According to “Article 27 of the Mexican Constitution”, “the restricted zone” was employed to protect against foreign military attacks; therefore, no foreigner is allowed to acquire direct title to land within “the restricted zone” anywhere in Mexico. The restricted zone is all land located within 100 kilometers, 62 miles, of any national border and within 50 kilometers, 31 miles, of any ocean.

However, in order to promote foreign investment in the country, in 1972, Mexico’s constitution was implemented and the “Mexico’s Foreign Investment Law” was established, which allows foreigners to acquire indirect title to land in “the restricted zone” through a process called a “Fideicomiso”, which is a bank trust, or through a “Mexican Corporation” required and issued by the “Secretaria de Relaciones Exteriores”, (SRE), the Ministry of Foreign Affairs. The most common process used by most foreigners when purchasing property in Mexico is the “Fideicomiso”.  For buyer’s sakes, I will take a look at both options available. It is important to note that in case that you decide to go with a Mexican Corporation process, it is imperative that you consult with an attorney and an accountant in both sides, here in Mexico and in the United States, or in Canada, or from your country of origin to make sure that you understand the rules and regulations and what it entails, in order for it to be considered valid.

Acquiring Property in the Restricted Zone Using a Corporation.

As of 1995, foreigners can fully own, operate and administer Mexican corporations; however, there are some restrictions on the activities that a Mexican corporation can participate in when foreigners are involved (i.e. mining, airports, telecommunications).  There are no investment restrictions on foreign-owned Mexican corporations aimed at buying and developing property. Mexican corporations require a minimum of two associates or shareholders. Both shareholders can be foreigners, and there is no need to have a Mexican partner. The general rule is 100% participation.  If the property held in trust is unimproved land and larger than 2,000 square meters, the “Ministry of Foreign Affairs” will require the beneficiaries to invest in the land a certain amount of money over a 24-month period. The amount of money that will need to be invested will be determined by the location of the property and its size.

There are several different types of Mexican corporations. The two most common are the “S.A. de C.V.” is a “Limited Liability Corporation” of shares and the “S. de R.L. de C.V.”, which resembles a “Limited Liability Partnership”. Choosing which type of corporation to setup is important for tax purposes in both the US and Mexico; therefore, you should consult with an attorney and an accountant on both sides of the borde, in order to understand the benefits and the costs each one entails.

Important Notice: The Mexican legal system is a very formal system as there are forms and procedures that you must follow, in order for certain types of documents and transactions to be consider valid. This holds true when setting up a Mexican Corporation. If the forms and procedures are not done properly, the Limited Liability nature of these corporations can be defeated and the shareholders and partners could be held jointly and unlimitedly liable. Please, consult and attorney and accountant on both sides, Mexico and the USA, or Canada.

Acquiring Property in the Restricted Zone Using a “Fideicomiso”.

A “Fideicomiso”, or a bank trust, which is the most common way that foreigners acquire property in Mexico. A fideicomiso is a three-party contract by means of which the seller, a “Fideicomitente” irrevocably transfers to a banking institution, the “Fiduciario”, real property so that a third party, a “Fideicomisario” can use and enjoy such real property. The transfer of the real property from the seller to the banking institution is a definite and irrevocable transfer of title.

Under Mexican laws, only an authorized Mexican banking institution can be a trustee. The bank acquires title to the real property and is obligated to allow the beneficiary the usage and enjoyment of the property as he sees fit, as long as the manner in which he or she does so is lawful. This is not a lease and your property is not considered an asset of the trustee bank.

The trust grants the beneficiary, the buyer, to use, modify, borrow against, rent or sell the property at his discretion. The bank cannot encumber or sell the property without the express written consent of the beneficiary.  In other words, beneficiaries have the right to sell the property when they please and to receive the benefits produced by such sale. Please note that when you are selling a property and are making gains on it, “Capital Gains Taxe”s apply. For more information about he subject, please contat your realtor.

If you need to verify to authorities outside of Mexico that you have invested in a foreign country, an “apostilled” or “legalized” copy of your deed of trust will be sufficient.

A “Fideicomiso” also works as an estate, therefore, your substitute beneficiaries or “fideicomisarios sustitutos” will need to be assignated, including percentages. Substitute beneficiaries are usually family members and will only have the right to participate in the trust once all of the first beneficiaries have passed away, unless otherwise established.

The “Foreign Investment Law”, permits trusts for up to 50 years and such permits can be renewed, or be transferred to a new beneficiary, in a process called “Cesion de Derechos”.  If the beneficiary is not happy with the banking institution that is acting as Fiduciario, or trustee, the fideicomisario has the right to change banks, as he sees fit. Fees do apply.

If everything is done correctly, you should have no problem acquiring title insurance on your property from any of the major US title insurance companies. This reflects how secure purchasing property in Mexico can be when done properly. Using the services of a local realtor is key to a sucessful transaction.

Highlights: These are some of the general terms of the “Fideicomiso” and establishing a Mexican Corporation:

  • If you are a foreigner and want to purchase property in Mexico, and if that property falls within the restricted area, you need a special permit called a “Fideicomiso.  There are two different ways to establish a “Fideicomiso”, through a corporation or a “Fideicomiso”.  The most common way a foreigner gets a permit is through a “Fideicomiso”.  However, if you choose to establish a “Mexican Corporation”, in order to acquire legal tittle of real estate in Mexico, you must hire the assistance of a lawyer and an accountant in both countries, here in Mexico and in your country of origin, in order for you to be able to understand the laws and procedures and what it entails and in order for it to be valid. Current Mexican laws will prevail.
  • There can be more than one fideicomisario, or beneficiary. If more than one fideicomisario is assigned, each will be co-beneficiaries of the property held in trust, unless otherwise established – there can be two owners.
  • A “Fideicomiso” also works as an estate, therefore, your substitute beneficiaries or “fideicomisarios sustitutos” will need to be designated as well.  Substitute beneficiaries are usually family members and will only have the right to participate in the trust once all of the first beneficiaries have passed away, unless otherwise established.
  • Fideicomisos are for a period of 50 years and are transferable. If the property that you are purchasing already has a Fideicomiso in place, you may take over the remaining time on it; however, if you wish, you can always purchase a new one at the banking institution of your choice. Please, ask your realtor for more information.
  • If the fideicomisario, or beneficiary is not happy with the banking institution that is acting as Fiduciario, or trustee, the fideicomisario has the right to change banks. Fees do apply.

This document is for information purposes only and must not be construed as an offer or solicitation to subscribe, purchase, nor as any type of legal advice. Before taking any type of decision, please consult with a specialist.  Please, remember that all information regarding real estate in Mazatlán and Mexico is not always up-to-date in real time, therefore, make sure that the information provided has not changed lately. Current Mexican laws will prevail.