Advantages of Mexican corporation vs. banktrust for real estate ownership

This is a question asked by many foreigners looking to acquire property in Mexico.

Therefore I have cut and pasted directly from the following article appearing 30 April, 2016, in The Yucatan Times – http://www.theyucatantimes.com/2016/04/advantages-of-mexican-corporation-vs-banktrust-for-real-estate-ownership/

————————————

Advantages of Mexican corporation vs. banktrust for real estate ownership

SHARE THIS
  • Add to Delicious

TAGS

There was once a time that Canadians or Americans were restricted from buying property in Mexico that was 50 km from any coastline or 100 km of a neighboring country. This zone meant that nobody other than Mexican nationals were allowed to invest in lands located within these areas. However, times have changed and the coastal and border areas that used to be restricted from foreign investment have opened. This occurred when the government decided to start issuing something called a fideicomiso, which is basically a banktrust. The fiedicomiso was created to allow foreign investors to participate in Mexico´s rapidly expanding sectors while exercising complete and legal control over their investments while complying with Mexico’s investment laws.

A banktrust is a property interest held by a Mexican bank whose sole purpose is to manage the property for the benefit of the owner. It is essential to remember that although the bank legally acts as the trustee and holds the title, your property is not an asset of the bank. The beneficiary has every legal right to occupy, rent, modify or inherit the property as they wish. Trusts are set up for a 50 year period and is renewable, allowing the purchaser to continue enjoying the benefits from their property. The term of a banktrust is 50 years, but don´t worry because you can extend it once you reach year 48 or 49 and extend it for another 50 years.

The first step to becoming a homeowner in the restricted zone is to find a bank or financial institution to hold the trust. Once you have found it, it is essential to sign a Trust Agreement where both parts agree how the trust will be held and what benefits you will enjoy as the first beneficiary. There will be an initial fee to pay for drawing up the agreement, which is usually around $700 USD, but it will depend on the property and institution.

There are three parties to the banktrust. There is the financial institution who owns the property, the first beneficiary (that would be you) and a second beneficiary who is anyone you want to pass the property to in case you or your partner passes away. When you own a property in Mexico underneath a banktrust you have all rights to that property. You can extend it, you can remodel it, and you can sell or take out a lease on this property. And it’s protected by the Mexican Constitution.

The other way to become a titleholder is through a Mexican corporation. Unlike a banktrust, where you must inform the bank if you want to sell, rent, or do modifications to your property, a corporation allows you to retaining absolute control. Mexican corporation is great if you want to rent out your property. Remember that as a US citizen you must report all property while Canadian citizens must report property over $100,000 USD.

Both options are simple. Incorporation can be set up in a week and you can incorporate under whatever name you wish. It is also cheaper to set up but you are required to file monthly statements. You need a minimum of two shareholders and can have as many properties as you want and you can operate a business under the same corporation. Work from home or run an internet business, while enjoying dividends and tax advantages that come with it.

Owning a property in Mexico is possible. I always advise my clients to talk to a reputable lawyer, so they can discuss all their options and decide whether a Banktrust or Mexican corporation is right for them and their needs.

By Thomas Lloyd for TYT

Thomas Lloyd

Thomas Lloyd, from Indiana, is a graduate from the prestigious Krannert School of Management at Purdue University, where he obtained a degree in Administration with the Financial Management option. He has been working professionally in Mexico since 1995, and in 2011 he was the first person to ever attain a new nationally regulated Real Estate degree and professional identification number for the Country of Mexico. In 2009 he was voted Realtor of the year, because of his professionalism, attention to customers and knowledge of procedures and the market. Also, he has been active in the real estate community serving on the real estate association’s Honor and Justice Committee. Thomas founded TOP Mexico Real Estate to help non-Mexicans have an enjoyable and safe experience as they purchase and invest in real estate in Mexico.

————

The one thing not clearly addressed in this article are the costs associated with each. With the fideicomiso, or bank trust, in addition to the setup fee (listed as 700usd in the article) there is a yearly fee paid to the banking institution (on my home this fee is just over 6000mxp). There is also a fee paid when and if you dissolve the trust.

If you choose to open a Corporation you must retain a lawyer, and an accountant, who are supposed to make monthly reports and payments to hacienda on your Corporation on your behalf.

Advertisements

About Debi in Merida

I moved from Colorado Springs, Colorado USA to Merida, Yucatan, MX in January 2006. I love to read, garden, travel, and hang out with friends.
This entry was posted in Everyday Stuff and tagged . Bookmark the permalink.

2 Responses to Advantages of Mexican corporation vs. banktrust for real estate ownership

  1. yucalandia says:

    A few more insights come to mind on this:
    Then consider other realities of life in Mexico:
    ~ Realtors often prefer corporations because they are generally the fastest route to receiving commissions.

    ~ Realtors generally have a partner-attorney, who pays the realtor kick back fees for establishing a corporation.

    ~ Capital gains taxes are 35% for corporations.

    ~ All property held by a corporation is subject to this tax.

    Contrast those big $$ expenses for a corporation vs a normal fideicomiso:
    If you hold the property in a fideicomiso trust for more than two years and can demonstrate it was a primary domicile in Mexico (light, water or phone bills in your name), … the tax is just 5% of the sales price.

    This expert clearly has not kept up with significant Mexican laws… ???

  2. yucalandia says:

    Hi Debi,
    Odd that the ‘expert’ does not describe the significant $$ disadvantages of owing Mexican property using a Corporation.

    The tax consequences are severe when selling the property.
    The entire sale price can be taxed at 35%…

    There is NO option for taking a ‘homeowner’s exemption’ to eliminate taxes on the gains.

    Mexican law requires that corporations have a managing partner with a continuous residente visa.

    Mexican law requires monthly corporate reporting of financial activity using only certified accountants.

    Those are the basics I know off the top of my head … so there may be more consequences…

    Happy Trails,
    steve

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s