Article 27-Subdivision I of the Mexican Constitution prohibits foreigners from directly acquiring ownership of properties located within 100 kilometres of the country’s borders, nor within an area of 50 kilometres from the Mexican coast. This area is known as the “Restricted Zone.”
However, the Foreign Investment Law permits foreign investors to acquire properties located in this zone so long as the transaction is made through a “fideicomiso” (Mexican bank trust) or constitutes a Mexican trading company.
1. What is a fideicomiso?
This involves a legal figure through which a contract is established stating that the developer (fideicomitente) transfers the title of a property to a Mexican banking institution (fiduciario), which then awards all of the profits, rights and obligations derived from said property to the buyer (fideicomisario).
2. What rights and obligations does the fideicomisario (buyer) have?
In practice, the buyer is awarded all of the rights and obligations of the owner, thus enabling him to carry out any act of ownership. In other words, he can live in the property, make renovations, rent it, sell it, mortgage it, etc.
3. What expenses must the fideicomisario (buyer) cover?
The buyer must pay the banking institution approximately US$600 for the creation of the fideicomiso, or bank trust, plus annual fees of about US$800 during the life of the trust.
In addition, the buyer is also responsible for paying the National Registry of Foreign Investment (one-time payment of approximately US$500) and the rights to obtain a permit from the Secretary of Foreign Affairs (approx. US$1,000).
The remaining expenses are the same that would apply to any property purchase: notary fees and expenses (approx. 1%), the rights to register in the Public Property Registry (approx. 1%), the tax on title transfer (2%) and the Mexican Property Tax (Impuesto Predial – equivalent to the IBI in Spain), which is paid annually.
| Item |
Approx. amount |
| Constitution of fideicomiso (bank trust) |
US$600 |
| Administration of fideicomiso |
US$800 |
| National Registry of Foreign Investment |
US$500 |
| Fideicomiso permit from the Secretary of Foreign Affairs |
US$1.000 |
| Notary fees and expenses |
1% |
| Rights to register in the Public Property Registry |
1% |
| Title transfer tax |
2% |
| Property Tax (Impuesto Predial - IBI) |
0,12% |
4. What happens after 50 years have passed?
The bank trust can be renewed every 50 years for as many times as you wish, 90 days prior to the trust period’s termination. The bank (fiduciario) is responsible for soliciting the renewal in writing from the Secretary of Foreign Relations.
5. Can the banking institution and the moneylender be the same entity?
No, because according to Article 382 of the General Law on Negotiable Instruments and Credit Operations, “a fideicomiso (bank trust) in favour of the fiduciario (banking institution) shall be null and void,” unless the loans are to be used for business activities.
6. What happens to the trust period after the second title transfer?
Should a transfer of rights over a fideicomiso (bank loan) occur when a new permit is not required, the period that applies to the existing permit shall be maintained. In other words, if a permit is awarded for 50 years, but a purchase is made five years later, the new owner’s permit will last for only 45 years. However, this new acquirer may later solicit his authorisation for a period of 50 years.
7. Can a property acquired through a Mexican bank loan be inherited?
The fideicomiso (bank loan) offers legal security to inheritors in the case of the purchaser’s death. Upon constituting the bank loan, substitute fideicomisarios (buyers) can be designated (children, siblings, spouse, etc.), thus avoiding Mexico’s complex inheritance process.
8. What advantages does the bank loan offer?
- Annual payment costs are less than the cost of a Mexican Company, given that it is unnecessary to hire an accountant who is responsible for the company’s obligations and taxes.
- There are no tax obligations (except for the Mexican Property Tax – the Impuesto Predial) as long as the property is neither sold nor rented.
- The legal and administrative processes are carried out by the Bank.
- It is unnecessary to create a will, and the substitute buyer clause avoids Mexico’s long and tedious inheritance process.
9. When is it necessary to form a trading company?
Although one may opt for either of the two acquisition options, for logical and cost-saving motives, it makes more sense to use a bank loan should the buyer wish to acquire a property for residential use, though he may use it for only a portion of the year.
It only makes sense to form a company if three or more properties are being acquired.
10. How is a Mexican trading company formed?
To form a company in Mexico, one must: obtain permission for the company’s name, establish the articles of association, constitute the company before a Notary Public, and register it in the Public Registry of Commerce and National Registry of Foreign Investment. This implies an expense of approximately US$2,000.
11. What obligations must the company meet?
It must file annual declarations, possess a reliable accounting system and elaborate annual financial statements that must be approved by the General Ordinary Shareholders Assembly. This implies an annual expense of approximately US$1,500.
12. How does one pay taxes on the acquisition of a Mexican property?
A Spanish resident pays taxes through his worldwide income, that is, independent of where he obtains the returns, he must pay taxes in Spain for the property’s rental.
Should he receive returns in Mexico for a property rental located in that same country, he must pay taxes of 25% as a non-resident. This tax will be deductible in Spain on his personal income tax (IRPF).
13. Must I travel to Mexico to sign the contracts?
In the case of a private contract, the contract signing may be done via mail with the signatures of two people who act as witnesses.
However, the signing of a bank loan or property purchase can only be done through a legal representative who is awarded notarial power.
