MEXICO Law and Practice Contributed by: Roberto Cannizzo, Carlo Cannizzo, Stefano Amato and Mauricio Moreno-Rey, Cannizzo
8. Tax 8.1 VAT and Sales Tax
7.5 Additional Forms of Security to Guarantee a Contractor’s Performance The most common way for owners to seek to guarantee a contractor’s performance of a pro - ject is to obtain performance bonds, including advance payment and performance bonds. However, letters of credit, parent guarantees, holdbacks and escrow accounts are also com - mon. 7.6 Liens or Encumbrances in the Event of Non-Payment Contractors and/or designers cannot lien or otherwise encumber a property in the event of non-payment. In Mexico, there are no mechani - cal liens as in other jurisdictions. However, it is important to note that in the case of certain equipment (ie, elevators and air con - ditioning equipment), the seller or manufacturer may include a domain reserve in their sales agreement, which allows them to retain owner - ship of the equipment until payment is made. This domain reserve must be registered in the Mexican Federal Register of Property and Com - merce (RUG). 7.7 Requirements Before Use or Inhabitation Local laws set requirements for occupying a building post-construction. In Mexico City, this includes obtaining authorisation by presenting the construction licence and expert-endorsed logbook, among other documents. Properties must also meet safety, evacuation, and civil protection standards. Additionally, operation licences, specific to the business type (hospi - tality, restaurant, parking, etc), are required for legal use.
If real estate is acquired through the direct pur - chase of real estate, various taxes and rights must be paid, including VAT on the value of the construction (unless it is a lot or residence), paid by the purchaser at a rate of 16%. As previously mentioned, certain jurisdictions mandate for the payment of a transfer tax (ISAI or ISABI), and such tax shall be calculated by applying a per - The most common method used to defer trans - fer liability is through the use of a real estate trust. This arrangement is not considered a sale for tax purposes, in accordance with Article 14 of the Federal Tax Code, as long as the trustor retains the right to reverse the ownership of the real estate. If the reversion right is lost, through a subsequent sale, termination of the right or failure to meet the necessary tax requirements, the transferor will be responsible for paying the taxes owed. 8.3 Municipal Taxes There are no federal or local occupation taxes, only fees, licences and permits as required. 8.4 Income Tax Withholding for Foreign Investors centage to the value of the property. 8.2 Mitigation of Tax Liability The taxes to be paid are withheld by the notary public who formalises the transaction if the seller is not a tax resident in Mexico. The amount of taxes owed is determined based on the Mexican income tax law and can be up to 35% of the net gains. Rental income from real estate is taxed in Mex - ico per the income tax and VAT law. The rules regarding the taxation of rental income vary
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