How does the Mexican Trust works to purchase a property in Mexico
MEXICO INVESTMENT GUIDE
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If you are foreign investor, or if you have interest to buy a house in Mexico, you must know that you can do it. The Mexican law has a specific regulation for that purposes.
The next are the principal legal options to buy a real estate:
Residential purposes outside of the restricted area,
Residential purposes within the restricted area,
Commercial purposes outside of the restricted area,
Commercial purposes within the restricted area,
To understand that, first we have to clarify what is called “The Restricted Area” (in Spanish: Zona Restringida). We also have to define the legal vehicle to be able to invest in Mexico within the restricted area known as: “Bank Trust Within the Restricted Area” (in Spanish: Fideicomiso en Zona Restringida).
“The Restricted Area” (in Spanish: Zona Restringida)
It is referring to the area of the country located within 100 kilometers (62 miles) of the national borders of Mexico, and within 50 kilometers (31) miles of the seashore.
The current Constitution of Mexico was enacted in 1917. The restricted areas were created to protect the Mexican territory from all kinds of foreign invasions as this country had suffered for many centuries. In the spirit of that protection of natural rights, the Constitution specify which is going to be the restricted area as referring before.
“The Bank Trust Within the Restricted Area” (in Spanish: El Fideicomiso en Zona Restringida)
As we said, the Mexican territory has a restricted area. In the same order, the Constitution establish that within that zone, that foreigners can not acquire the direct property, unless they do so through the bank trust in the restricted area.
The bank trust has been used for different topics in other countries. In Mexico we use the it for many reasons, but in this case, it is used as a legal vehicle were the government can protect the restricted area as we said, and to give certainty to investors or people who wanted to buy land or real estate in the restricted zone.
The bank trust is perhaps the most misunderstood aspect of purchasing property in Mexico. Nevertheless, the bank trust is a legal document, signed in a Public Notary, that will be into the Mexican Public Registry where the buyers has the legal certainty of their properties, and there will be a bank taking care of the property.
Overall, the Mexican banks trusts are similar to their U.S. or Canadian, or Spanish or other counterparts. The bank trust is a legal agreement through which the property will be transferred to a third party, that will hold title to the property and that will administer the same in favor of designated beneficiaries.
One we understand those legal concepts we can understand which are the rules for each of the 4 legal options listed above.
A) The law allowed the investments in real estate for residential purposes outside the restricted area, and when the investment will for a commercial issue, it is allowed to invest outside or within the restricted area.
B) Nevertheless, the law in Mexico establish that all the investments or purchases of a real estate within the restricted area, to be use for residential purposes, it must have been purchase trough the bank trust we already refer. It is important that foreign investors or buyers keep in mind because this is the law.
SANCTIONS: THE LAW ESTABLISHES FOR SIMULATION ACTS
In addition, foreign investors must know that this restriction has been talking in number 2 and B), is for natural persons or companies who permit the foreign invest, or have foreign partners, any of them.
The simulation in the purchase, creating a company where it will be permitted the foreign investment or foreign partners, is sanctioned by law, which imposes a penalty of 100% of the total amount of the purchase act.
There is a lot of bad advises in which they suggest to foreign clients to create a company to avoid creating a trust, however they are not realizing that they are leading their clients towards an illegality sanctioned by law.
The Mexican Foreign Investment Law states: "In the case of simulation of acts with the purpose of allowing the enjoyment or disposition of real estate in the area restricted to foreign natural or legal persons or to Mexican companies that do not have a foreigner exclusion clause, in contravention of the provided by the Second and Third Titles of this Law, the offender shall be penalized with a fine up to the amount of the operation."
This means that whoever buys a house or condo for residential use, creating a company in which it accept a foreign investment, it will be considered a simulating an act, which is sanctioned.
To give an example of the penalty, if the investment is $100,000 USD, the penalty will be $100,000 USD. Being also obliged to change the type of investment to trust.
In short, as long as the law does not change, a bank trust must be created by all investors when:
The Investors are natural persons or companies that accept foreign investments or foreign partners,
The property is within the restricted area,
The property is used for residential purposes,
The simulation to avoid the trust is sanctioned with 100% of the value of the investment.
BE CAREFUL OF YOUR INVESTMENT, BUT ALSO BE CONFIDENT.
The Bank Trust is a legal and a confident vehicle to invest in Mexico. This is a country in which investors find total certainty in their investments. The idea to have a summer property close to the Mexican beaches, or to start any kind of business purchasing a real estate property, is fully protected by law.
ENJOY YOUR PROPERTY IN MEXICO