What is a Notario and ISR (Capital Gains)?

by Lic. Felix Enrique Ortega Garcia

What is a Notary Public?

A Notary public is a professional in the law, a lawyer with extended training, who is appointed by the Governor of the State to exercise notarial functions. As defined by the Law of Notaries for the State of Baja California Sur, 4th article, a Notary “is the person vested with the legal authority to elaborate and authenticate contracts, deeds and affidavits, giving them validity and in legal form, as established by the Law; thus their role is of public interest.”

Because of this, a Notary Public’s role is very important in Mexico and since the Law requires their involvement to formalize a wide variety of documents, including, but not limited to deeds and property rights. In this way, certainty and legal safety for all the parties involved in such transactions is guaranteed.

Notarial functions go beyond the certainty and legal security as previously mentioned, inasmuch as, the Notario’s involvement allows the instruments or documents, on which any action is been taken, authority to finalize and settle, resulting in an operation that binds all the parties The documents also can be submitted to the Public Registry in the city/county in which the property is located and where the operation occurred.
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How can a foreigner, who sells or secedes the rights to an asset located in national territory, receive the benefits that the “Law of Taxes Over Rent (Capital Gains)” gives registered foreigners in México, regarding the exemption of the Capital Gains when selling the residential property?

A foreigner can enjoy the same benefits as Mexican nationals from the Tax on Rents (ISR) Law with regard to tax exemption when they sell real estate for residential purposes, if they can irrefutably prove their residence in Mexico for tax purposes.

The 2015 Tax Program, into effect from January 1st to December 31st 2015*, states that:   (*The Tax Code changes yearly.)                                               

“The condition for foreign nationals selling a residential property to prove residence in Mexico for tax effects:

3.11. 16. For the effect of article 93, fraction XIX, section a) of the ISR Law and 9 fraction I, section a) of the Federal Fiscal Code (CFF), it will be presumed, if not demonstrated otherwise, that foreign nationals selling a residential property, are residents in Mexico when the following requisites are satisfied:

They declare under oath that:

They have Mexican resident condition for tax effects, as established in article 9th, fraction I of the CFF or, given the case, on the treaties signed by Mexico to avoid double taxation.
Fiscal address, or simply a mailing address. In no case, the appointed mailing address could be located at the property being sold.
They must have an RFC (Tax-payer Code) or CURP (Population Registry Code).

The affidavit this section is referred to, must registered in the corresponding public instrument.

In addition to all of the above mentioned items, Resident condition must be credited.  For this case, proof of Mexican resident condition for tax effects or Fiscal ID (RFC), as referred to in rules a) and b) should be sufficient.

How is the Tax on Rent (ISR) (Capital Gains) for residential properties calculated?

Tax calculation, as stated in article 126 of the ISR Law, is performed by applying the correspondent tax rate (which increases progressively in percentage as the gain increase), which is a result of the division between the number of years since acquisition to being sold, such period cannot exceed 20 years. The result must be multiplied by the that period of time. In other words, it is the result of applying the correspondent tax rate to the calculated profit subtracting the sales value to the verified acquisition cost., as well as all the deductions to which the party may be entitled.







It is very important to mention that for all those cases in which the selling residential property was acquired before March 21st, 2014, public title should be enough or acquisition verification purposes; however, in accordance to 2015 Tax Program rule I. 2. 7. 1. 25, a digital tax invoice with its complement issued by a Notary Public will be required for the cost of acquisition verification purposes if the transaction was performed later than January 2015.

Which deductions are you entitled to by the Law entitles?

In accordance to article 121 of the ISR Law, physical persons obtaining income from selling residential properties can apply deductions as follows: i) the value of investment in construction, improvement or expansion, ii) expenses on notarial issues, taxes or rights, acquisition and alienation titles, and payment for real estate valuation, and iii) payments on commissions or arbitrations made by the alienating party, for acquisition or alienating purposes. Note: These expenses need to be verified by facturas, official tax receipts.

By Felix E. Ortega García. Attorney-at-law, graduated from the School of Law at the Guadalajara Autonomous University (UAG), appointed Notary Public on 2010. Notaria No 5 home office is located in Ciudad Constitution with a full team of legal professionals and paralegals to provide support in notarial services and legal aide. Contact: felixortega@notaria5bcs.mx or phone 01 (613) 132-12 95.