CFDI Real Estate by Stephanie de la Millar
Defining CFDI and it is importance for a real estate investor.
Having the title of your unit it is the main legal purpose in any real estate purchase, I am sure you know this. Once you have your title on your hands, you know you are a legal and rightful owner, and that your right to have a private property it is protected by the law.
As investor, the value of an asset is tangible, as you have the domain of it. How you can enforce such domain? Having the possibility to sell it, with the purpose to get a profit, of course.
Therefore, -and in order to have that tangible value-, there are two documents you must be prepared with: Title duly recorded and CFDI.
Explaining what is a CFDI.
You may not have heard before about CFDI. Then, what is a CFDI? It is a document that fiscally determinates how much your real estate costed you at the time you formalized the purchase by public deed execution.
The value on which CFDI will be issued it has to be the same amount that it is stated in your title.
Why the CFDI was created for?
In 2014, the Mexican IRS went through a deep restructure, basically leaded to modernize and perform a better and more efficient tax system.
Therefore, all legal documents we used to show incomes or outgoings, -called in Spanish “facturas”- went from paper to digital patterns, and uploading them in IRS system, became mandatory, providing legal certainty to such document, it cannot be altered or falsified, as every “factura” is created under a digital chain verified and recorded by IRS system.
When a real estate it is sold, a document named CFDI (Spanish acronym for Internet Fiscal Digital Receipt) must be issued, with the purpose of show the amount the seller received regarding the real estate transaction. Which at the same time, will be the acquisition value to the buyer.
Okay, so why CFDI seems to be important?
Not having CFDI decreases the value of your patrimony, because you will not be able to demonstrate to the IRS the cost and expenses related to the acquisition of the property, consequently, your gain will be bigger to IRS eyes, therefore, a high amount of capital gain tax will be considerate when you sell.
Who issues the CFDI?
The creation of the CFDI relies at the seller or the Notary Public who grants the public deed. This dilemma is solved by 2 simple rules:
- The CFDI has to be issued by the Notary Public, when the real estate it is sold by a natural person, also natural person or entity nonresident in Mexico, this includes natural persons who own the property through a trust.
In this case, the CFDI will contain the value of the purchase and notary fee. Both concepts will be considered as expenses when you sell the real estate.
- The CFDI has to be issued by the seller, when this last it is a Mexican corporation.
The notary where is formalized the conveyance of the property still must provide you a “factura” for his fee.
When should I receive my CFDI?
The moment to get the CDFI is immediately after the closing have took place and you have paid your property in full.
To put it succinctly, a safe real estate transaction involves the CFDI issuance, because this document provides you certainty that you will not have an undue amount about capital gain taxes when you want to sell in the near or long term future.
The advice that I want you take with you, as a way to thank you for reading this, is that you have to get the assurance of who will be providing you the CFDI, this has to be reviewed and defined at the due diligence stage, on the process to acquire a real estate in Mexico.
“To live without faith, without a patrimony to defend, without a steady struggle for truth, that is not living but existing”.
Pier Giorgio Frassati