HOW FOREIGNERS INVEST ALONG MEXICAN COASTS AND BORDERS?
1. WHAT THE MEXICAN LAW STATES. The Mexican Constitution prohibits foreigners from acquiring direct ownership of real estate within one hundred kilometers of the borders and fifty kilometers from the coasts. These are known as “Restricted Zones”.
2. THE PRESIDENTIAL DECREE OF APRIL 30, 1971.
This decree was issued under constitutional authority granted in of a trend toward liberalizing the policy regarding restricted zones. Its objective is to promote tourist and industrial development in these areas by providing foreign persons and foreign capital the legal right to use and derive benefit from these lands without the need for direct ownership.
3. INDUSTRIAL AND TOURIST DEVELOPMENT.
The Presidential Decree sets forth the policy of the Mexican Government. Its purpose is to accelerate industrial and tourist development in the border and coastal zones of the country, in strict accordance with constitutional principles. The decree states that Trust institutions, upon compliance with regulations, may acquire real estate in the border and/or coastal strips in trust for the benefit of foreigners, if such land is used for industrial or tourist activities.
4. HOW THIS TRUST WORK.
If a foreigner, as provided for in the aforementioned Decree of April 30, 1971, wishes to acquire the right to use a piece of land, he can instruct a Mexican fiduciary institution as trustee to purchase and hold the property in trust for up to 50 years. The trustee will become the legal owner, subject to the clauses of the trust contract which guarantees the beneficiary his full rights as described here after.
5. RIGHTS OF THE BENEFICIARIES.
The beneficiary will have the right to use and enjoy the property; he may live on the land, undertake any construction necessary, and instruct the trustee to transfer the property to any person who has the legal capacity to acquire the same. Furthermore, the beneficiary has the right to assign his beneficial rights, with the sole obligation of giving notice to the trustee of such assignment. In other words, the Trust contract guarantees the beneficiary the property, without restrictions, as if he were a Mexican citizen.
6. OBLIGATIONS OF BENEFICIARY.
The beneficiary will be obligated to pay the duties on the land (real estate taxes and all service taxes) and the trustee´s fees.
7. NEW REGULATIONS ON REAL ESTATE TRUST.
On May 16, 1989, the president of Mexico issued the most important regulation on foreign investment and real estate since 1973. NOW REAL ESTATE TRUSTS ARE RENEWABLE FOR 50 YEARS MORE.
Article 20 of the new regulation states that, if the beneficiaries of the old and new trusts are the same persons, the trust may be renewed if the conditions of the old and new trust stay the same.
Application for renewal must be between 360 and 181 days before the trust expires.
Article 21 states that the Ministry of Foreign Affairs will issue a permit for creation of a new trust up to 50 years involving the transfer of the same real estate when the beneficiaries in selling trust and in the purchasing trust are different.
8. PROPERTY OWNERSHIP THROUGH A CORPORATION
This is a question that is very frequently asked. In 1994 change in the Mexican Foreign Investment Law allowed a Mexican corporation to be 100% foreign owned. You are also, in a corporation, allowed to own title, without a bank trust, in a restricted zone. This is a great benefit for foreign business owners. However, this is not the answer for everyone. Commercial property carries higher water, electric and phone rates. You also are required to do additional government reporting and tax payments. You can not own a single-family residence in a corporation. The government had cracked down on purchasing property in a corporation unless it is actually for business use. The trust deed is just as safe.