Perhaps you’ve been thinking about purchasing property in Mexico, either for full personal enjoyment or for a partial income-earning opportunity by renting it out. As an American, Canadian, or European, it can be daunting purchasing property in another country and navigating the unique legal and financial hurdles in that jurisdiction.
The big question is: as a non-resident and non-citizen of Mexico, can you actually own property in Mexico held in your own name? The answer? Yes, foreigners can own property in Mexico.
Why invest in Mexico?
- Climate and natural landscape: Mexico’s warm and sunny climate is a major draw for those who regularly experience cold and dreary winters back at home. The white sandy beaches are idyllic and perfect for water activities.
- Low cost of living: costs of living like food, transportation, entertainment, and professional services are much cheaper in Mexico than they would be in American or Canadian cities, meaning a relatively small budget can go a long way in Mexico.
- Easy access: for people living in North America, traveling to and from Mexico is fairly simple. All major airlines and airports offer roundtrip flights to and from the most popular Mexican airports.
- Simple travel policies: Canadian and American citizens can stay in Mexico as tourists for up to 179 days (essentially half a year) without requiring a visa.
Legality of buying property in Mexico
The Constitution of Mexico was amended in 1973 (the Foreign Investment Law) to allow foreigners to own property, as long as it was not in a restricted zone.
Restricted zones are defined as areas within 100 kilometers of an international border or within 50 kilometers of coastline at high tide.
The Consitution was further amended in 1993, allowing foreigners to purchase real estate in the restricted zones through a Fideicomiso system.
Fideicomiso system for buying Mexican property
That amendment to the Mexican Constitution allows foreigners to acquire indirect title to land in the restricted zone through two methods: ownership through a bank trust (fideicomiso) or through a Mexican corporation.
Option A: Fideicomiso – Bank trust
A fideicomiso is an agreement that confers all the property rights of a Mexican citizen to a foreign national. Logistically, a fideicomiso is a bank trust where the bank (the trustee) holds the trust deed for the purchaser (you – the beneficiary). While the trustee is the legal owner of the real estate, the beneficiary retains all ownership rights and responsibilities and may develop, sell, lease, mortgage, and/or pass the property on to heirs. The fideicomiso is authorized by the Mexican Government under the Ministry of Foreign Affairs.
The trust that is created is good for 50 years. It can be renewed at any time during that 50 year period for another 50 years. If it is not renewed after 50 years, the law offers another 10 years to submit the application to renew the trust. Thus, the trust administration process is fairly lax.
The beneficiaries of the fideicomiso can be one or more individuals or an entity (LLC, US corporation, Canadian corporation, etc.), allowing for sufficient tax planning in your country of tax residence.
To setup a fideicomiso, you will have to apply for the appropriate permit through the Ministry of Foreign Affairs and register with the Public Registry of Property and the National Registry of Foreign Investment. This can all be done by a Mexican lawyer who can assist in all aspects of the legal processes.
- Setup fee: $1,500 USD (one-time)
- Registration fee: $500 USD (one-time)
- Annual fee: $300-$500 USD (ongoing)
Option B: Mexican corporation
The majority of people will buy property in Mexico through a fideicomiso given its simplicity and flexibility. However, the option of purchasing property through a Mexican corporation is also available, but has a more limited use case.
Consider setting up a Mexican corporation when:
- Your intention is to use the property for commercial reasons (to primarily earn rental income or run a business)
- You plan to subdivide and develop land
Ensure you consult a Mexican lawyer before setting up a Mexican corporation. Owners of a Mexican corporation need to prepare and submit monthly income statements, and then provide the statement to a certified accountant to complete and file with the Mexican Department of Treasury. Property held in a corporation is considered commercial property and subject to extra taxes.
- Setup fee: $5,000 USD (one-time)
- Accounting fees: $600-$800 USD (ongoing)
Steps for buying property in Mexico
1. Initial offer, negotiation, and acceptance
Make an official offer. Ensure the offer is in writing – detail the main terms of the sale. Include the price, payment structure, and detail on the deposit. The deadline for the seller to accept the offer should be included. Negotiate until an understanding between both parties has been met.
Draft the promissory agreement and make your deposit. This binds both buyer and seller into a timeframe to execute the buying contract. The promissory agreement codifies all of the details of the transaction contemplated above in the official offer.
2. Setup the Fideicomiso (Trust)
- Apply for and obtain the appropriate permit from the Federal Ministry of Foreign Affairs and register with the Public Registry of Property and the National Registry of Foreign Investment (your lawyer will help you in this regard)
- Set up a Mexican will (separate and distinct from a Canadian or American will, which are more difficult to enforce in Mexico)
- Set up the trust (fideicomiso) with your choice of bank
The notario publico (notary public) is a neutral party – a lawyer appointed by the Mexican government that acts on the government’s behalf.
Once the initial offer has been drawn up, the notario publico’s responsibility is to make sure that the title deed is clear of liens, encumbrances or debts of any kind. The notario publico is also responsible to ensure that the property is registered and calculate the property and ownership taxes associated.
If everything is in order, the notary public and your lawyer will work with the bank. They will have the trust documents drafted and finalized.
Delivery of the property occurs prior to the ownership transference.
Inspect the property. After you inspect the property and everything meets your expectations, you’ll sign a delivery statement that will confirm this day as the official delivery date of your property.
At this step, the property title is officially transferred into your newly created fideicomiso trust.
The notary public issues a notarized copy of the closing deed, which is your proof of ownership. You can use the deed to put the property’s utilities in your own name.
Within 3 months of the closing date, the local Public Registry office will issue the final deed to the property.
Where to buy property in Mexico
The most common places where foreigners purchase property in Mexico include:
- Isla Mujeres
- Puerto Morelos
- Playa del Carmen
- Los Cabos
- San Miguel de Allende
- Puerto Vallarta
A modern two-bedroom condo in Playa del Carmen can net you $40,000 USD of rental income each year, when it’s not being used by you.
Earning rental income & hiring a property manager
If you are interested in earning rental income from your Mexican property, and you intend to remain in your country of residence, it is a good idea to hire a property manager to protect your investment.
A good property manager will:
- Provide support and services to renters of your property and be the “face” they see when they arrive in Mexico
- Perform regular inspections, organize scheduled cleanings, doing in/out rental damage inspections and handle maintenance issues
- Assist with renting out the property and managing the expenses associated with the property
You can offer your property as a short-term rental through platforms like VRBO, AirBnB, or other local rental platforms. You may also offer it as a long-term rental, which are often negotiated directly with you and your property manager.
Frequently Asked Questions (FAQs)
Do I need to file tax forms in my country of residence if I am the beneficiary of a fideicomiso?
USA: US taxpayers with Mexican property Fideicomisos must file 3520’s and 3520-A’s by March 15 of every year, unless they get a personal waiver letter from the IRS. In case a beneficiary receives a direct or indirect distribution from a fideicomiso (ie. from rent payments), this person has to file form 3520 with their tax return.
Canada: Form T1135 is required to be filed by taxpayers who at any time during the year, own specified foreign property costing more than $100,000 CAD. Specified foreign property does not include personal-use property, so if you use the property only for personal use, never rent it out, it is probably exempt. However, please consult with a CPA to determine your reporting requirements.
Elsewhere: the tax filing requirements vary by jurisdiction – consult your local tax advisor to determine your specific filing requirements.
How much is the acquisition tax when buying a property in Mexico?
A 2% acquisition tax is payable by the buyer when property changes ownership.
How much is Mexican property tax?
The average property tax rate is approximately 0.1% of the assessed value of the property at the time of sale.
Are there Mexican income taxes when earning rental income?
If you are a non-resident of Mexico renting out your Mexican property, the rental income of that property is subject to 25% tax rate.