Frequently Asked Questions
How can I, as a foreigner, own property in the Restriced Zone in Mexico?
To own a property in the Restricted Zone a trust, called a Fideicomiso could be set up, with the foreigner as the beneficiary.
Another way to own a property in the restricted Zone is by creating a Mexican Corporation.
What is a Fideicomiso and why do I have to use it to buy a property?
The History of the Restricted Zone and Fideicomisos
In an attempt to avoid some of the problems Mexico had to deal with in the past with regard to its territorial rights, the 1917 Mexican Constitution enacted restrictions on property ownership by foreigners. Basically the law declared that the Mexican nation has original ownership to all land and water in Mexico, as well as minerals, salts, ore deposits, natural gas and oil, but that such ownership may be assigned to individuals.
The Mexican Constitution prohibits direct ownership of real estate by foreigners in what has come to be known as the "Restricted Zone". The Restricted Zone encompasses all land located within 100 kilometers (about 62 miles) of any Mexican border, and 50 kilometers (about 31miles) of any Mexican coastline.
A Real Estate Trust
In order to permit foreign investment in these areas, the Mexican government created the fideicomiso, which can be roughly translated as a real estate trust. Essentially, this type of trust is similar to trusts set up in the United States, but in this case a Mexican bank must be designated as the trustee, and, as such, has title to the property and is the owner of record. The Mexican Government created the fideicomiso to reconcile the problems involved in developing the restricted zone and attracting foreign capital. This enabled foreigners, as beneficiaries of the trusts, to enjoy unrestricted use of land located in the Restricted Zone.
A fideicomiso is a trust agreement created for the benefit of the foreign buyer, executed between a Mexican bank and the seller of property in the Rrestricted Zone. Since foreign buyers do not have the capacity to enter into a normal real estate sales contract, due to Constitutional restrictions, the bank acts on their behalf.
The bank, as trustee, buys the property for the foreigner, and has a fiduciary obligation to follow instructions given by the beneficiary. The beneficiary of the trust retains and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is the beneficiary of the trust and is entitled to use, enjoy and, if he or she should decide to, even sell the property held in trust at its market
value to any eligible buyer.
In summary, the following parties are involved in a real estate trust:
- The seller of the property, or trustor (el fideicomitente) who irrevocably transfers title to the property to the bank.
- The bank, who acts as trustee (el fiduciario) and holds title to the property and is obligated to administer the property only for the benefit of the buyer or beneficiary.
- The buyer, or beneficiary (el fideicomisario) who is entitled to use, enjoy, lease, or sell the property held in the real estate trust without limitation whatsoever.
- excerpted from "How to Buy Real Estate in Mexico"
(c) 1994 by Dennis Peyton
Is there any restriction on the size of land I'm purchasing by means of a fideicomiso?
Yes, according to article 14 of the Foreign Investment Law, the Ministry of Foreign Affairs shall determine the permits for setting up a Bank Trust on a piece of land over 2000 square meters according to the economic and social benefit of that trust to the Nation. In other words, they require a commitment letter from the beneficiary of the trust to invest a certain amount of money on the property in order to grant the permit for the Fideicomiso. (Again, this is for pieces of Land over 2000 square meters. Smaller plots of land have no such requirements.)
What are the requirements for the creation of a trust agreement or fideicomiso?
A Trust Requires:
- Authorization from the Secretary of Foreign Affairs that is provided for in Article 11 of the Mexican Foreign Investment Law.
- A trustee bank
- A deed attested and certified by a Mexican Notary, who is obligated to assure the authenticity and lawfulness of the transaction.
What is the subject matter of the trust?
The subject-Matter of the trust consists of real property transferred by the trustor to the trustee (institution), as well as any construction, buildings and improvements, if appropriate, made by and on account of the beneficiary.
What is a Corporation?
As in many countries worldwide, a corporation is a legal entity for commerce purposes, and has legal life apart from the individual shareholders. In Mexico, one person cannot own a corporation. A Mexican corporation requires at least two shareholders.
What are the differences between owning a property through a Mexican corporation and owning it in a fideicomiso?
Either way is legal, but, there is a list of limitations for the creation of the fideicomiso.
A Mexican corporation, wholly owned by foreigners, can be the Mexican entity required by the Constitution to own property in the Restricted Zone. Foreigners can own the Mexican corporation and hold all the papers to it. Your Mexican corporation holds the deed, which means, you can have the deed in your physical possession. You do not need to go through the bank to get approvals to build, sell, or improve your property and there are no bank fees.
An added benefit to establishing a Mexican Corporation is that your corporation can own more than one property. You do not need to form a separate corporation for each property, as is the case with the bank trust system, where each property needs to have a separate fideicomiso. If you should decide to sell your property in the future, you can sell your entire corporation, sell part of it, or sell just the property and keep your corporation.
Also, after you buy property via the Corporation system, you are permitted to file a dormancy election, which means, your company is "asleep", until you decide to activate it.
The government intentionally has made it very easy for foreigners to own property in Mexico.
What do I have to do before I buy a property?
We recommend to our clients that we perform a thorough Title Search. In most cases, we also recommend that we perform a Due Diligence on the property.
How are the properties zoned?
As in the United States, zoning in Mexico varies from one area to another. At your request, Yucatan Lawyers will verify the zoning of your desired property before the agreements are signed, so that you can be sure of the permitted use of your property prior to closing.
What is the role of the Notary Public in Mexico?
The Notary Public is the most important person you will deal with when you make a property investment in Mexico.
Do not confuse the role of the Notary Public in the US or UK with its counterpart in Mexico: they are quite different. In the UK for example, almost anyone can become a Notary Public. Not so in Mexico! Here the role is appointed directly by the State Governor (the highest seat in State Public Office).
The Notary Public has the power to witness and certify important business documents which require absolute authenticity. The appointment also holds responsibility for the management and secure storage of original records. Notary Publics must be Mexicans, they must have a degree in Law, they must have work experience at a Notary Public office and they must pass a stringent exam. Those who pass, in time, are appointed as Notary Public by the State Governor.
Under Mexican Law, the deed to the property must be prepared by a Notary Public. The Notary Public will ensure that all documentation and permits are in order so that the transaction can proceed.
Yucatan Lawyers work with the best Notary Publics in the Yucatan Peninsula, so you can be sure that all your transactions will be safe.
What is an FMT Visa?
The FMT VISA is the Short-Term Non-Immigrant Visa that every visitor receives upon entering Mexico.
Short term visas are intended for visitors to Mexico who come to stay for 6 months or less. Usually these visas are given to tourists and business travelers on short-term business trips. FMT visas are issued by airlines and are also available at ports of entry.*
For trips of longer than 6 months, a non-immigrant or immigrant visa is required-- see the Questions and Answers below for details.
What is an FM3 Visa?
The FM3 VISA is the Long-Term Non-Immigrant Visa.
Mexico provides the FM3 Vsa, which is a renewable long term (more than 6 months) permit which gives non-immigrant temporary residency status to the holder. This means that it gives a person the right to live in Mexico (under the terms set out in the visa) but it does not lead to, and cannot be converted to, a visa leading to permanent residency.
There are various categories under which FM3 visas are granted, and these relate to the activities you intend to undertake while in Mexico. Under the terms of the FM3, you are authorized to only undertake certain, specific activities which may be lucrative or non-lucrative, depending on the visa's classification.
One of the criteria that the Mexican authorities require for the issuance of a FM3 Visa is that the applicant prove that they have 'sufficient funds to sustain themselves while in Mexico' and/or a proven steady income. There is no official minimum or maximum amount -- every application appears to be dealt with on a case-by-case basis. Proof of funds and/or income is usually requested by means of bank account statements, proof of investment income, credit cards, or a combination of these.
Once applied for and granted, the FM3 may be renewed for an additional four years (for a total of five years). After this period, a new FM3 may be applied for and, if granted, will serve for another (max) five year period, renewable annually.
The FM3 visa may not be exchanged automatically for a visa leading to permanent residency (FM2). The FM2 visa must be applied for separately. Any years accrued under a FM3 visa are not transferable towards FM2-residency status (see FM2 Heading, below, for details).
What is an FM2 Visa?
The FM2 visa is an Immigrant Visa, intended for people seeking permanent residency status in Mexico or those seeking Mexican Citizenship.
There are various categories under which FM2 visas are granted, and these relate to the activities you intend to undertake while in Mexico. Under the terms of the FM2, you are authorized to only undertake certain, specific activities which may be lucrative or non-lucrative.
You must hold an FM2 for a full consecutive five-year period before you may apply for "immigrant" status or Mexican Citizenship. You do not need to have held an FM3 visa before applying for an FM2, and any years you may have accrued while living in Mexico under an FM3 permit do not count towards your five-year FM2 qualification period.
If your goal is to seek long-term residency in Mexico, or to become a Mexican Citizen, you should apply for FM2 status (or request a change of status from FM3 to FM2) so that your time starts counting towards the qualification period as soon as possible. You may apply for a FM2 visa while in Mexico and in possession of a FMT (Tourist/Business Visitors Visa) or a FM3.
Following the five-year qualification period, you may apply for full resident status. When your full residence status has been accepted, you are entitled to full rights (e.g. access to IMSS sickness pay) and responsibilities (e.g. pay income taxes) as any other Mexican Citizen, with the exception of the right to vote. Foreigners are not allowed to involve themselves in "internal Mexican affairs" and they may not be post-holders of any public office.
When your full residence status has been accepted, you may also begin your application for Mexican Citizenship, although you do not have to do this; you can remain a 'resident alien' on a FM2 visa. Upon receiving immigrant status, you will receive a document that looks like a Mexican Passport (the actual FM2 visa). Under Mexican law, you do not need to surrender your national passport. You may remain a resident-alien or apply for Mexican citizenship. You will keep your original passport, which you will use when you return to your home country, for visits, or when returning home permanently.
If you hold a FM2 visa and stay outside of Mexico for longer than 2 years, or for 5 years in any 10 year period, you will lose your permanent resident status in Mexico.