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Mexico Real Estate; When to Use a Bank Trust and When to Use a Mexico Corporation to Hold Title

Thomas Lloyd

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While touring the properties of Yucatan Real Estate with your agent, you will want to engage in a conversation about Fideicomisos and FOMC (Foreign Owned Mexican Corporations) to determine which is the best vehicle for you to utilize to hold title. Both have advantages and disadvantages.

The Fideicomiso (bank trust) is a trust agreement that you establish with a bank to hold title of the property with you (you and the bank are both named in the title documents). The bank has a fiduciary responsibility to represent your interest in the property.

Advantages of the Fideicomiso:

* The Fideicomiso gives you the rights and the vehicle to hold the property in perpetuity.

? It is a 50-year trust agreement that is renewable every 50 years by you or your heirs. ?

* You may also transfer your rights in the Fideicomiso to another foreign buyer?

* You may rent, sell, remodel or dismantle the improvements on the property.

* Your heirs may inherit the rights to the Fideicomiso, effectively by-passing probate, should you depart without a proper will?

* There are tax advantages pertaining to Mexico capital gains taxes when you sell?

* The Fideicomiso is easy to maintain by paying the annual fee to the bank?

If the title papers, property dimensions and corresponding documentation are not in perfect agreement, the bank will not issue the Fideicomiso. A rectification of the property measurements will be required. We will discuss this in a moment.

The main disadvantage of the Fideicomiso is that it is restricted to a property of NO MORE THAN 2000 square meters.

Note: There are exceptions and you can request a permiso for acquiring a Fideicomiso that allows for a property larger than 2000 square meters. This is a complicated process requiring an investment plan, time line, inspections, architectural renderings, business plan and plenty of governmental red tape. The exception is designed for an investor that plans to make a significant investment in the property.

Another disadvantage of the Fideicomiso is that it is limited to one specific property. Sometimes you can put two adjoining properties into the same Fideicomiso. But, generally speaking, the Fideicomiso is only designed for an individual property.
The FOMC (Foreign Owned Mexican Corporation) is a vehicle that allows foreigners to open a business and work in Mexico. The corporation is a Mexican entity, and as such, has the right to hold title to real estate. An attorney or Mexico notario can help to set up your corporation. It is important to know what your goals are in respect to the property, business and type of Mexico Real Estate investment prior to setting up the corporation.

Creating the corporation requires a minimum of two individuals (stockholders), of any nationality, that are at least 18 years of age. One of the stockholders will be required to be the managing partner. The managing partner will be required to acquire and maintain a Mexico FM-3 visa. The visa must be renewed every year. Additionally, the corporation is required to make monthly reports to HACIENDA (the Mexican Department of the Treasury) reporting income and expenditures. The reporting needs to be done by a certified accountant.

Advantages of the FOMC:

* Allows for the purchase of properties larger than 2000 square meters?

* No limit to the number of properties it may own?

* Allows for one or more of the stockholders to legally live and work in Mexico year round.

Disadvantages of the FOMC:?

* The corporation requires more hands on attention than the Fideicomiso?

* Does not have the ability to avoid capital gains taxes when it sells property?

* Requires a managing partner with an FM-3 visa?

* Monthly reporting of financial activity is required through a certified accountant.


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