Are you a foreigner and want to buy real estate in Mexico, close to the coasts or borders? Well it’s possible and there are 2 ways to do it.
1. The Trust
It is well known that in Mexico people of foreign nationality cannot acquire real estate on the coasts or on the borders, in what is legally called a restricted zone; however, the law establishes that they can establish a trust through a bank for their use and enjoyment. You will find the information in more detail in my other blog on the real estate trust.
2. The Company
However, Mexican law allows a Mexican company (even with foreign participation) to acquire real estate in the restricted area (for commercial purposes); This ambiguity, associated with the misleading notion of lower costs, has led a large part of real estate acquisitions in the Riviera Maya to be carried out by Mexican companies with partners of foreign nationality. This has resulted in the creation of “ghost” companies, that is to say companies that do not really operate in the sector.
You will need to form a limited company with variable capital (S.A. de C.V.) with a Clause for Admission of Foreigners to the Restricted Zone.
Of course, to open this company you must form the SA de CV, ask the Ministry of Foreign Affairs for the notice of acquisition of real estate in the regulated zone for each real estate that you buy because you must follow the regulations of the Foreign Investment Law and the National Register of Foreign Investments.
Trust or Company?
Establishment Fee: The fee for establishing a trust is $17,000 pesos (for rounding) and $464 USD acceptance fee. It is essential to know that the incorporation of a Mexican company involves numerous obligations of a tax, legal and migratory nature, which arise from the need to hire professionals in accounting or tax matters for the full execution of its obligations. And the costs will be much greater than setting up a trust.
Annual Fees: The trust imposes the obligation to cover an annual fee of $522 USD for its administration and vests in the trustees all rights of ownership, being able to rent, sublet, grant security and other actions of an owner. With a company you will have to hire an accountant and you will pay accounting fees, around $50 USD per month, so in the end it amounts to the same.
It is also important to emphasize that the company must be managed by a legal representative and that people of foreign nationality, although they do not need a special immigration permit to form a company, will need one to acting as a representative of the company, which is not so simple and in the long run becomes more expensive than setting up a trust with a bank.
A big difference is that the real estate trust is not seizable (the government cannot touch it because the owner is the trust bank). While the SA de CV, the property can be seized (for example if you do not pay your taxes or your electricity bill).
The other big difference is resale. If you are an individual (with a trust) and you decide to resell your assets, you can reduce or be exempt from capital gains tax (ISR). On the other hand, if you are a legal entity (with an SA de CV company), you will have to pay taxes of 30% of the utility.
Example: you buy a good for 1,000,000 pesos ($50,000 USD approximately). And you want to resell it at 6,000,000 pesos ($300,000 USD approximately), you will have to pay 30% on the utility of 5,000,000 pesos, or 1,500,000 pesos of ISR taxes in the case of an SA de CV company.
Conclusion
If the purpose of acquiring properties in a restricted area is solely for residential and summer purposes, setting up a trust through a bank is of course recommended. However, if there is a real intention to do business in Mexico, invest in projects and produce wealth, only then would it be advisable to incorporate a Mexican company and acquire real estate accordingly.
Please do not hesitate to contact me if you need any further information on this subject.
Good day,
Laure