Real Estate Attorney in Cabo - Top Cabo Real Estate Legal Questions

by caborealestate.com

Mexico vs. Dominican Republic Taxes: Common Misconceptions

Many foreign buyers—especially Americans—compare Mexico to places like the Dominican Republic, where temporary “zero tax” programs may exist. While those programs can sound attractive, they are often misunderstood.

In Mexico, there is a misconception that foreigners pay higher taxes. In reality, when buying or selling property, foreigners pay the exact same taxes as Mexican nationals. There is no “foreigner tax.”

Additional costs foreigners may see—such as fideicomiso (bank trust) setup fees or trustee bank fees—are not taxes. They are administrative or legal costs tied to ownership structure, not tax penalties.

Property taxes in Mexico are extremely low, among the lowest internationally. And while places like Cabo may be slightly higher than other regions in Mexico, they remain very low by global standards.

It’s also important to look beyond short-term incentives. A “zero tax” program for a few years may lead to higher long-term tax exposure later, sometimes exceeding what you would have paid in Mexico.

There are also structuring options:

Personal ownership via fideicomiso
Foreign LLC as beneficiary of a fideicomiso
Foreign trust as beneficiary
Mexican company ownership (typically for rental/commercial use)

Each option has different implications, which is why an introductory strategy call is critical before starting a transaction.

Why a Closing Attorney Is Essential (Especially for Foreigners)

For transactions between Mexican nationals, some people choose to skip a closing attorney (though it’s still advisable).
However, if any party is a foreigner, a closing attorney is essential.

Foreign buyers cannot realistically handle:

Ministry of Foreign Affairs permits
Bank trust creation
Trustee bank coordination
Beneficiary structures
Compliance and documentation

Skipping legal guidance usually leads to more delays, higher costs, or serious risk.

Mortgage Financing Through Mexican Banks

Mexican bank financing is common, especially for Mexican buyers. The process works but is slower and more compliance-heavy due to AML and KYC rules.

Key considerations:

Banks dictate which notaries can be used, which affects capital gains planning.
Loans are issued in pesos, not USD, even if the purchase price is in dollars.
Currency exchange timing can work for or against the buyer.
Escrow accounts now handle USD and peso conversions, which helps manage this risk.

Working with local Baja-based mortgage brokers is critical. Brokers from outside the region may not understand escrow norms in Cabo and can cause serious complications.

Capital Gains Tax in Mexico (Not a Simple Flat Number)

Capital gains are case-specific, not instant calculations.

There are two main options:

35% on net gain with deductions
25% on gross gain with no deductions

Most sellers choose the 35% option because deductions can include:

Original purchase price
Inflation adjustments
Land vs. construction value
Broker commissions
Remodeling and improvements

The notary calculates the final tax after reviewing deeds, invoices, commissions, and deductions. Estimates can be given, but final numbers come later.