Lic. Ivan Guerrero gave us an update on a few issues his firm is seeing in some real estate transactions, and which may cause delays in Closing.

SELLERS SELLING THEIR LLC INSTEAD OF THE REAL ESTATE ASSET.

Sellers that hold title to their property in an LLC are trying to sell their interest in the LLC as opposed to selling the asset.

It appears that once again some US and Mexican Advisors are recommending that their clients may avoid payment of Mexican Taxes (ISR) and other Closing Costs at closing by purchasing/selling the shares of an LLC (or other corporate entity) instead of selling the real estate asset. This is not accurate. Buyers should understand that although accepting a transaction to be structured in this way could seem attractive as it will lower closing costs (no transfer taxes will be triggered), it represents a significant risk as the Buyer will assume liability in connection with Seller´s capital gain taxes [(a) 25% on the gross sales value of the transaction without any deductions, or (b) 35% on the value of the gain, this is purchase costs less allowable deductions such as improvements to the property and closing costs].

PURCHASERS CONSIDERING TAKING TITLE IN A MEXICAN CORPORATE ENTITY TO AVOID A FIDEICOMISO.

Many Buyers are asking about the pros and cons of taking title in a Mexican S. de R.L de C.V. (the Mexican equivalent of an LLC) as opposed to a Fideicomiso. Buyers should understand that although it is possible to take title in a Mexican LLC, this is only possible if the property will be used for commercial purposes. What’s more, Buyers should fully understand the legal and fiscal burdens of having a Mexican LLC, including the requirement of retaining a Mexican CPA to file monthly and annual tax reports and tax payments, retaining a Mexican Advisor to act as Legal Representative before the Mexican IRS (SAT) and to maintain Mexican banking requirements and accounts, as well as retained Legal Counsel to handle annual corporate filings, assembly meetings, dissolving the entity after selling the property, etc. In the end the costs and trouble may well outweigh the benefit.

ANTI-MONEY LAUNDER REQUIREMENTS ARE CAUSING FIDICUARY BANKS TO STOP OR REDUCE TRUST SERVICES.

Anti-Money Laundering (AML) scrutiny is becoming more severe and strict every year, and this is causing many fiduciary banks (Trustee Banks) to no longer accept LLC or Family trust as beneficiaries of the Mexican Fideicomiso. Those Trustee Banks that will accept an LLC or Family Trust as beneficiary now require that the members of the LLC or family trust must be an individual(s). Per current AML regulations, the ultimate beneficiary owner (UBO) must be an individual and must be that individual must be identified. Any buyer using an LLC or Family trust must provide all necessary certified, corporate documents with apostille and Know-Your-Client forms for the UBO.

THE PANDEMIC IS STILL IMPACTING CLOSING TIMELINES

Since the pandemic began real estate closings are taking more time than usual. It is now normal to see closing take up to 60 business days to close after the closing file is complete.