Selling your property - Mexican taxation

Find below some of the most FAQ regarding selling your property in Cabo and the current Mexican Taxation, from Value Added Tax to Capital Gains Tax.

Should I pay Value Added Tax on the sale of my property?

Yes and no. The transfer of an empty lot is VAT-exempt. The transfer of a building, on the contrary, is levied with VAT, unless the building is considered a "house" for VAT purposes. While selling a lot with a commercial building on it, a pro-rata calculation shall be performed."

I am not a Mexican tax resident. Do I have to pay capital gains tax while selling a property located in Mexico?

Yes. Even though there is no capital gains tax in Mexico, the Mexican Income Tax Law does provide for taxation upon the transfer of real estate located in Mexico, when sold by a non-resident."

I own real estate located in Mexico through a Mexican company. Do I have to pay income tax while selling the property?

Absolutely. The tax treatment, however, would be different, as the seller would be a Mexican tax resident, therefore, a different set of rules would apply.

I own real estate located in Mexico through a foreign company, whose share I will transfer to a third party. Do I have to pay taxes in Mexico as a result of this transaction?

It depends. The Mexican Income Tax Law sets forth a rule stating that, should the book value of the company whose shares are being transferred, be represented in more than 50% by real estate located in Mexico, a transfer of the real estate shall be deemed to have occurred.

Someone told me that there is a Double Tax Convention between Mexico and my home country. How does that help me reduce taxation in Mexico?

Generally, Double Tax Conventions may grant tax benefits to residents of the relevant contracting states. However, taxation of real estate transactions are rarely benefited by these Conventions"

"Is there something I can do to reduce my Mexican tax exposure while selling my property?

Yes. However, a case-by-case review is a must.

Should you have questions or concerns regarding this information, please feel free to contact Mr. Santiago Solorzano at taxloscabos@gmail.com.