Discovering Mexico’s Real Estate World: Can Foreigners Buy Property? Exploring Bank Trusts and Corporations

Coast of Cozumel Island, Quintana Roo, Mexico

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Hola, amigos! Are you daydreaming about the warm sun, sandy beaches, and vibrant culture of Mexico? If you’ve ever thought about owning a piece of this beautiful paradise, you’re not alone. Many foreigners are drawn to the idea of having their own slice of heaven in Mexico, but the question remains: can they buy property there? In this blog post, we’ll dive into the world of Mexican real estate, discuss the options for foreigners, and compare two popular methods – bank trusts and corporations.

The Mexican Constitution and the Restricted Zone

Before we dive into the nitty-gritty, it’s essential to understand the Mexican Constitution’s regulations regarding property ownership by foreigners. Article 27 of the Constitution states that foreigners cannot directly own land within 100 kilometers (62 miles) of the borders or 50 kilometers (31 miles) of the coastline. This area is called the “Restricted Zone.”

For many would-be property owners, this might seem like a significant barrier, as some of the most desirable locations are within these boundaries. But fear not, amigo! The Mexican government created two legal methods to allow foreigners to own property in the Restricted Zone: bank trusts (fideicomisos) and Mexican corporations.

Bank Trusts (Fideicomisos)

A bank trust, or fideicomiso, is a legal agreement that allows a foreigner to own property within the Restricted Zone. In this arrangement, a Mexican bank holds the title to the property in trust for the foreign buyer. While the bank holds the title, the buyer (also known as the beneficiary) retains all ownership rights, including the ability to sell, rent, or transfer the property.

Here’s how it works:

  1. Choose a Mexican bank: The foreign buyer selects a Mexican bank to act as the trustee. The bank will hold the title to the property and represent the buyer’s interests.
  2. Apply for a permit: The buyer must obtain a permit from the Mexican Ministry of Foreign Affairs. This step involves providing personal information, a brief description of the property, and the intended use of the property.
  3. Establish the trust: Once the permit is approved, the bank will set up the trust. The trust agreement is then registered with the Public Registry of Property and the National Registry of Foreign Investments.
  4. Enjoy your property: After the trust is established, the buyer can enjoy their new Mexican property, complete with all the rights and responsibilities of ownership.

Some advantages of a bank trust include:

  • Flexibility: The trust can be established for up to 50 years and is renewable indefinitely.
  • Estate planning: The trust can include specific instructions for transferring ownership upon the beneficiary’s death, avoiding probate and simplifying the inheritance process.

However, there are also some drawbacks:

  • Trust fees: The buyer must pay fees to establish and maintain the trust, including an annual fee to the bank.
  • Bureaucracy: The process of setting up a bank trust can be time-consuming and involve dealing with government agencies.

Mexican Corporations

Another option for foreigners to own property within the Restricted Zone is establishing a Mexican corporation. In this case, the foreign buyer creates a corporation under Mexican law, and the corporation owns the property.

To set up a Mexican corporation:

  1. Obtain a permit: Just like with a bank trust, the buyer must first obtain a permit from the Mexican Ministry of Foreign Affairs.
  2. Choose a corporate structure: The most common corporate structures for property ownership are the Sociedad Anónima (S.A.) and the Sociedad de Responsabilidad Limitada (S. de R.L.).
  3. Register the corporation: The buyer must register the corporation with the Public Registry of Commerce and the National Registry of Foreign Investments.
  4. Purchase the property: Once the corporation is established, it can legally purchase property within the Restricted Zone.

The advantages of owning property through a Mexican corporation include:

  • Easier property management: A corporation can make it simpler to manage multiple properties or engage in commercial activities, like renting out the property.
  • Limited liability: The corporation offers limited liability protection, which can protect the buyer’s personal assets in case of legal issues.

However, there are some drawbacks to consider:

  • Higher costs: Establishing and maintaining a Mexican corporation can be more expensive than a bank trust due to annual taxes, accounting fees, and other corporate expenses.
  • Increased complexity: Managing a corporation can be more complex than a bank trust, requiring compliance with Mexican corporate laws and regulations.

Which is the Right Choice for You?

When deciding between a bank trust and a Mexican corporation, consider the following factors:

  • Your intended use of the property: If you plan to use the property primarily for personal use or as a vacation home, a bank trust might be the better choice. If you intend to engage in commercial activities or manage multiple properties, a corporation could be a better fit.
  • Costs: Weigh the costs of establishing and maintaining a bank trust against those of a Mexican corporation. While bank trusts typically have lower costs, the fees can increase over time.
  • Estate planning: If you have specific estate planning concerns, a bank trust might offer more flexibility in terms of inheritance and transfer of ownership.

Owning property in Mexico as a foreigner is not only possible but can be a rewarding experience. By understanding the options available – bank trusts and Mexican corporations – you can make an informed decision on the best route for your unique situation. Whether you choose the simplicity of a bank trust or the added benefits of a corporation, you’ll soon be enjoying your own little piece of paradise in Mexico. Want more information, contact us, and we will get you in touch with an advisor who can help.  ¡Buena suerte!