History of Property Ownership in Mexico
To appreciate the the history of property ownership in Mexico, a short history telling is in order. In 1517, Francisco Hernández de Córdoba, sailed from Spain to the Yucatan Peninsula leading an expedition in search of new land and resources to exploit. Within a month's time, the foreigners from Spain landed and laid claim to Mexican land. It was not until 1810, when what started as a peasant rebellion against their masters turned to the revolt against the Spanish Colonial Authorities and ended in 1822 to be known as The Mexican War of Independence. The cost to this newly found independence were the loss of countless lives, but even then the lands in Mexico were still controlled and owned by the Church, the Mexican upper class and wealthy foreigners.
Are you familiar with the history of the Mexican Revolution? Over a period of 30 years during his presidency, former President José de la Cruz Porfirio Díaz Mori sold considerable amount of land to foreigners. This component of economic growth under Diaz involved motivating foreign investors to purchase properties in the mining sector through tax waivers and other incentives. Although, the isolated region of Baja California Sur benefited from this with the establishment of the town of Santa Rosalia and the El Boleo copper mine, this turned out to be one of the root causes of economic instability that ensued from the dispossession of hundreds of thousands of peasants of their land. This produced a sudden rise and drop of economic growth that caused severe destitution of copious rural areas.
This state of affair was the engine for the Mexican Revolution of 1910. Under Article 27 of the amended 1917 Mexican Constitution; laws and restrictions prohibit foreigners from owning property within 60 miles of the border and 30 miles from the ocean. These areas are known as the "restricted zones" and the entire Baja Peninsula is considered a restricted zone. The Constitution however allows Mexican Nationals and Mexican Companies to own property in these areas. In the early 1930's, former President Lázaro Cárdenas introduced the Ejido system to the people, which are areas of communal land to be solely used for agriculture, while it remained under the control of the Federal Government. In 1992 and again in 1998, Article 27 was amended by ending land redistribution, permitting the people to rent or sell Ejido land (allows the owner of record to sell/lease the property to a non-Ejido member), and allowing both foreigners and corporations to buy land in Mexico. This allowed properties to be removed from the National Agrarian Registry or Federal Government control and placed in the public land registry allowing it to be sold or leased.
Are you familiar with the history of the Mexican Revolution? Over a period of 30 years during his presidency, former President José de la Cruz Porfirio Díaz Mori sold considerable amount of land to foreigners. This component of economic growth under Diaz involved motivating foreign investors to purchase properties in the mining sector through tax waivers and other incentives. Although, the isolated region of Baja California Sur benefited from this with the establishment of the town of Santa Rosalia and the El Boleo copper mine, this turned out to be one of the root causes of economic instability that ensued from the dispossession of hundreds of thousands of peasants of their land. This produced a sudden rise and drop of economic growth that caused severe destitution of copious rural areas.
This state of affair was the engine for the Mexican Revolution of 1910. Under Article 27 of the amended 1917 Mexican Constitution; laws and restrictions prohibit foreigners from owning property within 60 miles of the border and 30 miles from the ocean. These areas are known as the "restricted zones" and the entire Baja Peninsula is considered a restricted zone. The Constitution however allows Mexican Nationals and Mexican Companies to own property in these areas. In the early 1930's, former President Lázaro Cárdenas introduced the Ejido system to the people, which are areas of communal land to be solely used for agriculture, while it remained under the control of the Federal Government. In 1992 and again in 1998, Article 27 was amended by ending land redistribution, permitting the people to rent or sell Ejido land (allows the owner of record to sell/lease the property to a non-Ejido member), and allowing both foreigners and corporations to buy land in Mexico. This allowed properties to be removed from the National Agrarian Registry or Federal Government control and placed in the public land registry allowing it to be sold or leased.
Can Foreigners own property in Mexico?
Yes! You have two options
Option 1: Leasing Land in Mexico
Buying property as a Land Lease means that you are only buying the “improvements” or the construction of any structure on the land but you still pay a monthly fee for use of the land for periods of up to 10 years. Mexican law indicates that any lease lasting an excess of 10 years are illegal and not binding in Mexico. If you are considering buying into a land Lease, have in mind that at the end of the lease term the land owner has every right not to renew. Owning a home as a land lease can be a good option when you can’t afford or don’t want to make the big investment of a Bank Trust, but always do your research before making this decision. There are a lot of things you can do to make sure your land lease investment is a safe one. Talking to members of the community you are looking into is a good way to get started. Make sure to ask as many members of the community how the property owner in question conducts business before leasing the property. Speaking with the owner or Realtor and get a copy of the actual lease agreement so you can review the details of how the lease is structured. The Mexican families who usually lease in these communities have been around for decades and have upheld their agreements but you want to make sure you are comfortable with your choice.
Lease Land Fees
If you have decided that the Land Lease option is what you want you can expect the rent to start from $150.00 to $600.00 USD a month, depending on the area. If you stay to the remainder of your lease and negotiate another lease term you will usually be required to pay a “cost of living adjustment” when your first lease term expires which is usually minimal. If you decide to sell the structure you will have to pay the land owner a 10% fee and the buyer will most likely have an increase in the rent as well that is usually a 10% increase. This information is in general and the lease agreements will vary with each landlord.
Know Your Tenant Rights
For more information on Mexico's Codigo Civil Federal or Mexican Federal Civil Codes, visit http://www.gobernacion.gob.mx/. Book Four (Obligation or Contracts) of the Codigo Civil Federal pertains to: contracts, special obligations and their effects, leases, agency, professional services, associations and companies, mortgages, credits and public registry. The most important item to consider here regarding landn leases and improvements upon it will be the Lease Agreement and it's particulars, making certain that the Tenant and Landlord enter into a fair and legally protected contract in observance of the legal requirements of the Codigo Civil Federal. To date, we have not found a website that will provide a total and complete translation of Mexico's Codigo Civil Federal or the Mexican Federal Civil Codes. However, there are web browsers such as Google that will translate some of the text for you. Here is an additional website link to WIPO which has the best translation tool so far.
Option 1: Leasing Land in Mexico
Buying property as a Land Lease means that you are only buying the “improvements” or the construction of any structure on the land but you still pay a monthly fee for use of the land for periods of up to 10 years. Mexican law indicates that any lease lasting an excess of 10 years are illegal and not binding in Mexico. If you are considering buying into a land Lease, have in mind that at the end of the lease term the land owner has every right not to renew. Owning a home as a land lease can be a good option when you can’t afford or don’t want to make the big investment of a Bank Trust, but always do your research before making this decision. There are a lot of things you can do to make sure your land lease investment is a safe one. Talking to members of the community you are looking into is a good way to get started. Make sure to ask as many members of the community how the property owner in question conducts business before leasing the property. Speaking with the owner or Realtor and get a copy of the actual lease agreement so you can review the details of how the lease is structured. The Mexican families who usually lease in these communities have been around for decades and have upheld their agreements but you want to make sure you are comfortable with your choice.
Lease Land Fees
If you have decided that the Land Lease option is what you want you can expect the rent to start from $150.00 to $600.00 USD a month, depending on the area. If you stay to the remainder of your lease and negotiate another lease term you will usually be required to pay a “cost of living adjustment” when your first lease term expires which is usually minimal. If you decide to sell the structure you will have to pay the land owner a 10% fee and the buyer will most likely have an increase in the rent as well that is usually a 10% increase. This information is in general and the lease agreements will vary with each landlord.
Know Your Tenant Rights
For more information on Mexico's Codigo Civil Federal or Mexican Federal Civil Codes, visit http://www.gobernacion.gob.mx/. Book Four (Obligation or Contracts) of the Codigo Civil Federal pertains to: contracts, special obligations and their effects, leases, agency, professional services, associations and companies, mortgages, credits and public registry. The most important item to consider here regarding landn leases and improvements upon it will be the Lease Agreement and it's particulars, making certain that the Tenant and Landlord enter into a fair and legally protected contract in observance of the legal requirements of the Codigo Civil Federal. To date, we have not found a website that will provide a total and complete translation of Mexico's Codigo Civil Federal or the Mexican Federal Civil Codes. However, there are web browsers such as Google that will translate some of the text for you. Here is an additional website link to WIPO which has the best translation tool so far.
Option 2: Fideicomiso
Most foreign investors are familiar with purchasing a property through a "Fideicomiso", a Mexican Trust. The Mexican Government issues a permit to a Mexican Bank of the Buyer's choice, authorizing the bank to act as Purchaser for the property. The bank acts as the "Trustee" for the Trust and the Buyer is the "Beneficiary" of the Trust. The "Beneficiary" has the right to use, occupy and possess the property, including the right to build on it or otherwise improve it. The Beneficiary may also sell the rights and instruct the trustee to transfer title to a qualified owner. The Trust Law and all new agreements have been amended to a fifty year period with further renewals of the Trust for additional fifty year periods. The property owner or "Beneficiary" has the obligation to pay the annual Trust fees to the bank holding the Trust on their property. The Annual fees vary between $500 and $700 USD and subject to reappraisal by the bank every year or two. The "Beneficiary" has the responsibility of paying the Annual Property Tax bill. Unfortunately, the property tax departments in Mexico does not send out bills, so it is essential for the property owner to go to the property tax office to pay the bill or send someone in their stead.
Closing Costs and Taxes
We highly recommend going through the proper channels because it will save you a lot of headache and money in the long run, specially in cases of possible unknown property liens. Just as purchasing a home in the United States and Canada there are closing cost involved that will vary between 4% to 6% of the purchase price which may include but not limited to the following: Appraisal, Foreign Relations Permit, Bank Administration Fees, Title Search, Transfer Tax, Settlement Costs, Notary Fees and Value Added Tax – I.V.A. The last but not least by any means is the Capital Gains Tax, what you do today dictates your tax liabilities tomorrow. It is imperative to understand how Capital Gains Tax will affect you before you make the purchase in case you need to sell the property in the future, this could result to a 20% or 30% tax liability of the transaction.
Tax Jurisdiction
When owning a property through the Fideicomiso, it is important to note that if you are a resident of the U.S, you may be subject to the Foreign Account Tax Compliance Act (FATCA). Please consult with a qualified tax consultant on these applicable laws. This information can be found from the United States IRS website and can be read in a simplified form at Bajainsider.com.
***It is against Mexican law for a foreigner to own property in a Mexican corporation for residential purposes. You can own a property in a Mexican Corporation and take title fee only if the property is for development or investment purposes.You cannot own property through Mexican Corporation to by-pass the Trust process.
*These information are by no means exact, complete and subject to change, we have supplied this information to better help our clients understand the basic outline of the trust and tax laws regarding their real estate endeavors.
Most foreign investors are familiar with purchasing a property through a "Fideicomiso", a Mexican Trust. The Mexican Government issues a permit to a Mexican Bank of the Buyer's choice, authorizing the bank to act as Purchaser for the property. The bank acts as the "Trustee" for the Trust and the Buyer is the "Beneficiary" of the Trust. The "Beneficiary" has the right to use, occupy and possess the property, including the right to build on it or otherwise improve it. The Beneficiary may also sell the rights and instruct the trustee to transfer title to a qualified owner. The Trust Law and all new agreements have been amended to a fifty year period with further renewals of the Trust for additional fifty year periods. The property owner or "Beneficiary" has the obligation to pay the annual Trust fees to the bank holding the Trust on their property. The Annual fees vary between $500 and $700 USD and subject to reappraisal by the bank every year or two. The "Beneficiary" has the responsibility of paying the Annual Property Tax bill. Unfortunately, the property tax departments in Mexico does not send out bills, so it is essential for the property owner to go to the property tax office to pay the bill or send someone in their stead.
Closing Costs and Taxes
We highly recommend going through the proper channels because it will save you a lot of headache and money in the long run, specially in cases of possible unknown property liens. Just as purchasing a home in the United States and Canada there are closing cost involved that will vary between 4% to 6% of the purchase price which may include but not limited to the following: Appraisal, Foreign Relations Permit, Bank Administration Fees, Title Search, Transfer Tax, Settlement Costs, Notary Fees and Value Added Tax – I.V.A. The last but not least by any means is the Capital Gains Tax, what you do today dictates your tax liabilities tomorrow. It is imperative to understand how Capital Gains Tax will affect you before you make the purchase in case you need to sell the property in the future, this could result to a 20% or 30% tax liability of the transaction.
Tax Jurisdiction
When owning a property through the Fideicomiso, it is important to note that if you are a resident of the U.S, you may be subject to the Foreign Account Tax Compliance Act (FATCA). Please consult with a qualified tax consultant on these applicable laws. This information can be found from the United States IRS website and can be read in a simplified form at Bajainsider.com.
***It is against Mexican law for a foreigner to own property in a Mexican corporation for residential purposes. You can own a property in a Mexican Corporation and take title fee only if the property is for development or investment purposes.You cannot own property through Mexican Corporation to by-pass the Trust process.
*These information are by no means exact, complete and subject to change, we have supplied this information to better help our clients understand the basic outline of the trust and tax laws regarding their real estate endeavors.
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