Buying Property in Mexico: Fideicomiso or Corporation?
If you are considering buying a property in Mexico, there is more to think about than just the price and location. You need to consider how you will be using the property. Will you be using it for vacations for you, your family and friends? Or will you be purchasing it as an investment with the plan of renting it out. Why does it matter? Because knowing how you will use the property will help you determine what legal process you should use to obtain the property – A fideicomiso (bank trust) or a Mexican Corporation.
Fideicomiso (Bank Trust)
All foreign individuals purchasing property in a restricted zone (within 100 km of the Mexican border or 50 km from the coast) must purchase the property using a fideicomiso (bank trust).
Fideicomisos should be considered by foreigners who:
✔ Will use their property for personal use (will not receive rental income).
✔ Are considering obtaining Mexican residency.
✔ Will rent their property for income and have Mexican residency.
If you plan on renting your property for income, you need to consider your Mexican tax obligations. One of the requirements for anyone earning income in Mexico is that you must declare any and all income with the tax authorities. To declare taxes, you must register with the authorities and obtain a Mexican tax ID known as an RFC. RFCs are only available for foreigners with Mexican residency, Mexican citizens, or Mexican corporations.
Some property owners without residency who rent their properties held in a bank trust do so via online rental companies such as AirBnb. However, without an RFC, the online rental companies are required to retain 36% in taxes.
If you are planning on renting your property but not planning on obtaining Mexican residency, you may want to consider the next option.
Another option for foreigners buying real estate is to open a Mexican corporation. By creating a Mexican corporation, foreigners can avoid the fideicomiso process as the property would be purchased by the Mexican corporation. Mexican corporations should be considered by foreigners who:
✔ Plan to rent their Mexican property for income
✔ Plan to purchase more than one rental property
✔ Have no plans to obtain Mexican residency
When renting a property owned by a Mexican corporation, the corporation will be issued a Mexican tax ID (RFC) and make monthly income declarations. There is a lot more involved in owning a Mexican corporation so it is important to discuss this option in detail with a qualified Mexican attorney.
Making a Decision
Whether renting your Mexican property for income or using it as a vacation destination for you and your family, it is important to know the options available to you. It is also important to understand which option best fits your needs. You should always have a professional attorney discuss and review your options with you. To learn more about which option is best for you, please contact the Mexican legal team at Mexlaw. Our experienced team of professionals is best equipped to help you make the right decision for your purchase.
For information, please contact us here.