No more LLC's to avoid bank trusts and 2 % transfer tax?

For many years many gringos have used American LLC's to set up the bank trust to enable a sale of the property at a later date by simply paying minor legal costs to transfer the shares to the new owners. This avoids the typical bank trust and transfer tax of $10,000, or even more. It appears the sun has set on this loophole:

joanC said:

For many years many gringos have used American LLC's to set up the bank trust to enable a sale of the property at a later date by simply paying minor legal costs to transfer the shares to the new owners. This avoids the typical bank trust and transfer tax of $10,000, or even more. It appears the sun has set on this loophole:

Can’t open letter

Try this.

joanC said:

Try this.

all good things must come to an end

Yes, just found this out last week from the attorney and notario that were about to submit the final steps and doc's for my LLC and bank trust that I have been trying to accomplish for over 5 years thanks to the sellers trust with HSBC. Nothing like getting stopped on the 1 yard line after all this time. If the attorney had not "lost" an important document that we signed in October, I would have got in under the wire. I'm so pissed off.

Another new law coming soon to the Mexico we know and love: It's common for a gringo property owner, who does not have any legal status in Mexico, to sell his Mx property for a profit and get paid without ever going to Mx and meeting the visa or residency requirements. He uses a Power of Attorney naming a Mexican as his Attorney to sign everything on his behalf. The problem: the capital gains tax never gets paid.

The new law will make the Attorney liable for the tax, and prior to signing must prove assets of sufficient value to cover the tax.

Well, hopefully getting a permanent resident card will ease the Mexico capitol gains taxes currently at 35% on a sale for a non-resident.

They are clamping down on all the tax avoidance that has happened for many years. I heard Mexico wants AirBNB and other rental places to
report all transactions so they can re-coup all the lost revenue from people not reporting income.

My local buddy who does construction deposited a check from a job for $10K, he had to justify where the $$ came from
and is still being questioned about it every time he deposit's $$ into his account.

**Capital Gains Tax Exemption for Homeowners for November 16, 2021.**

The Income Tax Law of Mexico allows the homeowner the right to be exempted up to 700,000 UDI on the profit of the sale of his primary residence, thus if you have legal status (As temporary or Permanent Resident) you may enjoy that exemption. Other conditions apply.

The UDI will be worth on November 16, 2021), $ 7.004444 pesos, which multiplied by 700,000 UDI, and divided by the exchange rate of the day ($20.50) results in a savings of $4,903,110.8 pesos, or $239,176.13 dollars.

My last report on the UDI was on October 20th, 2021 and the savings in US dollars back then, resulted in $238,275.47 US dollars.

Questions?

Email me at rafaelsolorzanom@gmail.com

Or call 619 409 2610.

Regards,

Rafael Solorzano.

The exemption from tax for a principle residence is available only every 3 years.

I have kicked myself in the butt ever since we bought our house because I didn't form an LLC. I guess I can stop now

So much for flipping properties….many houses and condos build in the housing bubble went for top dollar.I am wondering if the Sandy beach condos from 2008-10 for example are worth more or less than the original selling price….I know Santo Tomas hasn't gone up much so doubt much gain is happening there ……good old drug war…

:)

My attorney now says he has the OK from the Catastro office to submit the already completed documents under my LLC and pay the transfer tax. So looks like I lucked out. But I think they will process only because my documents were prepared prior to 12/7/2021.

Was the Dec 7 a specific cut-off date, and if so, why? You say "already completed documents under my LLC ". The reason I ask is my son is buying a place by way of buying the LLC shares. The shares have not yet been transferred.

Mondone: we are all happy you got under the wire.

The longtime reason to use an LLC as the owner in the trust was to make selling easier: transfer the LLC shares, and voila...deal is done. No costs for transfering the trust and no 2 % tax.

Do you feel Catastro will come up with some new rules to ensure when you sell the property in the future the LLC will not be of help?

Just how they are taxing the VRBO and Airbnb 20 percent off the top they are thinking of getting people at the border and get FMM’s money from them, Be sad if they go after LLC and make them get bank trusts JMHO.

joanC said:

Was the Dec 7 a specific cut-off date, and if so, why? You say "already completed documents under my LLC ". The reason I ask is my son is buying a place by way of buying the LLC shares. The shares have not yet been transferred.

The bank trust doc's were already prepared under the name of the LLC.

joanC said:

Mondone: we are all happy you got under the wire.

The longtime reason to use an LLC as the owner in the trust was to make selling easier: transfer the LLC shares, and voila...deal is done. No costs for transfering the trust and no 2 % tax.

Do you feel Catastro will come up with some new rules to ensure when you sell the property in the future the LLC will not be of help?

Exactly the benefit of an LLC as of now. As to what they will change is up in the air, but I would say the primary goal to change is the 2% tax they are not collecting now.

playaperro said:

Just how they are taxing the VRBO and Airbnb 20 percent off the top they are thinking of getting people at the border and get FMM’s money from them, Be sad if they go after LLC and make them get bank trusts JMHO.

You don't grasp the rules. Start with this: An LLC is a legal person, same as man buying a MXCN property within the " protected" area 100 KM in from an international border, and 50 KM in from the water. The LLC is the person buying the property. The LLC has always required a bank trust, as any other person. The new rules simply stop transferring the shares in the LLC to effect a sale, and thereby avoid the 2 % transfer tax as well as bank trust transfer costs. The first LLC owner gets no benefit, but when he sells he can get a higher price because the buyer avoids the tax and transfer costs.

mondone said:

Exactly the benefit of an LLC as of now. As to what they will change is up in the air, but I would say the primary goal to change is the 2% tax they are not collecting now.

Keep in mind: the 2 % tax goes to the city. Every sale of 250,000 will generate 5000. Local Mexicans can't go the LLC route, so they pay the transfer tax, and gringo's don't!

The banks usually charge up to $2000 to transfer a trust from Joe Smith to Bill Wilson, and a local notary will get some revenue on the deal. The traditional LLC share transfer we have had over the years cuts out the bank and notary, and only the US attorney who does the share transfer sees any coin.

Everywhere in the world, for a foreign LLC to do business or own property in a foreign country, it must register in that country. It then must have a local agent and registered office, and must file annual reports, reporting shareholders, directors and officers. If Mx wants to stop the tax avoidance, it can do so with rules on par with the rest of the world.

Have any new rules surfaced?

joanC said:

Have any new rules surfaced?

No news I am aware of at this point.

joanC said:

Keep in mind: the 2 % tax goes to the city. Every sale of 250,000 will generate 5000. Local Mexicans can't go the LLC route, so they pay the transfer tax, and gringo's don't!

The banks usually charge up to $2000 to transfer a trust from Joe Smith to Bill Wilson, and a local notary will get some revenue on the deal. The traditional LLC share transfer we have had over the years cuts out the bank and notary, and only the US attorney who does the share transfer sees any coin.

Everywhere in the world, for a foreign LLC to do business or own property in a foreign country, it must register in that country. It then must have a local agent and registered office, and must file annual reports, reporting shareholders, directors and officers. If Mx wants to stop the tax avoidance, it can do so with rules on par with the rest of the world.

... Mexican corporation buyers also avoid the 2% transfer tax, so it's not just LLC's... I'm sure there are many more properties owned by Mx. Corps than there are owned by LLC's.. I deleted the first part of this post, because I was able to answer my own question, relating to yearly filing a tax return in the U.S. for a LLC that owns property here in Mexico.... https://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-29675.html

According to my MXCN legal friends, Mxcn corporations owned by foreigners are rare...the vast majority of corporations that own property are gringo.

It's been almost a year since Mexico made some noises about making LLC's pay taxes and fees commensurate with those paid by an individual. Does anyone know the present status of the changes?

joanC said:

According to my MXCN legal friends, Mxcn corporations owned by foreigners are rare...the vast majority of corporations that own property are gringo.

It's been almost a year since Mexico made some noises about making LLC's pay taxes and fees commensurate with those paid by an individual. Does anyone know the present status of the changes?

Sorry for the misunderstanding, but I was actually referring to Mexican corporations owned by Mexicans..

joanC said:

According to my MXCN legal friends, Mxcn corporations owned by foreigners are rare...the vast majority of corporations that own property are gringo.

It's been almost a year since Mexico made some noises about making LLC's pay taxes and fees commensurate with those paid by an individual. Does anyone know the present status of the changes?

I haven't heard of any changes to existing LLC's as of now, but I'm also not sure that they are issuing any more bank trust's in the name of an LLC either. Supposedly that was going to end last year.

The problem with buying a property owned by an existing LLC... you could be the bag holder.. Even though the sale is done without a notary and no taxes paid in Mexico, the sale is still taxable here and is looked at as tax avoidance.. in other words taxes are still due in Mexico.. http://www.penascoliving.com/mexican-capital-gains.html Buyers unless they have purchased real estate in Mexico before have no idea the problems they could be buying and realtors should probably warn them about being a potential bag holder for previous sales of the LLC.. What if it changes from tax avoidance to tax evaision, then what?

Here is just a simplified example ( but a true example) of how foreign buyers can get creamed..An American family bought a condo here in 1996, the year it was built or being built (Pinacate) for 140 k the peso was 7.5 to the dollar. They sold the condo in April 2016 for the same 140 k.. it was never renovated and needed work The peso was 18.57 when they sold it,, when the notary told them they owed 29,000.00 dollars in capital gains taxes, they couldn't beleive it. Pay 140 and sell for 140. it doesen't work that way.. it was recorded in peso;s 1,050,000 at 7.5 to 1 it sold for 140 at 18.57 to 1 or 2,599,800 pesos a profit of 1,549,800.. times 35 % foreign buyers tax 542,430 peso,s $29,410.00 tax .. That could be a huge problem for a LLC bag holder way down the line.

The property was purchased by a Mexican family, who did make money on the sale and paid no tax because of the 3 year exemption.. Read about the exemption here. ..... https://www.theyucatantimes.com/2018/12/quick-facts-about-capital-gains-tax-in-mexico/

[Q

corndog said:

The property was purchased by a Mexican family, who did make money on the sale and paid no tax because of the 3 year exemption.. Read about the exemption here. ..... https://www.theyucatantimes.com/2018/12/quick-facts-about-capital-gains-tax-in-mexico/

It would also have to be their principal residence.

Convincing the Notary the joint has been one's principal residence can pose a challenge. The Notary is often audited on a regular basis if he has deemed too many sales to be that of a principal residence. He needs to have a file full of indicia that it was the primary home. One thing that trips up many people is the CFE bills: often a new owner leaves the account in the name of the previous owner for convenience, and to avoid CFE's fee to start a new account, presenting CFE with Trust documents, yada, yada. Obviously, having legal residency is important, and it's not clear if continuous monthly tourist visas bought at the border are sufficient. The test is simple, and identical to that used by taxing authorities worldwide: if a stranger looked down on your entire living situation ( utility bills, supermarket receipts, car and house insurance, etc, etc) would he find the trappings sufficient to say yes, I believe this dude calls Mexico home. Side note: if the Notary actually gets you through the sale free of capital gains tax , you won't ever know for sure. The Notary will invariably tell you he got your tax reduced to a small amount....$1500 to $3500 is common, payable to his account!

joanC said:

Convincing the Notary the joint has been one's principal residence can pose a challenge. The Notary is often audited on a regular basis if he has deemed too many sales to be that of a principal residence. He needs to have a file full of indicia that it was the primary home. One thing that trips up many people is the CFE bills: often a new owner leaves the account in the name of the previous owner for convenience, and to avoid CFE's fee to start a new account, presenting CFE with Trust documents, yada, yada. Obviously, having legal residency is important, and it's not clear if continuous monthly tourist visas bought at the border are sufficient. The test is simple, and identical to that used by taxing authorities worldwide: if a stranger looked down on your entire living situation ( utility bills, supermarket receipts, car and house insurance, etc, etc) would he find the trappings sufficient to say yes, I believe this dude calls Mexico home. Side note: if the Notary actually gets you through the sale free of capital gains tax , you won't ever know for sure. The Notary will invariably tell you he got your tax reduced to a small amount....$1500 to $3500 is common, payable to his account!

Joan. no disrepect to you...You are talking about foreign buyers here and bank trusts and I'm not. There are also a group of people here called Mexican Citizens that take full advantage of the law and are organized with their paperwork. The family i mentioned Mexican citizens and were never charged a fee for eliminating their tax.. Why would anybody that knows their legal right to not pay capital gains, pay a notary for a favor thats not really a favor.. (I'm not questioning you, I know everything you say happens, including leaving the CFE acount in the sellers name) We don't have and have never had a bank trust and also have taken advantage of the 3 year exemption without any problems..Tourist visa's won't get the tax break.. temporary or pemanent resident visa and citizen..

CheddarBob said:

It would also have to be their principal residence.

It was..

From the Baja side of Mexico..


The Problem with some Notaries.
(Choose the right one way ahead of time!)
Capital Gains Tax Exemption for the Homeowner.

Article 93, fraccion XIX Ley Impuesto sobre la Renta.
Not every notary will recognize the right of a homeowner to obtain an exemption on the Capital Gains Tax resulting from a sale.

Some notaries are young and their inexperience on certain topics shows when they refuse to grant a CGT exemption, others simply are trying to protect themselves from becoming solidarity responsible for not withholding the right amount of CGT from the seller or not withholding any at all, others are simply fed up with the topic and flat our refuse to acknowledge the exemption, etc.

Make sure to contact a reliable notary, or several, before you enter a purchase agreement to make sure you don't have any late-minute drama. Notaries change their minds at the worst possible time, some, in my opinion, have no right whatsoever to demand any additional conditions, regarding the capital gains tax exemption, beyond that which is required by the law and regulations.

If you are the seller or the seller's agent, do your homework well ahead of time by approaching the right notary who must honor the right of a qualifying seller to obtain the CGT exemption contained under article 93, section XIX of the Income Tax Law of Mexico.

By the way, The worth of the UDI as of April 04, 2022, is $7.249199 pesos, which multiplied by 700,000 UDI, results in $5.074,439 pesos, divide that sum by the exchange rate of the day ($19.843200) results in a savings of $255,726 dollars on the profit.

Regards,

Rafael Solorzano

rafaelsolorzanom@gmail.com
Phones 619 409 2610 or 619 636 3089.
Mx cell 664 188 7001

joanC said:

Convincing the Notary the joint has been one's principal residence can pose a challenge. The Notary is often audited on a regular basis if he has deemed too many sales to be that of a principal residence. He needs to have a file full of indicia that it was the primary home. One thing that trips up many people is the CFE bills: often a new owner leaves the account in the name of the previous owner for convenience, and to avoid CFE's fee to start a new account, presenting CFE with Trust documents, yada, yada. Obviously, having legal residency is important, and it's not clear if continuous monthly tourist visas bought at the border are sufficient. The test is simple, and identical to that used by taxing authorities worldwide: if a stranger looked down on your entire living situation ( utility bills, supermarket receipts, car and house insurance, etc, etc) would he find the trappings sufficient to say yes, I believe this dude calls Mexico home. Side note: if the Notary actually gets you through the sale free of capital gains tax , you won't ever know for sure. The Notary will invariably tell you he got your tax reduced to a small amount....$1500 to $3500 is common, payable to his account!

when a American or Canadian sells property in Mexico and attempt to get citizenship here for the purpose of reducing capital gains when this wasn’t their primary residence. (Bending the truth as we all do when it comes to taxes) This automatically triggers a capital gains assessment on your current primary residence In the United States or Canada. You can only have one primary residence.

CheddarBob said:

when a American or Canadian sells property in Mexico and attempt to get citizenship here for the purpose of reducing capital gains when this wasn’t their primary residence. (Bending the truth as we all do when it comes to taxes) This automatically triggers a capital gains assessment on your current primary residence In the United States or Canada. You can only have one primary residence.

Bending the truth here would be looked at as fraud, when a notary is involved, that can lead to a 5 year jail sentence.. I wont say which notary.but there is a legal notice pasted on the wall at the entry that is a reminder..

Terry C said:

From the Baja side of Mexico..


The Problem with some Notaries.
(Choose the right one way ahead of time!)
Capital Gains Tax Exemption for the Homeowner.

Article 93, fraccion XIX Ley Impuesto sobre la Renta.
Not every notary will recognize the right of a homeowner to obtain an exemption on the Capital Gains Tax resulting from a sale.

Some notaries are young and their inexperience on certain topics shows when they refuse to grant a CGT exemption, others simply are trying to protect themselves from becoming solidarity responsible for not withholding the right amount of CGT from the seller or not withholding any at all, others are simply fed up with the topic and flat our refuse to acknowledge the exemption, etc.

Make sure to contact a reliable notary, or several, before you enter a purchase agreement to make sure you don't have any late-minute drama. Notaries change their minds at the worst possible time, some, in my opinion, have no right whatsoever to demand any additional conditions, regarding the capital gains tax exemption, beyond that which is required by the law and regulations.

If you are the seller or the seller's agent, do your homework well ahead of time by approaching the right notary who must honor the right of a qualifying seller to obtain the CGT exemption contained under article 93, section XIX of the Income Tax Law of Mexico.

By the way, The worth of the UDI as of April 04, 2022, is $7.249199 pesos, which multiplied by 700,000 UDI, results in $5.074,439 pesos, divide that sum by the exchange rate of the day ($19.843200) results in a savings of $255,726 dollars on the profit.

Regards,

Rafael Solorzano

rafaelsolorzanom@gmail.com
Phones 619 409 2610 or 619 636 3089.
Mx cell 664 188 7001

If a notary doesn't allow the exemption, the smartest thing to do would be, don't sign the papers.. nobody can force you to sign.. Just walk out until the notary either clears it with SAT or confers with the the Notary College (Colegio De Notarios).. Or find a notary that will aliow it.

Terry C said:

From the Baja side of Mexico..


The Problem with some Notaries.
(Choose the right one way ahead of time!)
Capital Gains Tax Exemption for the Homeowner.

Article 93, fraccion XIX Ley Impuesto sobre la Renta.
Not every notary will recognize the right of a homeowner to obtain an exemption on the Capital Gains Tax resulting from a sale.

Some notaries are young and their inexperience on certain topics shows when they refuse to grant a CGT exemption, others simply are trying to protect themselves from becoming solidarity responsible for not withholding the right amount of CGT from the seller or not withholding any at all, others are simply fed up with the topic and flat our refuse to acknowledge the exemption, etc.

Make sure to contact a reliable notary, or several, before you enter a purchase agreement to make sure you don't have any late-minute drama. Notaries change their minds at the worst possible time, some, in my opinion, have no right whatsoever to demand any additional conditions, regarding the capital gains tax exemption, beyond that which is required by the law and regulations.

If you are the seller or the seller's agent, do your homework well ahead of time by approaching the right notary who must honor the right of a qualifying seller to obtain the CGT exemption contained under article 93, section XIX of the Income Tax Law of Mexico.

By the way, The worth of the UDI as of April 04, 2022, is $7.249199 pesos, which multiplied by 700,000 UDI, results in $5.074,439 pesos, divide that sum by the exchange rate of the day ($19.843200) results in a savings of $255,726 dollars on the profit.

Regards,

Rafael Solorzano

rafaelsolorzanom@gmail.com
Phones 619 409 2610 or 619 636 3089.
Mx cell 664 188 7001

Lic Solorzano: what is your latest understanding of how Mxcn authorities are treating: a. new US LLC's buying properties in the zones where trusts are required; b. US LLC's selling properties in those 2 zones

joanC said:

Lic Solorzano: what is your latest understanding of how Mxcn authorities are treating: a. new US LLC's buying properties in the zones where trusts are required; b. US LLC's selling properties in those 2 zones

Look him up on Facebook and ask him there. He does offer free advice to a certain point

So for multiple people buying a house even if you can’t dodge paying your fair share of taxes does this still make sense ?

corndog said:

Here is just a simplified example ( but a true example) of how foreign buyers can get creamed..An American family bought a condo here in 1996, the year it was built or being built (Pinacate) for 140 k the peso was 7.5 to the dollar. They sold the condo in April 2016 for the same 140 k.. it was never renovated and needed work The peso was 18.57 when they sold it,, when the notary told them they owed 29,000.00 dollars in capital gains taxes, they couldn't beleive it. Pay 140 and sell for 140. it doesen't work that way.. it was recorded in peso;s 1,050,000 at 7.5 to 1 it sold for 140 at 18.57 to 1 or 2,599,800 pesos a profit of 1,549,800.. times 35 % foreign buyers tax 542,430 peso,s $29,410.00 tax .. That could be a huge problem for a LLC bag holder way down the line.

Thanks, you just really helped me .Anyone rember where the peso was in 2008?

Old55 said:

Thanks, you just really helped me .Anyone rember where the peso was in 2008?

Sorry found it https://www.macrotrends.net/2559/us-dollar-mexican-peso-exchange-rate-historical-chart

I got caught up in a bit of that and learned to shop the deal between different Notarios. Saved a bit that way.

Notarios collect capital gains tax, and remit it to the taxing authority. Supposedly! The prevailing custom is for the notario to exaggerate the amount you pay, and take a chunk for herself.