The concept of money laundering regulations goes back to ancient times and is intertwined with the development of money and banking. Money laundering is first seen with individuals hiding wealth from the state to avoid taxation or confiscation or a combination of both.
In China, merchants around 2000 BCE would hide their wealth from rulers who would simply take it from them and banish them. In addition to hiding it, they would move it and invest it in businesses in remote provinces or even outside China.
Does this apply to real estate transactions in Mexico?
- Real estate construction, purchase, rental, as well as fractional or time share, are havens for dirty money according to international anti money laundering laws. Money coming from illegal sources of income and money to finance terrorism. Mexico instituted laws in 2012 and make them in effect to follow since Sept 1, 2013. USA began these laws officially beginning in 1980. Since 911 and the Twin Towers attack on the USA, anti-money laundering laws have included anti-terrorism financing. Original laws against laundering starting in China centuries ago when royalty could take the money or resources of commoners.
- KYC (Know Your Customer) forms required from buyers and sellers by escrow company, the bank with the trust, the notary, and the agents if they are involved in a sale.
- Buyer: Notary has to send a xml and (a pdf of that the xml file says) to buyer of property over $38,500 USD. Buyer must keep the xml file to use when the property is sold, in order to prove what you paid for the property. SAT or the Mexican IRS, can identify your transaction with the xmls file to prove what you paid is declared to be the true. The pdf is a copy of what the code says so you can know if the true price has been declared. You must keep both of these records in a safe place, and you should keep backups on other devices. If you do not have the xml file or is corrupted, you will not be able to claim the entire price you paid as your basis upon which future tax will be computed when you sell.
- Seller: Notary has to send by email an electronic factura which shows the amount of ISR or capital gains tax paid at closing. This factura can be used by Americans as a tax expense when filing their US tax returns. The notary should also send a receipt if he charged (or a third party hired by the notary) for a strategy to lower the ISR. This receipt should be turned in by the American to his US accountant to show as an expense. Currently Mexicans cannot use the receipt for strategy since it is not a factura or formal receipt.
- Notaries and real estate agents, both sides representing the buyer and the seller, are required to report to SAT a closed transaction of a property over $38,500 USD by the 17th of the month following the occurrence. Reports include what is noted in the escritura: seller and buyer identification, details of the closing price, and formal reference of the identification the new escritura and its filing information in the public registry.
As an owner or buyer, you should be familiar with this and understand well the terms: factura, escritura, fideicomiso trust.
Additionally, you as a consumer should know you cannot own a residential property in Mexico without a trust. You may have a Mexican LLC without a fideicomiso trust, if you develop and or own commercial property. No tricks such as long-term leases (which have an automatic expiration in Mexico) can circumvent this fact of trust required or not.
If you want to have an American or Mexican LLC in a trust to own a residential property, for the reason that you want to avoid or lessen liability, you are far better making sure you have a good insurance policy in place for the building (through the HOA) and you have a good individual home owner’s policy for your unit, to cover accidents or injuries of person on the property who you have invited.
Puerto Vallarta Real Estate Blog published every week –
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This article is based upon Flex MLS reporting, legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review. If you have any other questions, contact me through my website.Harriet Murray