Real Estate & Finance
On-Going Annual Obligations
NOW THAT I HAVE BOUGHT PROPERTY IN MÉXICO, WHAT DO I HAVE TO DO TO KEEP
By David W. Connell
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) 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 the municipal
property tax authority with 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 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.
2) TRUSTEE FEES.- If you bought your property through a trust, your
trustee 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
When your trust is set up your trustee designates an “account number”
for the trust. Please make a note 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 number because it is the number that will be
required in order to pay your annual administration fee.
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 number they can receive the payment from you. Asking a branch
manager to locate your trust “account number” will most certainly create
confusion, so I recommend that you only go to the bank with the number
in order to avoid confusion.
Most banks charge late fees for not paying on time so timely 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 ADMINISTRATION FEE
MAKE SURE YOU GET A COPY OF THE RECIEPT. Banks are famous for not
recording annual trust payments and have been know to try and double and
triple charge. Your receipts will confirm your payment.
3) 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 pick up 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 scarier than having someone hurt himself or
herself in your house. Enough said about how bad it is. 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). If your property is owned by a
corporation you cannot consider any worker as “domestic”.
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.
4) 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 takes approximately 2 to 3 years to be granted unless
you hire someone to push it through the entire process.
5) 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 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
If you rent property contact a certified public accountant, get
registered and start filing and paying taxes. It is not worth losing
6) 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. 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. In the end it is your responsibility to make sure
filings are done correctly. 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.
7) OTHER OBVIOUS OBLIGATIONS. If you own property, besides the above
there will be the obvious payments that need to be made to keep the
property in good standing and which include: electricity, telephone,
gas, home owners insurance, cable or dish television service,
condominium fees, etc. As always these fees can be paid for personally
or through a property administration company.
The above 7 items are the GENERAL checklist of on-going obligations
you will have if you are a foreigner and own property in Mexico through
a trust or corporation. HOWEVER, this list should not be considered a
complete guide to ALL of your on-going obligations and there will most
likely exist other obligations depending on the property you have
purchased. I recommend that after you purchase your property you sit
down with an attorney or accountant and make a punch list of the
on-going items that need to be done to keep your property in good
standing and who will be responsible for doing them. In this way you
will be able to worry less and enjoy your property more.
David W. Connell is a US citizen, licensed to
practive law in Mexico. Connell & Associates have offices in Mexico
City, Puerto Vallarta and Zihuatanejo with associate offices in various
states. You can contact Mr. Connell directly at email@example.com
or vist the wep page at www.mexicolaw.com.mx