How does Capital Gains Tax works when I sell my property?
Capital Gains Tax calculations in Mexico when a property is sold are done by the Public Notary chosen by the buyer to do the closing.
Most notaries use software to do this calculation so that they can show the Tax Service authorities that their calculation was done with the software standard, specially because Notaries are liable to the Tax Service for not calculating taxes correctly.
At closing, the Seller pays the Capital Gains Tax to the Notary who in turn gives such tax to the Tax Service in the following 15 days.
If the Seller is a Mexican tax payer (including foreigners registered in Mexico for tax purposes and with tax residency), then the payment done to the Notary is provisional and by the end of the year the Seller has to do a final compensation with the Tax Service to see if more has to be paid or if a tax return applies (in case the tax was overcalculated by the Notary).
If the Seller is a foreign entity or a person with no tax residency in Mexico (as most expats are), the payment done to the Notary is final and there is no yearly compensation.
For such foreign entities or people, there are two options for paying capital gains tax:
i) A flat 25% rate over the sale price minus the acquisition cost (but no other deductions) or
ii) The pyramidal 35% rate over the profit (sale price minus all deductions available).