Buying Real Estate in Mexico: Should I Use a Fideicomiso or a Corporation?

Mexico is one of the most beautiful countries in the world, and very popular with tourists. It also happens to be an excellent place to invest in real estate, especially as a foreigner. With property values steadily rising and new infrastructure constantly being built, now is the time to get into the action!

However, if you are not a Mexican citizen, you can’t simply purchase the title to your new real estate as you normally would at home. When buying any real estate within 50 km of the coastline or within 100 km of Mexico’s international borders (known as the Restricted Zone), all foreign investors must choose one of two ways to make the transaction. They can either buy real estate in Mexico using a fideicomiso, or buy real estate in Mexico using a corporation. 

There are pros and cons to each approach, and below we will break down the differences between the two options so you can make the best choice for your specific situation. 

What is a Fideicomiso?

There is no direct translation of the Spanish word fideicomiso, but a close approximation for the term is a bank trust. Much like safe deposit boxes at a bank, these long-term irrevocable bank trusts are technically held by the bank, but the title to the real estate inside the trust is owned solely by you. 

You can learn about how fideicomisos work in greater detail in this article, but in short, these are mechanisms that give you all the property rights a Mexican citizen has. You can buy (or later, sell) the property, lease it to others, make changes to and improve it, and even bequeath it to family members in the event of your death. 

Fideicomisos, along with the other option (using a Corporation) make it possible for foreign buyers to have all of the rights of property ownership in Mexico that Mexicans have. 

What are the pros and cons of Using a Fideicomiso?

Reading our blog on the subject will better acquaint you with all the ins and outs of these helpful bank trusts. Let’s break down the pros and cons of using a fideicomiso.

Pros

• It allows a foreigner to buy real estate in Mexico’s “Restricted Zone.”
• The real estate belongs completely to the trustee. Everything except the ownership of the actual land is yours. This includes the real estate’s use, rental income, mortgage loans, sale profits, administration, maintenance, and civil responsibility.
• You can do whatever you want with the property. 
• Fideicomisos work like a will, and you can designate beneficiaries. 
• No one can put a lien on your lot, since the trust is held by the bank. This means that any legal or economic issues you may experience will not be affected in this way. 
• If certain conditions are met and you decide to get resident status in Mexico, you will be exempt from paying capital gains taxes up to a value nearly 4,000,000 MXN. 

Cons

• There are some yearly fees you need to pay to maintain a fideicomiso. They will vary based on the value of the real estate. Additional one-time costs will include bank fees of approximately $2,500, something you must pay in addition to closing costs.
• Because the process of getting all the permits and paperwork in order moves a little bit slower in Mexico, it will take you around three months to complete everything.

What are the Advantages of Using a Corporation?

The advantage to using a corporation is that it can be a much simpler process. It is speedier, and less costly. But it is best used by those interested in starting a business. 

Pros

• The timeframe to complete the formation of a Mexican corporation usually takes about two weeks.
• You need two people to form a corporation in Mexico, but when using a corporation to purchase real estate, neither party needs to be a Mexican citizen. 
• After paying $1,500 USD, you can acquire property without involving a bank trust. 
• Because a corporation is legally considered a Mexican person, you can buy property as any Mexican citizen does. 
• You can use the corporation to buy other things, including cars, etc.
• If you keep good track of your receipts, you can deduct costs for property improvements from capital gains taxes levied after any sale.

Cons

• You must pay capital gains when selling the property, no exceptions. 
• You will be connected to your corporation for life. 
• If your corporation produces no income in a given year, your accountant will charge you a fee.
• At least one partner will have to get resident status to act on behalf of the corporation. Barring that, you’ll need to designate a Mexican citizen with power of attorney. This will effectively take control away from you. 
• You cannot use cash for any transactions made through a corporation (checks or wire transfers are accepted).

How Do I Choose Between FideiComisos or Corporations? 

Define the Use of the Property

The main concern when choosing between fideicomisos and corporations is to define the use of the property. Ask yourself: Will I be using it for vacations for myself and my family or friends? Is the purchase strictly a financial investment, with the main use of the property to be used to rent out? 

Choose a Fideicomiso if…

If your main priority is using it in a residential capacity and for personal reasons, then the fideicomiso is probably the best option. You can still rent your property and make some income on the side, but if this is the case, it is best that you also strongly consider obtaining Mexican residency. The reason is that renting means that you will be responsible to pay taxes, which requires a Mexican tax ID called an “RFC.” RFCs are only available to Mexican nationals, those with residency, or corporations.

Choose a Corporation if…

However, if you plan on creating a for-profit business, or if you plan on profiting from the purchase of the real estate by renting out the property most or all of the year, then a corporation can be the best route, and act as an ideal way to create a legal source of income in Mexico. Using a corporation is also usually best for those that want to purchase multiple properties. Corporations are also best used by those that do not plan to obtain Mexican residency. 

Zisla Can Help!

At Zisla, we know the Mexican real estate market, and specialize in connecting foreign buyers and builders with the information they need to make the best choices. 

With us, you’ll find the perfect property and navigate the rules with confidence. We’re your best resource, so get in touch with us if you’re thinking of investing in the Mexican property market! 

Let us help your Mexican real estate dreams come true! 

Contact us today