Fideicomiso or Mexican Corporation?

Source: Q-Roo Paul

Dear Q-Roo Paul: “Why did you chose to create a bank trust [fideicomiso] when you bought your condo instead of forming a Mexican corporation and holding the deed under that?” — Reader from Houston, TX

The short answer is that the fideicomiso was our only legal option because our condo was purchased for residential use.

If the short answer was enough to satisfy your curiosity, feel free to stop reading and go enjoy your day. However, if you’d like a bit more explanation and perhaps some hyperlinks to the applicable laws, I recommend that you keep reading.

Long Answer

I’m going to back up a little for those readers who have absolutely no idea what this post is about.

This post is referring to foreigners purchasing property in the restricted zone in Mexico. The restricted zone is the land within 50 kilometers of any coast or 100 kilometers of any border. Foreigners are prohibited by the Mexican constitution from having direct ownership over property in this area.

Don’t worry, your dream of having a beach house in the Riviera Maya is not dead. Fortunately, Mexico created two ways that foreigners could still purchase property in the restricted zone: 1) by creating a bank trust, known as a fideicomiso; or 2) by forming a Mexican corporation and purchasing the property under that legal entity.

The legal basis and specific conditions for these two options are found in Mexico’s Foreign Investment Law (Ley de Inversión Extranjera). Under Article 10 of the law, a Mexican corporation can only be used to purchase properties for non-residential purposes.

Since our condo is our primary residence and it was purchased for that purpose, that only left us the fideicomiso option.

Residential vs Non-Residential

The definitions for “residential” and “non-residential” are found in Article 5 of the Regulation of the Foreign Investment Law and the Foreign Investment National Registry.

Residential: Property that is used exclusively for housing by the owner or third parties.

Non-Residential: Property intended for non-residential activities, including the following:

  1. Those that are allocated to timeshare;
  2. Those destined to some industrial, commercial or tourist activity and that simultaneously are used for residential purposes;
  3. Those acquired by credit institutions, financial intermediaries and auxiliary credit organizations, for the recovery of debts owed to them that derive from operations proper to their object;
  4. Those used by legal persons for the fulfillment of their corporate purpose, consisting of the disposal, urbanization, construction, and other activities included in the development of real estate projects, up to the moment of their commercialization or sale to third parties, and
  5. In general, real estate intended for commercial, industrial, agricultural, livestock, fishing, forestry and service provision activities.

Let’s Wrap This Up

This post definitely went a little longer than I had originally intended. That tends to happen when I start writing about legal or technical topics.

Well, that’s enough thinking for today — time to head out and enjoy the Riviera Maya.

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About the Author

Q-Roo Paul
Paul Kurtzweil (Q-Roo Paul) is a former lieutenant from the Polk County Sheriff's Office in Florida. During his 25-year career, he received numerous commendations to include two of the agency's top honors: a Meritorious Service Medal and a Medal of Valor. In 2015, Paul retired and moved to Mexico with his wife. He now spends his days enjoying the Riviera Maya and blogging from the beach.

15 Comments on "Fideicomiso or Mexican Corporation?"

  1. Rosarito Gal | July 20, 2017 at 9:47 am | Reply

    It is also possible after obtaining Residente Permanente status and living in your property for five years, to apply for duel citizenship and have the fideicomiso trust terminated.

  2. Like your blog a lot

  3. I can’t tell you how perfectly timed this blog post was for me. Just last evening I had an owner of property in Playa del Carmen explaining this to me. Could you also tell me the approximate cost of obtaining this trust and the yearly cost as well? Thank you for all you share!

  4. Very well done 🙂 After doing my homework that is exactly what I have learned.

  5. Stephen Slater | July 20, 2017 at 3:16 pm | Reply

    The even shorter answer to the question is this: the cost/time of establishing and maintaining a fideicomiso is nothing, compared to the time, legal fees, maintenance costs, required documentation etc. of a establishing as and maintaining a Mexican Corporation. Even if you could do it, it would not make sense. Real property being in a Corporation is usually convenient because “the shares of the Corporation” with the real property asset(s), can be acquired by another entity, rather than having to convey the property or properties by deed. This is very appealing with multiple properties, large holdings, etc.

    • I agree, it wouldn’t make sense to do it even if it was possible. Thanks for taking the time to comment, Stephen.

  6. Is this law new? We founded a company 10 years ago.
    And we live in our house since that time.
    Saludos de Merida
    Gil

    • That section of the law has been around since 1996. That was the date of the last change to that particular section.

  7. So if an expat were considering purchase of real property, initially as income property, with the intention to later convert to a permanent residence… it’s seems clear enough that it would initially need to be a corporation. The question is whether it would need to be converted to a fideicomiso when it became a permanent residence of the stockholder(s) of the corporation. Any thoughts?

    • You can still purchase a home under a fideicomiso as an investment property. You can even have a rental property etc, provided that the wording of the particular fideicomiso doesn’t bar that.

      As far as having to change from a Mexican corporation to a fideicomiso if the home becomes residential, that’s an interesting question. Some of our readers are real estate gurus, maybe one of them will comment 🙂

  8. Hey Paul – anything you’d do differently? May not just pertain to home ownership, car ownership , etc.- could be anything about how you planned and executed your move. I find despite best laid plans (and I’m making some detailed ones for myself as well), there’s always a “surprise”.

    • The only thing that I would do differently is to bring a small tool box with me from the states to do home repairs. Apart from that, everything has gone very well.

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