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Can Foreigners buy Property in Mexico?
- The answer is yes.
- Foreigners who purchase property in this area of Mexico need to own it through a bank Trust or Fideicomiso
There are obviously legal steps to follow but with our help and guidance, keeping you informed of all the stages involved, we can keep this simple.
Why do Foreigners need a Bank Trust to purchase property in Vallarta?
- The Mexican Constitution of 1917 designated the area within 100 kilometers (62 miles) of Mexico's borders and within 50 kilometers (31 miles) of the coastline as off limits to direct real estate ownership by foreigners.
- This are used to be known as the “Prohibited Zone” but new beneficial legislation in place now refer to it as the “Restricted Zone”.
- A foreigner can purchase the right to hold, occupy, use, improve, develop, rent and sell real estate by purchasing a beneficial interest in a bank trust which holds the legal title to the property.
- The bank holds legal title to the real estate and acts as trustee while the beneficial interest in the trust is owned by the foreign individual.
- The trustee bank is obligated to deal with the property only for the benefit of the beneficiary.
- The bank takes its instructions from the beneficiary owner only.
- The beneficiary may be a foreign individual or other foreign legal person such as a corporation.
- The trust exists strictly for the benefit of the beneficiary who is for all practical purposes the owner of the underlying property.
- The property may be passed on by will or inheritance, it can be used as collateral for a loan and the property can be freely enjoyed, rented or sold all as determined by the owner beneficiary.
The Foreign Investment Law of 1993 went even further and authorized the out- right ownership of nonresidential real estate in the Restricted Zone by a Mexican corporation which can be 100% foreign owned. This includes real estate purchased for development which will be sold off to foreigners for residential use. The corporation is considered Mexican and therefore the foreign shareholders can own the land directly through this Mexican person.
What is a Mexican bank Trust or Fideicomiso?
- Any foreigner or Mexican National can constitute a Fideicomiso (theequivalent to an American beneficial trust) through a Mexican bank in order to purchase real estate anywhere in Mexico, including the Restricted Zone.
- The buyer requests the Mexican bank of his/her choice to act as a trustee on his/her behalf.
- The bank, as a matter of normal course, obtains the permit from the Ministry of Foreign Affairs to acquire the chosen property in trust.
- The Trust term is 50 years and can be automatically renewed for another 50 year period.
- During these periods you have the right to transfer the title to any other party, including a member of your family.
- The bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary who has all the benefits of a direct owner, including the possibility of leasing or transferring his/her rights to the property to a third party or to a pre-appointed heir.
- The bank ensures precise fulfillment of the trust, according to Mexican law, assuming full technical, legal and administrative supervision in order to protect the interests of the buyer
- "Fideicomisos" are not held by the trustee as an asset of the bank.
- More Mexican Nationals are opting to purchase with a Bank trust because it clearly states who they wish to become their beneficiaries in the event of death.
- The Trust works as a will and testament for the property purchased and saves time and money by avoiding a lengthy probate case (which can be up to 3 years in Mexico).
What documents do I need in order to buy property in Mexico?
Apart from having the necessary funds, there are standard documents you will need to present to the Notary when purchasing a property.
- Driver’s license (normally 2 forms of photo ID are required)
- Proof of address (at home or here in Mexico)
- Personal information (full legal name, date of birth. place of birth, address, contact information email and phone)
- Beneficiary information (full legal names, copy of passports of official IDs and addresses).
When does the closing process take place?
- All sales are conducted through a Notary Public.
- A Spanish sales contract with a courtesy English translation is written up by me and presented to you for review then initial each page and sign.
- If agreed upon by the Seller, I work with closing coordinators, attorneys who facilitate the sale process for us, at no extra cost to the buyer.
- We set up an Escrow account (approx $550 USD) to hold funds until closing
- A standard 10% deposit is required to formalize the sale
- Standard timing is 45 days for a closing and can be up to 90 days if the property is acquired through financing.
- The final balance of 90% is transferred to Escrow a few days prior to closing.
The closing attorney arranges all the documentation with the Notary and the Public Registry office and when we are ready to close we meet at the Notary for the final signatures. On closing, the buyer is given a copy of the certified deed but the original can take up to 6 months to get formally registered in the Public Registry office. Once it is ready, the Notary will let the buyer know to come and collect it.
What is Public Registry?
- In Mexico, deeds, usually known as public instruments, can be researched at the local Public Registry of Property which is open to the public.
- The deed must be finalized and signed by a Notary Public.
- The deed will typically list the parties involved in the transaction including the notary, seller, buyer, and the trustee bank.
- The deed identifies the property.
Once the deed is finalized and signed by the notary, by the seller, by the bank as trustee (if a bank trust is involved) and by the buyer (who will also be the trust beneficiary if a trust is used), the purchase price changes hands and the transaction is considered closed.
Why do property sales go through a Public Notary?
- In Mexico, a Notary Public is a quasi-governmental official who reviews all documents of importance with respect to the sale of real estate.
- The training, function and responsibility of Notary Public in Mexico are completely different from North America.
- In Mexico, a Notary Public is appointed by the governor of a Mexican state for life.
- A Notary must be a Mexico licensed attorney.
Becoming a Notary Public involves attending law school in Mexico, obtaining a law degree, passing an exam and being admitted to the bar in Mexico. To hope for appointment, the prospective Notary Public must then work as an apprentice for several additional years with a Notary Public. A notary does not act as an escrow service. The Notary Public’s job is to see that certain formalities have taken place. Although a notary is always an attorney, it is not the notary's job to provide any party with legal advice. Any buyer or seller who wants legal advice should hire a separate lawyer licensed in Mexico.
Can foreigners get a mortgage in Mexico?
- The answer is yes.
- Currently financing is available for citizens of Mexico, the USA, Canada, the UK and Spain.
- There are financial institutions that work locally and have been improving the quality of service, speed of the transaction and lowering the interest rates to attract more buyers.
There are details of the most reputable brokers in my Affiliations section.
Can foreigners open a bank account in Mexico?
- Yes, you can
The paperwork required is:
- Proof of address
- Tourist card or FM3 given on arrival in Mexico
- 3 local references
- $3000 pesos to open the account.
I recommend using Bancomer for the peso account as they offer a fully bilingual service for foreigners (Preferential Client Section) and are well versed on dealing with property owners and renters who are not here all year round and give you a Gold card which avoids lining up at the branch (priceless). The benefits include being able to pay bills online, write checks in pesos, make standing orders for bills to be paid each month and check balance and make payments via the internet when you are not present. An appointment is recommended at the bank as they get busy! So as to not be charged a commission they ask that you maintain at least $3000 pesos in the account.
As a foreigner selling my property will I pay capital gains tax on closing?
- The simple answer is yes, if you made money you need to pay tax.
- Yes, if you are not a full time resident and tax payer in Mexico (need Fm2, Mexican voter card and all bills in your name as proof.
In Mexico, the concept of capital gains tax does not apply in the sense in which it is determined in the United States. Here, the tax on the gain is 28%. For example, selling a property for $200,000 USD when it was bought for $100,000 USD generates $30,000 USD tax.
However, in order to determine the gain, the following costs and expenses are deducted from the amount for which the property is officially sold:
- The original land cost and the depreciated construction cost, based on the number of years the property was held and adjusted for inflation according to the official consumer price indexes.
- Additions, modifications and improvements, but not maintenance, made on the property (construction), adjusted as above.
- Commissions paid to real estate brokers by the seller.
- The closing costs, including all expenses, taxes and fees paid by the seller. The Notario will retain the calculated gain after deductions forwarding it to the Mexican tax authorities. The seller will then deduct this amount against his/her annual tax return, which becomes an adjustable tax credit in the U.S.
In order to ensure you are paying what you should be and not being over charged, we work with qualified legal tax accountants to help us ensure the whole process is legal and straightforward.
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