Mexican legislation provides two options for registering real estate to foreigners in the so-called restricted zone — through the creation of a bank trust or by registration in a Mexican company (which a non-resident can also create).
We are talking only about buying real estate in a limited area, in other words, in an area within 50 kilometers from any coast or 100 kilometers from any border. Outside the restricted area, non-residents are able to purchase property directly.
When purchasing throughbank trust(fideicomiso) the legal owner of the property is a Mexican bank — he acts as a trustee. The facility is formally managed by the bank under a trust agreement. In this case, the foreign citizen is the beneficiary: he is the one who uses the real estate, has the opportunity to rent it out, sell it and acquire all the economic benefits. What is a bank trust in Mexico when purchasing real estate, we explained in thispublications.
If the property is registered in the name of a legal entity registered in Mexico —Mexican company, the company becomes the owner of the property. A non-resident has the right to establish and own a company. The real estate is managed by the director or administrator of the company, and the ultimate beneficiary is its founder.
Which of these two options should you choose?
In fact, there is no choice. If you are purchasing residential property, you can only do so through a bank trust. If you are purchasing non-residential (commercial) property, you can only do so through a Mexican company.
These are the criteria for the purchase of real estate in a restricted area by foreigners that are prescribed in Article 10 of the Law on Foreign Investments (Ley de Inversión Extranjera). There are no other options.
Article 5 of the Regulations to the Foreign Investment Law clarifies what is considered residential and what is non-residential real estate.
Residential real estate — This is property that is used exclusively for residence by the owner or third parties.
Non-residential real estate:
- timeshare,
- intended for industrial, commercial or tourist activities and at the same time used for residential purposes,
- purchased by credit institutions, financial intermediaries and auxiliary credit organizations for the collection of obligations…,
- used by legal entities to achieve their corporate objectives, including alienation, urbanization, construction and other activities related to the development of real estate projects, up to the point of commercialization or sale to third parties, and
- in general, real estate intended for commercial, industrial, agricultural, livestock, fishing, forestry and service activities.
In other words, if a foreigner buys residential real estate in a restricted area of Mexico, he cannot do without creating a bank trust. Dot.
And one more note. If a Mexican company has a foreign participant and wants to own real estate in a restricted area, it must include in its articles of association an agreement under Article 27 of the Constitution (the so-called convenio calvo clause). The foreign participant undertakes to be considered Mexican with respect to his investment, to waive diplomatic protection with respect to the company's assets (i.e. real estate) and to submit to Mexican jurisdiction. One way or another, the owner of the property is a Mexican company, and not a foreign individual directly. Disclaimer — This is not a mechanism for circumventing the constitutional prohibition on direct ownership in a limited area, but a mechanism for allowing investment through a Mexican company.
Want to know more about buying property in Mexico? Read thisarticle.