OWNING IN MEXICO
Real estate investment is possible in Cabo San Lucas.
UNDERSTANDING THE FIDEICOMISO TRUST
With the creation of the North American Free Trade Agreement (NAFTA), the Mexican government realized that foreign investment in Mexico needed to become safer and easier for non-Mexican citizens. Because the Mexican Constitution prohibits non-citizens from purchasing or owning any real estate within 60 miles of the U.S. international border, OR within 30 miles of the Mexican coast, an innovative and secure method of holding title was created. Foreign ownership is now allowed through a Mexican property trust called a Fideicomiso. A Fideicomiso is a special type of trust agreement, very much similar to an estate trust in the United States that gives the Purchaser all of the rights of ownership.
WHAT’S THE PROCESS TO OBTAIN RIGHTS OF OWNERSHIP?
The process is fairly straight-forward: To obtain the rights of ownership, the Department of Foreign Affairs located in Mexico City must issue a permit to a Mexican bank of the Purchaser’s choice. This permit authorizes the Mexican bank to act as “Purchaser” of the property. In other words, the bank acts on your behalf as the “Trustee” for the trust and the Purchaser is the “Beneficiary” of the trust. The trust is NOT an asset of the bank; the banks simply act as the Trustee to hold the trust.
The Trustee in this case -the Mexican bank, only takes instruction from the Beneficiary of the trust (the Purchaser) – aka you. As the Beneficiary, you have the right to use, occupy, lease and possess the property, which also includes the right to build on it or otherwise improve it as you see fit.
The Beneficiary can also sell the property to another person or entity by instructing the Trustee to transfer those rights to another qualified Purchaser, or bequeath the property to an Inheritor.
The initial term of the trust is 50 years, however the trust can be renewed for additional periods of 50 years indefinitely. This provides you an opportunity for control of the asset over the long-term. The Purchaser holds the same rights as any property owner in the United States or Canada.
THIS IS NOT A LAND LEASE. The property purchased is placed in a trust with the Purchaser named as the Beneficiary of the trust — the Purchaser is never a lessee. If the property purchased is already held in a trust, the Purchaser has the option of assuming that trust, or having the property vested in a new trust.
THE IMPORTANCE OF ESCROW SERVICES DURING THE BUYING PROCESS
As the Purchaser, you should only release any funds when the you receive a free and clear title. By utilizing a United States. or Mexican third party escrow service like First American Title Company, Stewart Title Guaranty, or one of several escrow service providers in Mexico, your money is held in an individually numbered escrow account until your trust is complete and the property rights have been transferred to you.
ESTABLISHING LONG TERM OWNERSHIP
In your trust document the Purchaser must name the Beneficiary (foreign Owner) of the property. The purchaser can be an individual, multiple partners, a foreign corporation, an estate trust, a living will, or some other entity. For example, you could name a U.S. corporation as the Beneficiary of the trust. This is perfectly legal. Regardless, the Trustee of the trust (the Mexican bank) will take direction from whomever you name as the Beneficiary.
TAX CONSIDERATIONS TO BE AWARE OF
There are a few things to consider when it comes to taxes in Mexico:
• You CANNOT own property through a Mexican corporation in order to bypass the trust process. In fact, it is against Mexican law for any foreigner to own property in a Mexican corporation for residential purposes. This refers to Article 190 of the Mexican Revenue Code and is also declared in the International Tax Treaty between the United States and Mexico. If this happens and you do not pay the Mexican taxes that are owed, you will have created a tax burden over the property for the new owner when ownership rights are transferred.
• You can own a property in a Mexican corporation and take title fee simple if the property is for development or investment purposes only.
• If you sell the shares in the United States corporation that owns the property, you have created a real estate transaction in Mexico and all Mexican capital gains taxes apply.*
*We highly suggest that you consult with a certified tax professional before purchasing or selling any real estate in Mexico.
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