Trust or Corporation to Buy Properties as a Foreigner in Restricted Zones? – Part II (Uses of the Property)

In addition to the price and the location, when acquiring a property in the Restricted Zone of Mexico (all the land located about 62 miles from any national border and about 31 miles from any ocean), you should think about the way in which the property will be used. Different uses require different forms of acquisition—either to vacation with family and friends or to rent with the intention of getting an extra return on the investment made.

This article roughly outlines the factors that will determine the legal process that should be used to purchase the property (a bank trust or a Mexican corporation) based on the way you intend to use the property and your residency status in Mexico.

Depending on the way the property will be used, one of these options must be used for its acquisition.

Bank Trust 

All foreign individuals who are interested in buying a property that is within the Restricted Zone, must do so through a bank trust.

Bank trusts should be considered by foreigners who:

• Will use the property for personal use, that is, they will not receive income from renting it as a vacation property.
• Are considering obtaining their permanent residence in Mexico.
• Might rent their property for income but will also have residence in Mexico.

If you choose this option, you must comply with Mexican tax obligations associated with renting out the property for income. One of the requirements for anyone who earns income in Mexico is that they must declare all income to the federal tax authorities. To declare taxes, it is necessary to register with the Tax Administration Secretariat (SAT) and obtain a tax identification known as RFC (Federal Taxpayers Registry) which you will use when filing the appropriate tax documents.

RFCs are available to foreigners residing in Mexico, Mexican citizens or corporations.

Some owners without Mexican residency who rent their properties placed in a bank trust do so through digital platforms designed to offer accommodations such as Airbnb and VRBO. However, without an RFC to register the property, those online companies must withhold 36 percent in taxes from the rental fees paid by guests.

Because of this high tax rate, if you plan to own a property through a trust and still plan to rent it out without obtaining permanent residence in Mexico, the next option may be more suitable.

Mexican Corporation

Foreigners looking to purchase property within Restricted Zone of Mexico can also do so through a Mexican corporation. By creating it, foreigners avoid the process involved in the trust, since the property would be acquired by the corporation and not by the individual.

Mexican corporations should be considered by foreigners who:

• Are considering renting the property for income.
• Are considering buying more than one vacation rental property.
• Have no plans to obtain permanent residence in Mexico.

When renting a property owned by a Mexican corporation, the Mexican corporation will be issued an RFC and will be required to submit monthly income statements for the purpose of determining tax liability.

There are many more aspects to consider when owning a Mexican corporation, so it is of the utmost importance to discuss this option in detail with both a Mexican attorney as well as one from your home country to ensure this is the right option for your personal financial situation.

Once the Decision is Made

Whether the property is used as a home for family and friends or as a rental to earn income, it is important to know in detail both available options and which one would best suit the different needs of those concerned.

In both cases, you should always have a professional attorney analyze and review the details involved in each legal process.