Tulum, Cabo, Cancun, and Playa del Carmen are not only wonderful vacation destinations in Mexico, they are also very attractive destinations for American investors. Clients interested in acquiring real estate in Mexico, often inquiry about recommended structures to acquire real estate in coastal Mexico and the tax implications from such investments.
This article provides a general overview of the process to acquire real estate in Mexico, as well as the most common legal and tax implications with respect to such investments in the U.S. and Mexico.
Generally, non-Mexican citizens can legally acquire real estate within Mexico areas. Although Mexican law may prohibit such investors from directly acquiring or holding real estate in certain areas of Mexico. This restriction is established in the Mexican Constitution and applies to an area known as the “restricted zone” (zona restringida). This area encompasses 100km (approx. 62 miles) in the border area and 50km across the coastal zone of Mexico (approx. 31 miles). Under the applicable Mexican law, non-Mexican citizens cannot directly hold real estate in the restricted zone. For example, a U.S. investor may not acquire real estate in any of the coastal areas of Mexico and hold it for residential purposes.
Fortunately for foreign investors, there are legal avenues to overcome these restrictions. A U.S. investor seeking to acquire real estate within the restricted zone, may seek to acquire the property through a “Mexican Trust” (fideicomiso). A fideicomiso has the flexibility for real estate acquisitions or the pursuit of certain business endeavors, such as construction in Mexico.
A Mexican Trust created by a U.S. investor to acquire real estate within the restricted zone serving purpose is to hold title to the property. The Mexican Trust has three participants: (i) a fideicomitente (or grantor) who is the foreign investor that contributes the assets to acquire the real estate in Mexico, (generally cash); (ii) the fiduciario (or trustee), which is a licensed financial institution in Mexico that will act as a trustee of the assets contributed by the fideicomitente, and who will use such assets to acquire the real estate; and, (iii) the fideicomisario is the beneficiary of the Mexican Trust. The beneficiary is often the same individual as the grantor.
Once the foreign investor (grantor) contributes money or assets to the Mexican Trust, the Trustee will allocate such assets to acquire the real estate. The Mexican Trust holds title and ownership of the property. However, under the terms of the Mexican Trust, the foreign investor is allowed to use the real estate, sell the property, and collect rents from occasional leasing.
Mexican Tax Implications Of A Mexican Trust