What is a Mexican Fideicomiso?
The fideicomiso is a legal constrict similar to a trust to which which a person gives ownership of certain assets for it to administer. The fideicomiso, sometimes referred to as a bankers trust, is most commonly used to hold real estate in Mexico. Such a fideicomiso is a real estate trust that is held under your name in a Mexican bank (Scotia Bank, HSBC [the world’s largest bank] Banamex {citigroup}, Santander [the largest bank in Spain], etc). The bank acts as the fiduciary, you and your heirs and assigns are the beneficiaries of the fideicomiso.
As the beneficiary of the fideicomiso you absolutely and irrevocably maintain control of the property, use, maintenance, control over all property decisions. The fideicomiso is not a lease, it is equivalent to a fiduciary in the US.
The fideicomiso gives the beneficiary absolute control of the property. So you can enjoy it, lease it, improve it, mortgage, sell, inherit, give away. Basically, your property is under a fiduciary of which you are the owner to be managed by a bank in Mexico on your behalf.
The purpose of a fideicomiso is to authorize foreigners the power to buy real estate in Mexico within the “restricted” zone and ensure a secure transaction. The “restricted” zone is land 31 miles (50 km) from the coast and 62 miles (100 km) from the border. When the Mexican Constitution was written it was designed to protect this land and prevent the great loss of land that had occurred throughout its history.
In order not to amend the Mexican constitution, they created and added the fideicomiso to promote high demand international investments, especially on the coast. Residential properties outside the restricted zone can be acquired directly by foreigners without a fiduciary, however, some buyers decide to obtain it.
Your fiduciary is not owned by the bank; they are simply administrators. You and your kin are the beneficiaries. The fideicomiso of your Mexican property is granted to you, the beneficiary and is not considered as property of the bank. In this way your property is not exposed to legal problems in which the bank can be found. You are the beneficiary of the fiduciary.
Americans usually worry that their property may be taken over by the Mexican government. Under the North American Free Trade Agreement (NAFTA), Mexico can not, directly or indirectly, expropriate. The only exception is when the government needs the land for public works (example: road construction).
Only through legal condemnation is this possible. In the rare case that it is necessary to expropriate land, the government will pay the current price with interest to the owner of the land. This is known as Eminent Domain in the US, Compulsory Purchase in the UK or Expropriation in Canada.
If you have heard one of those stories of people buying property that was re-taken by the Mexican government, it is because the unfortunate person bought land Ejidatario, which is land without title and only a Mexican citizen is authorized to buy it. Ejidatario land in land without title.
We recommend hiring a lawyer because we believe it is the most prudent. A lawyer represents you and will protect your legal interests. The lawyer will draft the contracts and review the terms and conditions of the sale. Legally only a lawyer with a degree can provide legal advice. International lawyers who do not have a degree to practice law in Mexico should not be advised in Mexican law.
Many investors choose to buy property through a corporation if their intention is to work and transact business. This would be the case in situations such as buying and selling land, renting your property or owning more than one property.
Banks in Mexico are protected by the government in case of bankruptcy. The fideicomiso is indirectly guaranteed by the government. Properties in a fideicomiso are not owned by the bank. In the rare case that a bank in Mexico is economically in trouble, the property will be transferred to another fiduciary bank. The new bank will be responsible for managing the fideicomiso. These laws were created by the federal government.
We can also assist you to buy property within a fideicomiso using your US retirement account or an offshore corporation for maximum protection and privacy. Both of these options will add significant value to your Mexican property.
The IRA can be used when you will buy a property and rent it out. In that case, rental income and capital gains will flow back into your IRA account free of US tax. When and if you wish to live in the property, you will distribute it out to yourself as a taxable event. For more on real estate in an IRA, see: Guide to Buying and Owning Mexico Real Estate
As for an offshore corporation, we typically form an entity in Cayman, BVI or Panama for this purpose. While these jurisdictions are more expensive that Nevis and Belize, they tend to work best with Mexico.
I hope you’ve found this article on What is a Mexican Fideicomiso? to be helpful. For more information, or for assistance in buying real estate in Mexico or opening an offshore company, please contact us HERE. We’ll be happy to assist you with your international tax plan and support you.
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