Owning Property in Mexico
What’s important is to know your rights and obligations as a buyer. This page provides you with information on the following topics:
- The Restricted zone and a bank trust or Fideicomiso
- Owning property in Mexico through a Mexican Corporation
- The Role of the Notario Publico or Mexican Public Notary
- The Buying Process
- Property Taxes
- Preparing for Future Capital Gains
The Restricted Zone
The only restriction to owning property in Mexico is contained in Article 27 of the constitution which states that foreigners cannot own property within 100 kilometers (60 miles) of the border and 50 kilometers (30 miles) of the coastline.
The Mexican government does provide two ways two ways for foreigners to own property within this restricted zone. One is a Mexican Trust, called Fideicomiso in Spanish; the other way is through a Corporation.
Bank Trust or Fideicomiso
In 1971, the Mexican Bank Trust or Fideicomiso, as it is known in Spanish, was created to promote tourist and retirement investments along the coastlines by Mexican President Echeveria, who authorized the 30 year Bank Trust program. In 1989 President Salinas mandated an extension to the trust for an additional 30 years. A Fideicomiso is the equivalent to an American beneficial trust.
The Mexican Foreign Investment Law, enacted December 28, 1993 extended the Trust from 30 to 50 years. This trust can be automatically renewed for another 50-year period. You have the right to transfer the title to any other party including a family member.
Any foreigner can establish a Fideicomiso through a Mexican bank to purchase real estate. The buyer requests a Mexican bank of his choice to act as a trustee on his behalf. The bank obtains the permit from the Ministry of Foreign Affairs to acquire the chosen property in trust.
The bank becomes the legal owner of the property for the exclusive use of the beneficiary or buyer. Through a trust, you have all the benefits of direct ownership, including leasing or transferring your rights to the property to a third party or pre-appointed heir.
The trustee or bank is responsible to the beneficiary to ensuring fulfillment of the trust. The trustee assumes full legal and administrative supervision in order to protect the interest of the beneficiary or buyer.
The costs to establish a Fideicomiso trust vary from bank to bank. The range is approximately $1,000 to $1,500 U.S. dollars to set up the trust and between $300 and $500 U.S. dollars for yearly maintenance of the trust. These fees are paid directly to the bank that has your trust.
Owning property in Mexico throug a Mexican Corporation
Foreigners can also purchase non-residential property through a Mexican corporation. This method of buying in the restricted zone is more suited for properties destined for tourist, commercial and industrial use.
A Mexican corporation can be fully owned by foreigners. A Mexican corporation can own property, eliminating the need for a Tideicomiso trust and their respective fees.
Establishing a Mexican corporation is relatively simple and can be accomplished within 1 to 2 weeks and costing from $1,500 to $2,500 US dollars.
The role of the Notario Publico or Mexican Public Notary
A Public Notary is a government-appointed lawyer who processes and certifies all real estate transactions, including the drawing and review of all real estate closing documents, thus ensuring their proper transfer.
In Mexico, powers of attorney, the formation of corporations, wills, official witnessing, and real estate transactions are handled and registered through the office of the Public Notary, who also is responsible to the government for the collection of all taxes involved. Failure by a Notario Publico to properly calculate and withhold taxes or verify all documents can result in personal liability including criminal charges.
A Mexican Notario Publico must charge based on an established fee schedule. Percentages range from .015% to 1.12%, of the cost of the transaction.
The Buying Process
A real estate transaction usually begins when a written purchase offer is accepted by the seller and when a purchase-sale agreement (promissory contract) is signed by both parties.
In most cases, a customary 10% deposit on the total price is required to transmit the offer to the seller. There are escrow services available to hold these funds until the legal transaction is complete
The Public Notary or Notario Publico, receives the following official documents, which, by law, are required for any transfer of title:
- A non-lien certificate from the public property registry, based on a complete title search;
- A statement from the treasury or municipality regarding property assessments, water bills and other pertinent taxes that might be due;
- An appraisal of the property for tax purposes.
Once the above has been completed, the Notario will present you with a statement of remaining funds due. Once paid, the legal transfer papers are signed by the seller.
The entire closing process takes between 30 and 60 days.
Closing Costs
Closing costs are paid by the buyer. This includes a 2%, transfer tax, an average 2% for legal Notary fees, a registration fee, .05% of the assessed value of the property, fees for the tax certificate, and title search and property appraisal fees.
The seller pays all capital gains taxes and real estate agent commissions. Capital gains taxes are calculated at 35% of the difference between assessed values at the time of purchase and the sale price, with adjustments made for inflation and capital improvements.
Property taxes
Mexico’s property taxes are very low. Property tax, known as "predial", is based on .08% of the assessed value of your property, paid every bimester. The assessed value is determined at the time of the purchase.
Preparing for Future Capital Gains
Capital gains on the sale of real estate are treated as regular income and taxed at a rate of 35%. As a buyer you are eligible for a one time exemption from capital gains tax if you establish residency for 2 years after your purchase prior to selling.
To establish residency, you must have an FM3 (Resident Tourist Visa), and all utility and phone bills in your name for two years prior to selling. FM3 Visas are issued from Mexican Immigration and are not difficult to obtain.
