Mexico Loans
Foreign Land Ownership in Mexico
Foreign nationals own land in Mexico through a trust or "Fidecomiso" in which the foreign owner is the beneficiary and a Mexican bank is the trustee. The owner has all the rights that an owner of property in the U.S. or Canada has, including the right to enjoy the property, sell the property, rent the property, and improve the property.
Background
To properly understand how land ownership in Mexico works today, it is necessary to understand the history of property and how Mexico’s protective laws regarding its ownership have been shaped by Mexican history.
The Mexican Federal Constitution, drafted in 1917, imposed new laws and restrictions on foreign ownership as well as on ownership of land by the Church. Article 27 of the Constitution allows Mexican Nationals and Mexican companies to own property, but restricts foreigners from owning land within certain restricted zones. Interestingly, it is believed that the U.S. was involved in the new zoning laws in an effort to prevent the installation of foreign military bases on its borders or coastlines. This "restricted zone" is defined as property within 100 Kilometers from any Mexican border or within 50 Kilometers of any Mexican coastline.
In addition to limiting foreign ownership of Mexican soil, the 1917 Constitution also created a concept of inalienable, cooperative land ownership - known as the "ejido" - which was designed to protected Mexican peasants’ right to cultivate land. The people were given ownership of these properties and were allowed to farm and cultivate them and receive the profit from their efforts. Over 50 million acres of land was back in the hands of Mexican peasants, even though the Federal government still technically owned it.
In 1992, Mexico spearheaded a new agrarian law that for the first time allowed "ejidatarios" or members of ejido cooperatives to sell ejido properties. The 1992 Agrarian Law recognizes property rights within the ejido and allows for the owner of record to sell or lease the property to a non-ejido member. The property can be removed from the National Agrarian Registry (removed from Federal control) and placed in the public land registry, thus allowing it to be sold or leased. Today, thousands of acres are being converted from ejido to private property and being sold or leased, and there are well over 50 million acres of land that will go though this process (whether leased or sold) over the coming years.
Mexican Property Trusts (Fidecomiso)
In 1994, amendments to the Mexican Constitution permitted foreigners to purchase and own real estate in Mexico located within the "restricted zone" - which is all land within 60 miles of a national border and within 30 miles of the Mexican coast - though a land trust or "fidecomiso."
Under a fidecomiso, the Mexican government issues a permit to a Mexican Bank of the foreign purchaser’s choice, allowing the bank to act as purchaser for the property. The bank acts as the "trustee" for the trust and the owner as the "beneficiary" of the Trust. The "beneficiary" rights are very similar to Living Wills or Estate Trusts in the U.S.
The law authorizes Mexican banking institutions to act as trustees. A trustee takes instructions only from the beneficiary of the trust (the foreign purchaser). The beneficiary has the right to use, occupy and possess the property, sell and rent the property, and 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 buyer. Many people incorrectly refer to the trust arrangement in Mexico as a lease agreement. The home or property that purchaser buys will be put into a trust with the purchaser named as the beneficiary of the trust, not the leasee.
The initial term of the fidecomiso is 50 years, but an investor can renew the trust indefinitely for additional 50-year periods within the last year of each 50-year period, thus ensuring long-term control of the asset.
Property Purchase
Property purchase procedure will be similar to transactions in the US. Documentation will be standardized in both English and Spanish and the title insurance will be available on all properties funded through America Funding.
Investing in Mexico
Mexico offers the foreign investor an attractive opportunity in an economy that is undergoing dramatic improvement and growth. Following the country’s inability in 1982 to service its escalating foreign debt, Mexico introduced structural changes in its economy designed to move the country toward an open economy with more direct foreign investment.
In an effort to promote foreign investment, Mexico enacted new regulations designed to relax the restriction on foreign investment, which formerly limited foreign ownership of Mexican companies to 49 percent. Under the new regulations, foreign investors can now own up to 100 percent of large number of enterprises, including hotel and development companies, without prior authorization from the Foreign Investment Commission. Thus foreign investors in these enterprises have been put on equal footing with local investors and are no longer required to engage a Mexican partner.
The Mexican Federal Corporate Income Tax ranges from 25 to 38 percent. Provisions in the income tax code have also been established to offset the detrimental effects of inflation on monetary assets and liabilities, inventories and depreciable assets.
Mexico will continue to offer foreign investors close proximity to the world’s largest market, a solid communications infrastructure, and ample sources of energy, low labor costs, and skilled and trainable labor resources. The liberalization of the foreign investment rules is a clear indication of the very favorable attitude the government has taken toward foreign investment.
The Mexican government has stated that it aims to double the number of foreign tourist arrivals into Mexico, representing foreign exchange revenue of $5 billion plus annually. The combination of a rapidly improving economy and a stable, profitable base foretell an excellent ongoing investment environment.
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