Relevant aspects of cases in real estate for foreigners in Mexico: Real Estate in Mexican Beaches.

In Mexico, foreigners[1] are prohibited from acquiring direct ownership over land and water, so they solely can use and take advantage of real estate[2] located in the restricted zone of 100 and 50 kilometers along the Mexican borders and along the beaches, respectively.[3]

Nonetheless, in order to use, take advantage of and possess (without ownership rights) real estate on Mexican beaches, such foreigners may create trusts, with a duration of 50 years, extendable for an equal period[4], in which, with prior authorization from the Ministry of Foreign Affairs of Mexico[5], credit institutions acquire as trustees, rights over real estate located within the aforementioned restricted zone, whose purpose is that said foreigners use and take advantage of such assets without constituting real rights or property[6] or dominion over them[7], and the trustees are Mexican companies without an exclusion clause for foreigners[8] and foreign natural or legal persons.

If there is doubt as to whether a property is located inside or outside the restricted zone, the Ministry of Foreign Affairs, after consulting the National Institute of Statistics, Geography and Informatics (as known as by its Spanish acronym as “INEGI”), will resolve the matter.[9]

Derived from the above, the purchasers of real estate in restricted areas are trust credit institutions and not foreigners, so the legal and tax burdens for the acquisition of real estate are for said trustees. It means, foreigners will lack real rights over the trust estate, that is, over the real estate on the Mexican beach and, consequently, legal interest to claim any jurisdictional act that affects those rights[10]. Nevertheless, any of the economic burdens derived from the legal and tax obligations triggered by the trust for the acquisition of real estate, may be transferred by the trustee to the foreign trustee, so the latter assumes the corresponding expense and does not become a cost for the trustee.

Where appropriate, the foreign trustee will have the right to discuss or claim the breaches that the trustee has with respect to its contractual relationship in the trust[11], but not on the property or real rights of the type of real estate in question.

On the other hand, with respect to the tax obligations that are triggered by the purchase and sale of real estate in restricted areas, it is necessary that as far as the seller is concerned, he will be subject to income tax, which will be withheld by the notary public involved in the formalization of the operation and can reach up to 35% of the profit obtained by the transfer of ownership[12] of the property (difference between the acquisition value and the sale value of the property).

The effects and obligations of payment may vary depending on the tax regime of the selling taxpayer, it means, if it is an individual or a company, if it is a tax resident in Mexico or abroad[13], as well as by the type of property and its destination or use. The seller must issue the invoice or tax receipt of the sale[14].

As far as the purchaser is concerned, it means, the trustee, in this case, must pay the applicable state taxes, which are the tax on the acquisition of real estate and the property tax. The property acquisition tax applies when a person or entity acquires ownership of a property over the market value of the property or the agreed sale price, so it only applies once. On the other hand, property tax is a tax on the ownership of a property, whose basis is the cadastral value of the property, which is determined by applying unit values of land and buildings, on the surface of your property and is paid bimonthly.

For further information please contact:

Kennya Ramírez, Sr. Consultant, Legal Prosecutor, ECOVIS Mexico, Mexico City, Mexico
Email: kennya.ramirez@ecovis.mx

1 –  Article 33 of the Political Constitution of the United Mexican States.
2 –  Article 750 of the Federal Civil Code.
3 –  Article 27, section I, of the Political Constitution of the United Mexican States.
4 –  Article 13 of the Foreign Investment Law.
5 – https://sre.gob.mx/permiso-para-constituir-un-fideicomiso-en-zona-restringida
6 – Article 830 of the Federal Civil Code.
7 – Article 11 of the Foreign Investment Law.
8 – Article 10 of the Foreign Investment Law. The foreigner exclusion clause: the express provision contained in the bylaws of a company, which establishes that foreigners will not be allowed, directly or indirectly, to be partners or shareholders of the company.
9 – Article 6 of the regulations of the Foreign Investment Law.
10 – Case Law: XXVII.3o.10 C (10a.). Registration No. 200 7764.Location: Tenth Epoch. Instance: Collegiate Circuit Courts. Source: Judicial Weekly of the Federation and its Gazette. Book 11, October 2014, Volume III. Page: 2852. Isolated thesis. Subject(s): Common. – “TRUST ESTABLISHED TO ALLOW FOREIGNERS TO USE AND TAKE ADVANTAGE OF REAL ESTATE LOCATED IN THE RESTRICTED ZONE. THESE TRUSTEES LACK REAL RIGHTS OVER THE TRUST ASSETS AND, THEREFORE, LEGAL INTEREST TO CLAIM THROUGH THE AMPARO PROCEEDING THE JURISDICTIONAL ACTS THAT AFFECT THOSE RIGHTS.”
11 – Articles 381 to 394 of the General Law on Securities and Credit Operations.
12 – Article 14-B of the Federal Tax Code.
13 – Article 9 of the Federal Tax Code.
14 – Articles 29 and 29-A of the Federal Tax Code (tax residents in Mexico and tax residents abroad with a permanent establishment in the country).