CAPITAL GAINS TAX IN REAL ESTATE TRANSACTIONS
It is known that taxes in general are a means wherefrom the government earns the necessary resources for the development of the State. The Riviera Maya, well known for having the highest growth and expansion rates nationwide and throughout Latin America, is without a doubt one of the most important areas for tax gains and foreign investment. Real estate transactions contribute on a major scale, to this growth by means of the taxes. These taxes are devoted to and distributed among, the governments of those federal entities as well as the federal government. And that is why taxes in general, and those taxes particularly stemming from the assignment of properties, are very important.
In this section, I would like to briefly comment on the capital gains tax, which is a federal tax and one of the most important in real estate transactions. In some cases, it even determines whether or not a real estate agreement is executed - as considering, calculating, collecting and reporting such tax is a duty that belongs to notaries, who are in charge of attesting the transactions, whether it is a purchase, trust incorporation or assignment of trust rights. The above mentioned tax is calculated on the gains or earnings derived from the transactions made and it is imposed on the seller. Imposing the said tax by the State, grants however, some exceptions to the payment of tax ; and as a way of clarification, I would like to comment on two of the cases in which exemption of payment of this tax occurs; that is for residence transfers and for pieces of land where there is no construction and whenever it is the first transfer of agricultural land.
The corresponding law provides for tax payers and non-tax payers and is based on the type of residence these parties have and whether it is within national territory or abroad. This is important in order to impose the said tax.
Foreign non-residents in Mexico have a different situation according to the law. Regarding the first situation, in which there is an exemption of this tax for property for residential purposes. It is not applicable to foreign entities not having residency in the national territory. Assignment of an apartment or unit belonging to a residential development under a condominium system is not subject to the said exemption ; even if the seller is Mexican. The assignment of a unit belonging to a condominium system cannot apply for this exemption either. These are incorrect practices and contrary to law.
On the other hand, in regard to the exemption of the payment of capital gains tax on assingment of pieces of agricultural land (ejido), the corresponding law clearly states those cases where it is applicable and the requirements the real estate transactions have to meet. The said transactions have to be conducted strictly according to the law, and it provides that it shall be exempted from payment only at the first assignment of rights on agricultural land (ejido) on which ejido land owners have full dominion. As a consequence, the title or certificate whereby the ownership is acknowledged, shall literally read it is agricultural rights or property held in common rights or otherwise prove the said agricultural land was duly acquired by an ejido land owner.
The professional criteria regarding real estate and law, as well as those devoted to real estate transactions are several, but the legal scope prevails over any other criteria and interpretation. The imposed tax on capital gains is the kind, and those exemption cases are the subject matter, and in addition, the scope of law provisions are daily reduced in order to apply the said exemption for this tax.
I would like to inform as well that this year 2007, a new tax shall be imposed in the State of Quintana Roo under the name Impuesto Cedular (Registry Tax). This shall be imposed on transfer of real estate properties and it will have a very similar form to that capital gains tax noted above, but this will be a State tax, that is applied and shall be considered only within the State.
