The Mexican constitution has enjoyed a bad reputation amongst overseas investors so far because it prohibits foreign ownership of land within the country. To attract more foreign capital, Mexico has created the “fideicomiso”, which is a form of real estate trust. To legally execute the trust, a Mexican bank must be designated as the trustee and own the title to a property. This will see the bank being the actual owner on record for real estate bought by foreigners.
The investor itself will then become the beneficiary of the trust, keeping it all legal. As a country, Mexico has original ownership to all land and water including minerals, salts, ore deposits, natural gas and oil. Ownership may be assigned to individuals. By design, the Mexican Constitution prohibits direct ownership of real estate by any foreigners in what is known as the “restricted zone”.
Basically the restricted zone encompasses all land which is located within 100 kilometres of any Mexican border, and within 50 kilometres of any Mexican coastline.
With the “fideicomiso” the bank will act on behalf of the investor and has fiduciary obligation to follow instructions given to them by the foreigner who is the trust beneficiary.
This will enable to beneficiary of the trust to retain and enjoy all the rights of traditional ownership while the bank holds title to the property. Further to this, the foreigner is entitled to sell, renovate, use, enjoy and gift the property.
Before you can buy Mexican real estate as a foreigner you need to apply and obtain a permit from the Ministry of Foreign Affairs. The trustee bank will handle this application. This application carries time constraints.
Within 5 working days following the date of the presentation, the Ministry must grant any petition for a trust permit that complies with the stipulated requirements. If the application is submitted to a state office, it needs to be approved within 30 days. If the investor doesn’t get notified by the due date, the trust permit or registration is considered authorized.
If and when the trust expires, the right remains with the beneficiary according to the contract. Under the law, the bank must respect all rights of beneficiaries. If it is notified to sell or lease the property by the beneficiary, the bank has to act on this.
Mexican property owners also need to consider the various taxes applicable to their trust.
- Property tax also called predial will be paid annually to the municipality. This tax is to be paid annually. If the tax is not paid on time, it must be paid when the property sells including interest and penalties.
- IVA tax is 15% in Jalisco and Nayarit. Commercial property owners owe IVA when it is sold. IVA is also collected on professional services and goods.
- Acquisition tax is imposed by the State government. The rate is around 2% of the total value of the transaction. The buyer must pay this tax upon purchase of the property.
- The fourth tax is the Capital Gains Tax, also called ISR. This tax is based on the profit once a property gets sold.
There are exemptions for both locals and foreigners to the capital gains tax, but these need to be proven to the Mexican government and the rules and regulations are very strict to protect against fraudulent claims.
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