Corporation vs. Trust for Property Ownership in Mexico, Boca Del Mar

Corporation vs. Trust

In 1917 Mexico drafted a new Constitution. In the Constitution there was a provision that created the Restricted Zone (RZ). This zone is 100 km (62 miles) inland from the borders and 50 km (31 miles) inland from the coasts. Originally only Mexican Nationals could own land in the RZ because it was considered the most valuable real estate in the country and a matter of national security.

To attract foreign investment, enabling legislation was passed in 1970 which permitted foreigners to own land in the RZ. This bill stated that a trust, called a “Fideicomiso” could be set up, with the foreigner as the beneficiary. Since a Mexican bank is the owner and trustee, it satisfies the requirements to purchase in the RZ. The beneficiary (foreigner) could occupy the land, rent it, improve it, sell it, etc.

There are, however, limitations to the Trust system. For each property you purchase, you need a separate trust. The cost to set up each trust or Fideicomiso ranges from $3,000 to $5,000 USD. In addition, there is an annual “administration fee” to the bank of $1,000 USD, for doing nothing more than holding the deed on your behalf. Also, the bank charges an exit fee of $1,000 USD or more when you desire to sell your property.

To address the problems with the old trust system, Mexico passed the new Corporation Law in 1994. This law provides that a Mexican Corporation, wholly owned by foreigners (you do NOT need a Mexican national or a Mexican citizen to be part of your Corporation), can be the Mexican entity required by the Constitution to own property in the RZ. Your Mexican Corporation is recognized by the government to be a legal Mexican entity. Your Mexican Corporation holds the deed, which means you get to personally possess the deed. You no longer need to go through the bank to get approvals to build, rent, sell, or improve your property and there are no bank fees.

An added benefit to establishing the Mexican Corporation is that your Corporation can own more than one property. You do not need to form a separate Corporation for each property, as in the case with the bank trust system. After you purchase your land via the Corporation system, you are permitted to file a dormancy election, which means your company is “inactive” until you decide to activate it.

Which is better, the Corporation System or Bank Trust System?

In addition to the above limitations of the Trust System, Mexican law provides that the beneficiary of the trust (you) may not receive any income from the property placed in trust and furthermore may not engage in any gainful employment with the trust. The trust can last for up to 50 years, whereas, the Corporation lasts for 99 years and may be renewed by the stockholders after 99 years, and you don't have to deal with the annual fees for the bank trust.

Another added benefit is that with the formation of a Corporation, you acquire an FM-3, which is a working visa, permitting you to live and work in Mexico. The FM-3 can be renewed annually and with it you can obtain a Mexican drivers license, open bank accounts, get credit cards and operate a business. These are the many benefits to having your own Corporation.

Summary

You own 100% of your Mexican Corporation, your Mexican Corporation owns your real estate, hence, you own your real estate complete with a legally registered title/deed.