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As with
most laws there are exceptions and here we find it at article 109. which
stipulates: Will not
pay income tax on the following incomes:
I. …..
to
XIV. ……..
XV. The
derivatives of the alienation of:
a) The
dwelling of the tax payer.
Again we must first establish the
meanings of the words of the legislator. First of all who his a resident or
how do we identify a person has a resident.
To be able to do this we must read
article 9 of CÓDIGO FISCAL DE LA FEDERACIÓN (Fiscal Code of the Federation):
ARE
CONSIDERED RESIDENTS IN THE NATIONAL TERRITORY:
THE
FOLLOWING PHYSICAL PERSONS:
THEM WHO
HAVE ESTABLISHED THEIR DWELLING IN MEXICO EXCEPT THE ONES WHO WERE IN OTHER
COUNTRIES FOR MORE THAN 183 CONTINUOUS NATURAL DAYS AND THAT DID NOT
REGISTER RESIDENCE FOR FISCAL REASONS IN OTHER COUNTRY.
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Thus, “capital gain tax” is not to be
charged to the ones who qualify as per the words of the legislator in
article 109 of the income tax law AND, no one can differ from these words
because of a strict interpretation of the words made by the intention of the
legislator in the CÓDIGO FISCAL DE LA FEDERACIÓN (Fiscal Code of the
Federation): ARTÍCLE
5
THE FISCAL DISPOSITIONS THAT ESTABLISH
THE CHARGES TO THE PARTICULARS AND TO THE ONES THAT ARE EXCEPTIONS AND THE
FINES AND SANCTIONS ARE OF STRICT APPLICATION.
By principals of interpretation in law
this means that we must not amplify, reduce, modify or alternate the words
of the legislator.
Who is responsible in case a
fraud is perpetuated?
In every real estate transactions
there are several actors. Some are in the play at times and others are there
all the time. The ones that have a role during certain alienation are the
real estate agents and brokers, legal and general consultants and
translators and the permanent actors are the “Notario Público” the one who
relinquish his Rights and the one who acquires Rights.
The “Notario Público” who asks the
other actors for an evaluation of the property and a document issued by the
municipality which established the municipal value of the property is doing
his job as per the law and when he asks for the “valor de la operatión”
which means the selling price he is not and will not be part of a fraud if
he is told of a lower price than the actual amount paid
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Thus we
now know that a resident must be a physical person and that he must have
been in Mexico for more than 183 days and that he does not have registered
for fiscal reasons a residence in an other country.
The test
now is to have proof of residency for 183 days in the residence. First of
all the legal principal in law “Good faith is presumed” has to prevail. But
we must be sure without any doubt that the person was present in Mexico
during the last 183 consecutive natural days before the sale. To prove this
when a foreigner is involved we have to use the immigration document(s) of
the “Instituto de Migración Mexicano” (Immigration Institute of Mexico) and
the passport of the foreign person to establish the movements from one
country to an other. We can also use as proof of second rank the last 3
bills from the utility company (CFE) the payment of land taxes and potable
water bill; we can also use as proof of residency the attestation of two
witnesses confirming that the foreigner was present in the dwelling during
the last 183 consecutive natural days prior to the sale. This last way is
used when no electrical or telephone services are present on the property.
The same procedures are used for a Mexican born or naturalized physical
person except for the use of the immigration institute.
Once that we have the proof that the
real estate property is a dwelling in its entirety or in part and that the
seller was a resident in Mexico as per the law we now have to find out if
said physical person is registered as a tax payer to fulfill the conditions
as per article 109 , Fraction XV a) of LEY DE IMPUESTO SOBRE LA RENTA
(Income tax law).
A tax
payer is a person who generates income and registered at SAT, commonly
called “hacienda”, which is the government department which is responsible
to administer the fiscal obligations of every one in the country.
The rule
is that you must generate an income to be able to have an RFC (Registro
Federal de Contribuyente) and foreigners who live in Mexico without working
are not producing a taxable income thus can not be registered as tax payer
thus no RFC.
We must
not have different rules for physical foreign persons and Mexican physical
person. The rules are very clear and the proof that we must ask from each
seller is very accessible to all; in other word this last condition is most
disturbing but can be remedied legally.
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by the buyer. Only and only the one(s) who lies to him and who signs the documents transferring
the Rights will be doing the fraud.
According to a very old principal
called “Menz Rea” which means “intention one has at the time the crime is
done”. This means that we must look at what was the intention of the person
when the crime was committed. In other words who ever is the actor who is
not telling the truth to save the capital gain in hole or part is guilty of
fraud.
Consequences of not respecting
the law.
One who has been renting part of his
real estate property (guest house) and did not report the income has done a
fiscal fraud in not reporting said income and put himself in a position that
he can not fulfill the requirement of article 109 of the tax law.
At the time of selling when a buyer’s
documents does not reflect the price he paid for a real estate property he
only creates for himself a first problem that will resurface when he decides
to sell his rights and second problem because he creates a crime of fraud
against the Municipal, Federal and State government.
As for the actors who instruct
others the following applies:
To be part of a fraud is to entice an
other to commit a crime thus we can say that not only one crime is done but
two if not several. Fraud and other crimes related to fraud are punishable
by prison and fines and for the foreigner expulsion of the country once the
sentence is completed.
Conclusion.
One who has a residence and is living
in said dwelling for more than 183 days before the transfers of Rights and
is a tax payer does not pay “capital gain tax”. One who uses his dwelling in
part as revenue and did not ever declare his income did himself wrong
because had he declared his income he would qualify to be a tax payer and be
able to save capital gain tax on the part of the property used as a
dwelling.
^^Top of Article^^
Lic. J.E. Beaulne, LL.B.
Abogado / Avocat / Attorney at Law,
Cedula profesional # 0086,
Miembro del Colegio de Abogados de B.C.S.
Member of the Lawyer's College of B.C.S.
Plaza Cerralvo, Suite 6
Alvaro Obregon #1665
La Paz, B.C.S., Mexico C.P. 23000
24 Hour Emergency Tel: 044-612-8681027
Office: 612-128-6859
Puerto Vallarta - 044-322-227-6531
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