by
Jim
Karger
The Dollar Vigilante

Previously
by Jim Karger: So,
How Can I Make a Living in Mexico?

By 2014, the
US Department of Homeland Security will be able to scan
you at the molecular level from 164 feet, and you won’t
even know it. Starting 2013, the US Department of the Treasury will
be able to scan every bank and brokerage account you have in the
world, save a few possibilities. In both cases, if the government
doesn’t like what it sees, they can make short work of you and
your money.

Unfortunately,
while the US has become the world’s most invasive police state,
combining intent with technology, it is not the only state policing
its citizens’ financial transactions. Indeed, many other nations
are following in its footsteps, limiting individual freedom as well
as financial freedom. One of the most common examples of financial
fascism today is currency controls, that is, limiting how much cash
one can withdraw over a period of time, what can be purchased with
cash, and requiring the reporting of purchases and sales above a
certain amount with cash. In the US, for example, transactions above
$10,000 must be reported by banks and certain vendors, and suspicious
transactions (however defined) also reported. Spain recently banned
cash transactions above 2,500 euros.

Regrettably,
Mexico, too, has now hopped on the capital control bandwagon. In
2010, Mexico instituted strict limits on foreign exchange cash transactions
to $1,500 per person per month which made it tough on tourists and
resulted in many dollar exchanges closing their doors.

Now, under
the auspices of shutting down a $60 billion drug trafficking business,
Mexico has passed a law nominated the “Federal Law on the Prevention
and Identification of Operations from Illicit Sources”, due
to take effect in July of 2013. This law will require the reporting
of certain transactions involving cash while prohibiting
others. The law is complex and much is left to be interpreted. With
a broad brush, however, here are the requirements:

Reportable
Transactions

Mexican Notarios
(quasi-governmental officials who must close all real estate and
many other types of transactions in Mexico), as well as brokers,
lawyers, accountants and banks will be required to report
to Hacienda (the Mexican IRS) a plethora of transactions, including
the following:

• sales of
  houses and other real estate, as well as mortgages and liens
• secured
  loans
• incorporations
  of businesses
• creation
  or modifications of trusts
• appraisals
  of properties more than $500,000 pesos (about $40,000 US)
• charitable
  contributions more than $100,000 pesos (about $8,000 US)
• importation
  of vehicles

Financial institutions
will also be required to report monthly credit card balances in
excess of $3,875 US. Also, by law these institutions will have to
create customer activity profiles, track customer activity, assign
a customer risk factor, and identify unusual activity. They will
be required to report unusual activity, as well as report activities
over a certain amount, operations in cash, travelers’ checks, or
precious metal coins.

Hacienda will
audit reporting entities for compliance, and these entities will
report mostly because the penalties are so harsh for failing to
do so, ranging from $1000 USD to $320,000 USD per violation. Indeed,
a “Specialized Unit in Financial Analysis” operating within
the Attorney General’s Office will be created to investigate financial
operations “that are related to resources of unknown origin.”

Prohibited
Transactions

The new law
will also prohibit using cash above the following amounts
for these types of transactions:

• real estate
  transactions with a value higher than 1 million Mexican pesos
  (about $77,519)
• buying
  and selling of vehicles worth more than 200,000 pesos ($15,504
  US)
• in the
  case of jewelry, precious metals, watches, gemstones and works
  of art, cash payments are restricted to prices below 300,000 pesos
  (about $23,256 US)

There are significant
fines for violations by purchasers and sellers and criminal penalties
of two to eight years in prison for anyone providing an incorrect
document or forged document to avoid the reporting requirements.
Four to ten years in prison await those persons in government if
they assist in any misstatement or fraud.

Practical
Implications

Because all
Notarios will be required to ask and record the source of funds
for a purchase, and secure a tax ID number from the seller on any
transaction that must be recorded, the days of most large, heretofore
legal, cash transactions will soon be ended. Indeed, the days of
showing up at a real estate closing with a Zero Halliburton attaché
full of cash are a thing of the past.

It has been
common in Mexico for buyers and sellers to record an amount on real
estate deeds far below the actual amount paid for real estate, resulting
in less taxation of that real estate going forward and often avoiding
taxation on the capital gains of a real estate sale. Those days
may be over, too.

Prohibition
of precious metals transactions for cash above +/- $23,000 US may
be material to those who want to stack their gold and silver here,
although it is unclear whether one may ladder smaller transactions
without running afoul of the new law.

Perhaps most
significant is the requirement to have a Mexican income tax ID when
closing any transaction that must be recorded in public records,
which includes all real estate transactions. The Mexican government
wants everyone, expats included, to be on their tax radar. It is
important to remember that, while heretofore unenforced, all “residents”
of Mexico are required to pay tax on their worldwide income here.
(In a future article, I will discuss how Mexico will separate residents
from non-residents under the new immigration law.)

Expats living
in Mexico could simply keep all their financial assets elsewhere
outside of Mexico and then live out of ATMs here, but I don’t know
many people who want to live that way. Not having a bank account
in the country of your residence makes financial life much more
difficult. Also, as the new immigration law goes into effect, the
Mexican government is shutting down the ability to renew the tourist
visa while the visa-holder is in Mexico. More importantly, it is
rumored that the Mexican government will soon begin denying back-to-back
renewals of the tourist visa (a strategy that many expats use to
remain in the country legally without taking on resident status),
leaving the Mexican government one step from declaring many expats
“residents” for Mexican income tax purposes. We will be
consulting with some of the best lawyers in Mexico to insure that
TDV subscribers
are at the forefront of avoiding unwittingly becoming “residents”
of Mexico for tax purposes. (You can become a subscriber by clicking here.)

Just
The Beginning

Much still
needs to be sorted out, no doubt in the form of regulations which
should be issued between now and July, 2013. For now it is safe
to say Mexico has joined the effort of many other first world countries
to track all significant financial transactions within its borders,
to capture every taxable peso and to gain access to the wealth of
those banking or transacting business here. For sure, the cost of
doing business in Mexico will rise. How significantly will depend
on the how the law is interpreted and enforced. Only time will tell.

“Getting
Your Gold Out of Dodge” is available here.  It is free
to TDV and TDV
Golden Trader subscribers or for a one-time price of $44.95
USD.  It may be the best use of your fiat Federal Reserve Notes
you’ve ever spent. Reprinted with permission from The
Dollar Vigilante.

October 31, 2012

Jim
Karger is a lawyer, and frequent contributor to The
Dollar Vigilante, who has represented American businesses against
incursions by government and labor unions for 30 years. In 2001,
he left Dallas and moved to San Miguel de Allende in the high desert
of central Mexico where he sought and found a freer and simpler
life for he and his wife, Kelly, and their 10 dogs. Karger’s website
is www.crediblyconnect.com.

Copyright
© 2012 The
Dollar Vigilante