For a for­eigner, buy­ing prop­erty in Mex­ico is a new and dif­fer­ent expe­ri­ence. Most for­eign­ers spend time research­ing the pro­ce­dure of buy­ing prop­erty, set­ting up a trust or a cor­po­ra­tion and becom­ing famil­iar with the dif­fer­ent per­mits and costs required to close on a prop­erty trans­ac­tion in Mex­ico. A lot of effort is put into becom­ing famil­iar with the “clos­ing pro­ce­dure” how­ever very lit­tle time is spent on under­stand­ing what on-going oblig­a­tions exist after the prop­erty has been pur­chased. Fur­ther­more, there is very lit­tle infor­ma­tion on what these on-going oblig­a­tions are. The arti­cle will act as a gen­eral check­list for the types of oblig­a­tions that any for­eigner should observe after pur­chas­ing prop­erty in Mexico.

1) Trustee Fees
If you bought your prop­erty through a trust, your trustee (bank) will charge you an annual admin­is­tra­tion fee to hold your trust. This fee needs to be paid to the bank annu­ally. Some banks use the anniver­sary of the trust clos­ing date as the date when this fee is due while oth­ers pro­rate the first year fee and start the sec­ond year on Jan­u­ary 1st. Ask your bank or prop­erty man­ager to ver­ify this date.

When your trust is set up your bank/trustee des­ig­nates an “trust account num­ber” for the trust. Please under­stand that this num­ber is NOT IN YOUR DEED and is a num­ber that the bank gen­er­ates to keep track of your trust. You need to get a copy of this trust account num­ber because it is the file num­ber the bank uses to keep track of the sta­tus of your trust and pay­ments that are due.

Branch offices of the same bank as your trustee do not usu­ally have in their com­put­ers your “trust account num­ber” on record but if you have the trust account num­ber they locate your trust via a cen­tral office and receive the annual pay­ments you owe. 

Most banks charge late fees for not pay­ing on time so timely pay­ment is rec­om­mended. Fur­ther­more most banks do NOT send you a noti­fi­ca­tion of when these fees are due so it is your respon­si­bil­ity to make sure you know when pay­ment is due and make the cor­re­spond­ing payment.

You can either pay these fees your­self or hire a prop­erty admin­is­tra­tion ser­vice to pay them for you. Again, in most cases for­eign­ers do not want to spend part of their vaca­tion deal­ing with bank man­agers try­ing to get these fees paid, how­ever if you do want to do it your­self and save some money you will need the trust account num­ber in order to make the deposit. WHEN YOU PAY THE BANK THIS FEE MAKE SURE YOU GET A COPY OF THE RECIEPT. Banks a famous for not record­ing annual trust pay­ments and have been know to try and dou­ble and triple charge. Your receipts will con­firm your payment.

2) Prop­erty Taxes
Prop­erty taxes will need to be paid on your prop­erty yearly. These taxes are paid at the munic­i­pal offices that cor­re­spond to the loca­tion of the prop­erty. Prop­erty tax is called “impuesto pre­dial”. Your prop­erty has a Prop­erty Tax Account num­ber, which is called your “Cuenta Cat­a­stral”. This is the num­ber you need to pro­vide to the munic­i­pal prop­erty tax author­ity in order to get your yearly Prop­erty Tax Calculation.

 Do not wait for the munic­i­pal­ity to send you a bill or reminder, it is your oblig­a­tion to go and pay this tax.  Most munic­i­pal­i­ties will give you a dis­count for pay­ing dur­ing Jan­u­ary, Feb­ru­ary and March and start with late penal­ties in April.

You can either pay your prop­erty taxes your­self or hire a prop­erty man­age­ment ser­vice to do it for you. Most peo­ple find that when they come to Mex­ico the last thing they want to do is spend a morn­ing or day at the munic­i­pal offices try­ing to fig­ure out how to pay these taxes. This is the prin­ci­pal rea­son why for­eign­ers hire prop­erty man­agers to take care of their prop­erty tax pay­ments. If you do have a prop­erty man­ager make these pay­ments for you (or for that mat­ter any pay­ment), have them fax you a copy of the paid prop­erty tax bill as soon as it is paid in order to con­firm 1) the amount you paid and 2) that it was paid.

The cal­cu­la­tion of prop­erty tax varies for munic­i­pal­ity to munic­i­pal­ity and form State to State. Your prop­erty tax is cal­cu­lated base on the “Valor Cat­a­stral” or Prop­erty Tax Value of your prop­erty. Most munic­i­pal­i­ties (but by no means all of them) charge 2% of the land value and 1.2% — 2% of the con­struc­tion value. In most munic­i­pal­i­ties these “Cat­a­stro” val­ues are very low and there­fore your taxes are low.

When you pay your prop­erty tax and get your receipt we rec­om­mend that you:
 
Make sure what you paid is stated on the receipt (less the prop­erty man­agers fees.)

Ver­ify that the infor­ma­tion on the receipt is cor­rect including:

• Loca­tion of property

• Prop­erty Tax Account Num­ber – “Cuenta Cat­a­stral”.
Make sure it is the right account num­ber. If you have a doubt, check your deed for the number.

• Loca­tion of property

• Name of owner
Note if you hold the prop­erty in a trust (fide­icomiso) the banks name will appear as the owner. This is cor­rect, but make sure it is the right bank. 

• That the cal­cu­la­tion of how they arrived at your tax is under­stand­able. I like to take the cal­cu­la­tion of land and con­struc­tion and work it back­wards in order to under­stand the exact per­cent­ages charged to me. I have found many many errors in these calculations.

• Make sure the receipt has a name, sig­na­ture (or stamp) and date of pay­ment. Pay­ments should be made to the munic­i­pal trea­surer or “Tesor­erìa Municipal”.

Many times you will see other charges on your bill for items such as “Pro-educacion (edu­ca­tion)” or “Pro-caminos (roads). This is nor­mal but all of these charges should make ref­er­ence to the per­cent­age you are being charged (it is com­mon to charge 15% of the TAX AMOUNT for these con­cepts). Again make sure the cal­cu­la­tion is correct.  

Put your prop­erty tax receipt in the same file with your deed. These receipts are impor­tant doc­u­ments in Mexico.

3) Pay­ing Bills
Do not expect your bills to be sent to your house on time. A lot of your bills will not even make it there or they will come after the due date. This can be a very frus­trat­ing expe­ri­ence for for­eign buy­ers in Mex­ico. If you are not going to higher some­one to pay your bills, you need to know when there bills are due. Water, elec­tric­ity and tele­phone are usu­ally due on the same day every month (or every other month). Ser­vice on elec­tric­ity and tele­phone do get cut within days of non pay­ment and get­ting you recon­nected takes more time and money. When a bill is due and you have not received the bill, you need to go to the company’s office and make the pay­ment. Make sure you take the last bill you have so that the com­pany can eas­ily iden­tify your account num­ber and tell you how much is owed. Most ser­vices providers will not accept checks or credit cards so make sure you take enough cash to pay your bill.

Tele­phone (Telmex) and elec­tric­ity (CFE) can now be paid on line which makes things lot eas­ier, how­ever you will need to deal with their web page in Span­ish and go through this learn­ing curve to set this up.

Water is usu­ally local and needs to be paid, in most cases, at the cor­re­spond­ing office or at the bank.

Gas in Mex­ico is not brought to your house via pipelines but is deliv­ered in trucks. You will need to fill your own tanks or make sure that there is some­one in charge of doing this.

Other ser­vices providers such as cable, sky TV, etc usu­ally will set up annual pay­ments and/or monthly debt pay­ments on a credit card.

4) Insur­ance
If you have con­struc­tion, you should insure it. We rec­om­mend using the big­ger insur­ance com­pa­nies as they seem to respond bet­ter to claims. You can con­tact most insur­ance com­pa­nies on line and they will put you in con­tact with the local agent. There are a few things that I always rec­om­mend when you get insurance:

a) Make sure you go over the amounts for each con­cept (fire, flood, earth­quake, etc) and that you are in agree­ment. NOTE.- most of the time these are expressed in pesos but not always. Make sure you know the money type. I have seen unfor­tu­nate cases where peo­ple thought they had a $ 500,000 DOLLARS pol­icy which turn out to be a $ 500,000 PESO policy.

b) Make sure that when you pay the agent you get a receipt and an orig­i­nal pol­icy with the pol­icy num­ber at the top. Most agents are very good but there are a few that have taken clients money and not paid for the pol­icy. The insur­ance com­pany will only respond to a pol­icy that is paid and has a valid pol­icy num­bers. The insur­ance com­pa­nies will ver­ify pol­icy num­bers on line or via phone.

c) Do not expect them to send you a noti­fi­ca­tion that your insur­ance has expired. You need to put this on your cal­en­dar and re-contact the insur­ance company.

d) If you have a claim, make it right away and in writ­ing. Over the phone claims do not count (even though they legally should). Write it down and send it in. You need to be proac­tive in fol­low­ing your claims up and always make sure the local agent and the cen­tral office are both copied on your claims.

5)  Work­ers and Social Secu­rity
All work­ers must be under con­tract. If they are not you will pay dearly for it. Worker lia­bil­ity will be your biggest prob­lem in Mex­ico if you do not address it prop­erly. If you think I am jok­ing you need to get on line and read the Octo­ber 4th, 2004 addi­tion of Newsweek which on page three pub­lished the out­come of a World Bank study which ranked dif­fer­ent nations on how hard it was to hire and fire employ­ees. Mex­ico was not only in last place, but on a scale of 1 to 100 (1 being eas­i­est nation in which you can hire and fire employ­ees and 100 being hard­est) it received a score of 72 while the sec­ond hard­est nation to hire and fire in (India) scored a 48. DO NOT PUT THIS OFF. Worker lia­bil­ity in Mex­ico is as bad as Puni­tive Dam­ages in the US and the attorney’s that live off this are more plen­ti­ful than ambu­lance chasers.

So how do you limit your worker liability?

a.- Make sure all work­ers sign an agree­ment BEFORE THEY START WORKING FOR YOU. This agree­ment should cover the nec­es­sary legal require­ments pro­vided by law. I rec­om­mend that you get these con­tracts from an attor­ney who is famil­iar with labor law. 

b.- Make sure they sign a receipt every time you pay them their salary (salary only), vaca­tion pay, over­time pay­ment or end of year bonus. Some gen­eral infor­ma­tion per­tain­ing to these pay­ments is:

By law each worker has the right to a cer­tain num­ber of days of paid vaca­tion per year plus a 25% incre­ment of the daily wage they are receiv­ing when on vacation.

The num­ber of days of vaca­tion given to each worker is as follows:

1st year: 6 days

2nd year: 8 days

3rd year: 10 days

4th year: 12 days

5th to 9th year: 14 days

10th to 14th year: 16 days

15th to 19th year: 18 days and so on.

By law all work­ers have the right to an end of the year bonus equal to 15 days (min­i­mum) salary. This bonus is called “aguinaldo” and should be paid no later than the 20th of Decem­ber. If a worker only works a frac­tion of a year he still has the right to receive the “aguinaldo” that cor­re­sponds to the frac­tion of the year he worked (exam­ple.- if a worker works 6 months he has the right to ½ of his cor­re­spond­ing “aguinaldo”.)

c.- If you have a prob­lem with a worker, before con­fronting the worker, talk to an attor­ney. You are prob­a­bly think­ing to your self that I am look­ing to cre­ate as much busi­nesses for myself as I can out of this arti­cle, but the truth of the mat­ter is that you will save money if you make sure the steps above men­tioned are taken.

Do you have to pay domes­tic work­ers Social Secu­rity? There is a lot of debate on this and the major­ity of pro­fes­sion­als will tell you NO you do not have to pay Social Secu­rity for a domes­tic worker. I pre­fer to rec­om­mend that it is paid for sev­eral rea­sons which include: 1) Proves good faith, 2) Gives worker access to med­ical treat­ment, 3) Give worker access to low inter­est loans to pur­chase homes and 4) Is rel­a­tively inex­pen­sive if you con­sider what you pay for domes­tic help (it adds approx­i­malty 33% to the salary you are pay­ing). If your prop­erty is owned by a cor­po­ra­tion you can­not con­sider any worker as “domes­tic” and all work­ers must be registered.

Reg­is­ter­ing and remov­ing work­ers from Social Secu­rity is not easy and it time con­sum­ing. Make sure you have good advise in this area and try to avoid cut­ting corners.

The above is a very gen­eral and basic overview of worker related issues and will give the reader a gen­eral idea of the impor­tance of keep­ing doc­u­men­ta­tion in order regard­ing work­ers. It is not intended to be a com­plete or all encom­pass­ing guide to worker rela­tions and an attor­ney should be con­sulted to review each work­ers case individually.

5) Zona Fed­eral
If you have a prop­erty that bor­ders on the Fed­eral Zone (beach, river, lake, lagoon, etc) you will want to con­sider apply­ing for the exclu­sive USE AND ENJOYMENT of this zone. On the beach this zone includes 20 meters inland from the “mean” or aver­age high tide line. The fed­eral gov­ern­ment can grant you a CONCESSION to use and enjoy this prop­erty for a deter­mined amount of time (usu­ally 15 years) and will almost always renews the con­ces­sions if you have com­plied with the terms con­tained in them.

If you acquire the con­ces­sion for the Fed­eral Zone you will need to make the cor­re­spond­ing yearly pay­ment, which is based on the square meters of Fed­eral Zone you occupy.

Why would you want the Fed­eral Zone Con­ces­sion? There are prin­ci­pally 2 rea­sons: 1) To increase the value of your prop­erty and 2) To keep some­one from set­ting up a “taco stand” or other unat­trac­tive struc­ture on this land.

A con­ces­sion appli­ca­tion can take up to 3 years to be granted unless you hire some­one to push it through the entire process.

6) Rental and Tax Oblig­a­tions
If you rent the prop­erty you have pur­chased in Mex­ico you do have tax oblig­a­tions in Mex­ico. Many peo­ple believe that if they rent rooms in Mex­ico but receive the money in the US or Canada that they do not have any tax oblig­a­tions in Mex­ico. This is not true. If you rent a prop­erty that is located in Mex­ico, the income gen­er­ated by this rental is tax­able in Mexico.

The Mex­i­can tax author­ity is get­ting tougher each year and recently has been review­ing the inter­net (web pages) to deter­mine what prop­er­ties are being rented. If you rent your prop­erty and do not pay taxes you are run­ning the risk of hav­ing the tax author­ity put a lien on your prop­erty or worse.

A lot of our clients tell us “well if the tax author­ity comes to the house I will just tell them I have not rented my prop­erty to any­one”. The bad news is that if you show no rental income or very lit­tle, the tax author­ity will use its “dis­cre­tional” pow­ers to deter­mine that you are not prop­erly report­ing income. They will use as a mar­ket indi­ca­tor the occu­pancy of the hotels in your area (some times as high as 80%) and mul­ti­ple this times your rate per night. Yes we have seen cases where the tax author­ity has deter­mined huge fines and penal­ties based on “per­ceived” rental income using esti­mated rates of occupancy.

If you rent prop­erty con­tact a cer­ti­fied pub­lic accoun­tant, get reg­is­tered and start fil­ing and pay­ing taxes. It is not worth los­ing hav­ing your prop­erty encum­bered for a tax debt and hav­ing to pay an attor­ney to defend you.

7) Own­ing Through a Cor­po­ra­tion
If you own prop­erty through a cor­po­ra­tion you need to make sure that you have a CERTIFIED PUBLIC ACCOUNTANT fil­ing the nec­es­sary tax and for­eign invest­ment fil­ings. Cor­po­ra­tions are busi­nesses and must be treated as such. They require much more atten­tion than hold­ing prop­erty through a trust in that even if they do not have any income, they do have fil­ing require­ments (unless they are prop­erly put in a “dor­mant” state). Not doing these fil­ings will result in fines and many headaches. Not mak­ing sure that your accoun­tant is doing these fil­ings is just as bad as not doing them at all. At the end of the day the tax author­ity will come to the cor­po­ra­tion and not the accountant.

Since cor­po­ra­tions have MONTHLY fil­ing require­ments, I rec­om­mend that each fil­ing done by the accoun­tant should be faxed or e-mailed to the admin­is­tra­tor for ver­i­fi­ca­tion. This means being in monthly con­tact with your accoun­tant AT A MINIMUM. Cor­po­ra­tions also have annual share­hold­ers meet­ing require­ments, which should also be signed, by all the share­hold­ers or partners.

Cor­po­ra­tion are busi­nesses and should be treated as a busi­ness. Mex­ico is rated as one of the worst coun­tries in the world for the amount of paper work that needs to be kept and filed. If you have a cor­po­ra­tion you must plan on hav­ing an accoun­tant and you need to get a list of all of the fil­ings that have to be done annu­ally. Make sure you know what these are and that you ver­ify that they are being done. Ignor­ing your account­ing and fil­ings require­ments is one of the largest sources of prob­lems that we see in our line of work.

Things are dif­fer­ent in Mex­ico and there are many other things that will come up after buy­ing your prop­erty. Many com­pa­nies and gov­ern­ment will not send you bills so you need to make sure you are keep­ing track of what needs to be paid and when. Try to find a sys­tem or some­one you can work with and stick with it. Reduc­ing your time in get­ting these items done will give you more time to enjoy your prop­erty. The Mex­i­can cul­ture is dif­fer­ent from what you are prob­a­bly us to. I rec­om­mend you enjoy lean­ing a new (not bet­ter or worse) way of doing things. If you have con­cerns, make sure you use com­pe­tent peo­ple to help you such as an expe­ri­enced real estate agent, attor­ney, accoun­tant, prop­erty man­ager or even another home owner who has been liv­ing in the coun­try for a num­ber of years.  Doing it right the first time will save you more than half the cost.