Fideicomiso is a bank trust created in order to comply with the provisions of Article 27 of the Mexican Constitution in which foreigners are limited in acquiring the direct title to the  property in the restricted zone. The bank acts as the trustee, but the foreign buyer retains all ownership rights and can sell, lease, or transfer the property.

The process of buying property in Mexico involves several key steps: finding the right property, making an offer, conducting due diligence, signing a sales agreement, and completing the closing process with a closing agent.

Yes, foreigners can buy property in Mexico. However, if the property is within the restricted zone (50 km from the coastline or 100 km from the borders), they must do so through a fideicomiso (bank trust) or a Mexican corporation.

Buying a property in Mexico comes with a range of ‘closing cost´ and this can vary depending on the location, type of property, sale price and other factors.

Closing costs typically include notary fees, registration fees, closing agent fees,technical documents, among other expenses. These costs can range from 5% to  15% of the property’s purchase price. Cost may vary depending on the specific circumstances of the transaction.

Many buyers are surprised to see that the taxes they pay at the time of closing are much higher than they are used to paying in the United States and Canada. The reason is the Mexican Government collects a large percentage of the property taxes at the time of closing. The buyer will pay most of the closing costs.

Taxes due on the sale of residential property are calculated by the Notary Public, who also withholds these amounts for direct transfer to the Mexican Treasury. The tax law makes each Notary Public fully liable for taxes due, so they will absolutely ensure that the rules have been followed and certify that sellers qualify for any exemptions and deductions they are claiming for tax relief.

Many third parties are involved in the closing process such as Public Notaries, Home Owners, Buyer and Seller Closing Agents, Foreign Affairs Minister for the Fideicomiso Permit, Fideicomiso Trust Banks, Property Tax office Officials, etc..

Taxes are always to be considered in your real estate transactions and this is even truer when as a foreigner it is possible that two countries may claim tax jurisdiction over you and your property.

Various taxes and procedures with regards to your transactions are calculated somewhat differently here in Mexico,

Purchasing Taxes

The acquisition tax in Mexico is a relatively low rate of 2% of the purchasing price. It could be said that the most important thing that we can stress is to always properly record your purchase price at full value and pay this tax.

Never is it a good suggestion to try and save a little by recording a lower purchasing price, this can often be heard as a suggestion but never should it be considered.

If a lower sales price is registered, basically the seller will avoid some of their 30% capital gains tax and in the future when it comes time for you to sell, you will be forced to pay a higher amount of capital gains tax that isn’t necessary. Pay the 2% tax and avoid the 30% tax.

Capital Gains Tax

Mexico tax law states that that tax is owed on any profit received when you sell your home or property. By law you have two options to calculate this tax and can use whichever is the lesser of the two options:

• Approximately 25% of the gross sales amount with no deductions.

• Approximately 30% of the net profit (with deductions).

The key to understanding these tax laws is to understand how to maximize your cost basis before you buy and not when you decide to sell.

Also make sure that all expenses paid on your original closing and expenses for improving and holding the property are properly accounted for, meaning a oficial factura is issued in your name with address of property detailing expenses and 10% iva sales tax paid.

Mexico’s property tax has three different types, the Acquisition Tax, Annual Property Taxes or Predial, and the Capital Gains Tax. Acquisition Tax is paid when buying any Mexican property, which ranges from below 2 percent up to 5 percent of the property’s estimated value at the purchase time. The level of tax differs in every Mexican state. On the other hand, Annual Property Tax (Predial) is quite a low tax paid before the 31st of March. The calculated amount of the tax depends on the property’s location, size, age, and construction type. Meanwhile, Capital Gains Tax is only required to pay when owners sell their property. The owed capital gains tax will be calculated based on how much profit the owner made from the sale, how long the owner lived in the property before selling, and other factors.

In most towns and cities across Mexico, home prices are quoted in Mexican pesos when they are offered for sale. However, a few places and most notably in Los Cabos, Todos Santos, La Paz,  Puerto Vallarta, San Miguel de Allende, and Cancun/Riviera Maya, home prices are often seen quoted in US dollars.

Even though the home may be marketed in dollars and the transaction amounts may be quoted in dollars, the deed will show the amount in Mexican pesos at the exchange rate prevalent on the date of the closing. Any capital gains are calculated only in Mexican pesos and therefore, shifts in the exchange rate can affect the capital gain calculation as expressed in a foreign currency.

The notary public calculates this amount

Paid by the buyer:

- Public notary fee – this is based on tariffs established by the Bar of Notaries, and is usually 1.5 to 2 percent of the sale price. 

- Registry of property fee – paid directly by the notary.

- Property acquisition tax – based on a percentage of the selling price, generally 2 percent. Usually, the notary obtains the funds from the buyer and reports the transaction to the local treasury.. 

- Fees associated with establishing a fideicomiso – varies by bank, but can be substantial; note that there is an annual charge to maintain the fideicomiso

- Closing agent's fees – for consultation or advice about the transaction, and for establishing a trust 

- Any upfront fees that the notary paid on behalf of the seller, such as the avalúo or registration fees, are added to this fee

Paid by the seller:

- Real estate fee commission

- Capital gains tax 

- Property taxes

- Services such as water and electricity, and others must be covered at the time of selling.

- Ejido Land and Agrarian Law

Mexico has a unique land tenure system known as "ejido," which refers to communal land owned by rural communities. Ejido land is subject to agrarian law and restrictions, and transactions involving ejido land can be complex and require additional legal procedures. Buyers should exercise caution and seek legal advice to navigate the intricacies of acquiring ejido land.

- Scams and Fraud

Buyers should be cautious and exercise due diligence when dealing with unfamiliar sellers or agents,  property scams and fraudulent activities can occur in México, . It is advisable to work with reputable real estate professionals, conduct background checks, and ensure all transactions and agreements are documented properly.

No, you do not need to be a resident to buy real estate in Mexico.