Dear Qroo 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.
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:
- Those that are allocated to timeshare;
- Those destined to some industrial, commercial or tourist activity and that simultaneously are used for residential purposes;
- 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;
- 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
- 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.