Glossary of Real Estate Terms

Apostille – The way in which a legal document from one country can be legalized or authenticated for acceptance and use in another country. It is a certification of authenticity that must accompany documents that have originated outside of Mexico for them to be accepted for use in Mexico. In cases where apostille documents are accepted in place of appearing in front of a Mexican notary to sign a document, the document to be signed must be signed and notarized in the signer’s state of residence, and then sent to the official government office to be “apostilled”/certified. This usually involves fees and time delays, but can often be preferable to returning to Mexico to simply appear before a notary to sign a document. See ADIP March 2005 for more information.

Capital Gains Tax (Ley de Impuesto Sobre la Renta ISR) – When a property is sold, capital gains taxes are calculated based on gains as determined by the deed’s declared value, regardless of what you actually paid for it--if what you actually paid for it is different from what you declared on your deed….So, whatever value you declare when you buy a property will be the tax basis value used to calculate gains when you re-sell the property. See ADIP April 2004 and March 2008 for more information.

E jido, Ejidal, Ejiditario – In 1917, after the Mexican Revolution, hundreds-of-millions of acres from the original Spanish land grants were expropriated by the government and classified as ejidal or agriculture properties, accounting for almost 50% of all land in Mexico. The state retains ownership of these lands and the Ejiditarios, the farmers who live on them, have the collective right to use them. The rights of usage pass from father to son, but this land can never be sold as private property. In the early 1990s a decree was passed allowing Ejido land to be converted into private property, and thus available to be sold to third parties. The procedure is a multi-step and often lengthy process wherein all members of the group must be in agreement. See ADIP February 2005 and January 2008 for more information.

Escrow in Mexico – Escrow, wherein funds for real estate purchase are deposited with a third party institution for security and peace of mind, is now available in Mexico. Articles 273 to 308 of the Mercantile Commission of Mexico provide the guidelines for Escrow in Mexico.

Factura – Official receipt for goods or services that contains the buyer’s and seller’s RFC number and any IVA collected that is essential for tax deductions.

Fideicomiso – A bank trust through which foreigners can acquire title to the beneficial rights in a real property. Per Article 27 of the Mexican constitution, any property located within the “restricted zone” (see below) acquired by a foreign person must be held in a Mexican bank trust (a fideicomiso). Essentially, the fideicomiso is a contract with a Mexican bank for it to hold title on behalf of the foreign person. For more information see ADIP February 2001, January 2004, February 2004, March 2004, January 2005, February 2005, March 2005, November 2005, April 2006, November 2007, and February 2008.

Flat Tax Law –(IETU) New in 2008, a 16.5% business flat tax imposed on all tax residents performing services or entrepreneurial activities in Mexico that are considered to be permanent establishments, as well as on corporations and individuals residing in Mexico, which taxes income obtained from the transfer of goods, provision of independent services, and use or temporary enjoyment of goods (though there are several exemptions). It is paid in addition to the ISR, Impuesto Sobre La Renta. See ADIP March 2008 for more information.

Foreign Investment Act – Mexican Law governing investment activities by foreigners in Mexico with the purpose of establishing rules to attract foreign investment to the country and promoting its contribution to national development. You can find it in English on the Secretary of Economy’s website: http://www.economia.gob.mx

FM Documents – FM, for Migratory Form, is a visa a foreigner can apply for to gain permission to enter Mexico and which establishes how long they are able to stay, as well as what type of activities they are permitted to perform while in Mexico. See ADIP November 2005 for more information.

FM-T – A Tourist Visa, non-immigrant, which is good from 30 days to no more than six months and is granted upon entering. It does not allow for work or business activities.
FM-3 – A visa granted to a non-immigrant visitor who wishes to work and stay longer than six months that must be applied for at a Mexican Consulate before arriving in Mexico or at an Immigration office once in Mexico.
FM-2 – A visa for immigrants who wish to obtain the right to reside in Mexico permanently that is usually granted after having an FM-3 for a period of years.

IVA (Impuesto al Valor Agregado) - Value Added Tax.

Law on Cash Deposit Tax (Ley del Impuesto a los Depositos en Efectivo or LIDE) – A 2% tax on cash deposited into any type of bank account which exceeds 25,000 pesos (or its foreign currency equivalent). The bank withholds this 2% and forwards it to tax authorities. Exemptions are made in the case of authorized donations, financial institution loans, and others. See ADIP March 2008 for more information.

Notario (Notary) – U.S.A. Notary Publics, in most states, are regular people who after a simple process have obtained a license to act as a witness to acknowledge that something has happened before them, (i.e. the signing of a contract) but they do not need to know or understand the legal scope or duties that the parties are acquiring through that contract. Conversely, the Mexican notary (Notario) is required to be an expert of the Law. They have the obligation to make sure all parties understand the legal act they are entering into and that the act is legal. Mexican notaries are held legally liable for their actions and are subject to harsh penalties if found to be acting incorrectly--their license can be revoked and they can even be legally prosecuted. The services of a Mexican Notary, and the costs associated with them, have little in common with those of U.S.A. notaries. See ADIP January 2007 for more information.

Presta nombre – The idea of using someone else’s name to buy property, usually to circumvent the prohibition of a foreigner owning property in the federal zone by putting the title in the name of a Mexican national. Not only is this totally illegal and not recommended, but it basically constitutes buying property for someone else, as you will have no legal recourse or rights to the property if things go wrong later. See ADIP March 2004 for more information.

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Private Contract between Buyer and Seller - A written and signed agreement between parties defining the purchase terms before official purchase proceedings begin. This is done keeping in mind that a foreigner does not buy property in the restricted zone, they buy beneficiary trust rights to property, so a private contract that states property is being sold can be null and void. See ADIP November 2006 for more information.

Restricted Zone – Land, and real property within land, that is 100 km from any international border and 50 km from any coastal shore, which, per Article 27 of the Mexican Constitution cannot be directly purchased by foreigners, and accounts for 40% of all real property in Mexico. See ADIP November 2004 and April 2008 for more information.

RFC (Registro Federal de Causantes) - Tax identification number. See April 2002 for more information.

SAT (Servicio de Adminsitracion Tributaria) – Taxing authority in Mexico, formerly called Hacienda. More information at http://www.sat.gob.mx

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