% of the sales value depending on the state in which you buy. This tax is paid whenever a property is sold, transferred, donated, placed into trust, split off or merged.

VAT (Value added tax): VAT does not apply to residential property sales in Mexico. Commercial property sales are subject to VAT in Mexico (in addition to the acquisition tax).

Appraisal Tax: In some cases the tax authorities might decide to appraise your property after the purchase. If the appraisal value exceeds the price you paid for the property, you will have to pay 20% on the difference between the two amounts.

Registration fee: Registering your property and updating public records costs the buyer a public registry fee of 1.3% of the transaction value.

Public notary fees: Notary fees amount to 1.5% of the total property value in Mexico. This does not yet include the cost of any official property valuations.

Bank Trust (fideocomiso): Foreigners buying a property within the restricted zones (50km from the coast or 100km from the border) need to set up a bank trust in order to do so. Prices vary from bank to bank, so comparing is worthwhile. Besides the set-up fee for the trust you will also have to pay annual service fees of around US$1000-2000, which include the filing of annual documents by the bank.

Attorney Fees: If you hire a lawyer for your property purchase you will need to calculate the fees for his services as well. Try to negotiate these fees in advance to avoid unpleasant surprises.

Property surveys: In some cases you might want to undertake a land and/or building survey of the property you intend to buy. The cost will depend on the size and type of property and the complexity of the survey.

Foreign Office Permit: As a foreign buyer you need to seek permission from the foreign secretary’s office to buy real estate in Mexico. This permit will cost you around US$150.

Service Fees: If you are buying a property within a gated community you also need to calculate the communal service fees. These depend on the size of your property and the services provided.

Title Insurance: When buying property in Mexico it is often recommended to take out a title insurance which provides protection in the event of unforeseen claims on your property. Title insurance rates vary but are usually around 5% of the property value.

Costs of selling property in Mexico

When selling a residential property in Mexico you will have to pay a heavy income tax on property gains if you have not lived in the property for at least the last 2 years. In this case you can choose to pay either 20% of the total sales prices or 40% of the net profit obtained from the property. The idea of these tax rates is to limit short-term speculation on the property market. Commercial property sales are always taxed at these rates.

If the sale is handled by an estate agent you will have to pay the agent fees as well. Estate agents in Mexico usually charge 4-8% of the sales value – you should clarify this beforehand. You will also have to pay IVA (VAT) on the agent fees.

Property tax in Mexico

Local property taxes in Mexico are called predial and are paid annually. The predial depends on the catastro value of your property, which is used by the public notary to access the value of a property for property tax. The catastro values are set by the municipality without any inspection of the property, and are usually only a fraction of the commercial property value. This is one of the reasons why the local property tax in Mexico is extremely low compared to other countries.

Costs of buying property in Mexico

When buying a property in Mexico you will be faced with additional one-off fees and taxes that go together with an estate purchase. These include the following:

Acquisition tax: The acquisition tax is paid on the sales value of a property and is about 2% of the sales value depending on the state in which you buy. This tax is paid whenever a property is sold, transferred, donated, placed into trust, split off or merged.

VAT (Value added tax): VAT does not apply to residential property sales in Mexico. Commercial property sales are subject to VAT in Mexico (in addition to the acquisition tax).

Appraisal Tax: In some cases the tax authorities might decide to appraise your property after the purchase. If the appraisal value exceeds the price you paid for the property, you will have to pay 20% on the difference between the two amounts.

Registration fee: Registering your property and updating public records costs the buyer a public registry fee of 1.3% of the transaction value.

Public notary fees: Notary fees amount to 1.5% of the total property value in Mexico. This does not yet include the cost of any official property valuations.

Bank Trust (fideocomiso): Foreigners buying a property within the restricted zones (50km from the coast or 100km from the border) need to set up a bank trust in order to do so. Prices vary from bank to bank, so comparing is worthwhile. Besides the set-up fee for the trust you will also have to pay annual service fees of around US$1000-2000, which include the filing of annual documents by the bank.

Attorney Fees: If you hire a lawyer for your property purchase you will need to calculate the fees for his services as well. Try to negotiate these fees in advance to avoid unpleasant surprises.

Property surveys: In some cases you might want to undertake a land and/or building survey of the property you intend to buy. The cost will depend on the size and type of property and the complexity of the survey.

Foreign Office Permit: As a foreign buyer you need to seek permission from the foreign secretary’s office to buy real estate in Mexico. This permit will cost you around US$150.

Service Fees: If you are buying a property within a gated community you also need to calculate the communal service fees. These depend on the size of your property and the services provided.

Title Insurance: When buying property in Mexico it is often recommended to take out a title insurance which provides protection in the event of unforeseen claims on your property. Title insurance rates vary but are usually around 5% of the property value.

Costs of selling property in Mexico

When selling a residential property in Mexico you will have to pay a heavy income tax on property gains if you have not lived in the property for at least the last 2 years. In this case you can choose to pay either 20% of the total sales prices or 40% of the net profit obtained from the property. The idea of these tax rates is to limit short-term speculation on the property market. Commercial property sales are always taxed at these rates.

If the sale is handled by an estate agent you will have to pay the agent fees as well. Estate agents in Mexico usually charge 4-8% of the sales value – you should clarify this beforehand. You will also have to pay IVA (VAT) on the agent fees.

Further reading

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