The trust (fideicomiso), what, why, how…

What is the fideicomiso? If you are going to purchase property in Mexico, you need to know the

ins-and-outs of this important document.

Simply put, the fideicomiso is a long-term irrevocable bank trust. A Mexican fiduciary bank holds

the title to the property and cedes the rights to own and occupy, remodel, sell, give away or leave

to your heirs.

The fideicomiso is not a lease, but a renewable trust held currently for 50 years by the Mexican

government. If you are buying property outside of the Restricted Zone – more on that later – you

can hold title to the property.

Now, a little history on the origin of the fideicomiso. Legal ownership of real estate in Mexico for

foreigners comes from the Foreign Investment Law that was approved by President Luis Echeverria

in 1971. It became law in 1973.

This law exists because notaries and other businessmen in Mexico recognized the huge asset

Mexico’s coastline represents. These leaders realized there was an opportunity to attract foreign

investment. To have funds for economic development in the 70s was of paramount importance, and

U.S. dollars were highly desired. How to make this asset available to foreigners and not violate the

Mexican constitution was the dilemma. The key became the fideicomiso, or trust.

The 1917 Mexican Constitution banned foreign ownership of any land within the Restricted Zone,

which is land located within 100 kilometers (62 miles) of any national border and within 50

kilometers (31 miles) of any ocean.

The Fideicomiso, what, why, how?

Your friend: The trust

The Foreign Investment Law of 1973 allowed a different treatment of real estate within and

outside the Restricted Zone. Foreigners can own land outside the RZ without the need of a trust.

Chapala and Guadalajara are locations where a number of foreigners own with a simple escritura

or deed. Land inside the RZ would be within a fideicomiso trust.

The investment trust program was very successful, and in 1989, the Mexican government signed

into law the ability for foreigners to have successive extensions of the trust through a simple

application process when time for expiration of the original trust period came due.

In 1994, the new Foreign Investment Law allowed a beneficiary to have a trust for 50 years, with

the application for extension or renewal still intact.

The trust is privately held in a Mexican bank authorized to act as a trustee. The trusts are not

assets on the books of the bank, nor are banks allowed to take any action without written

instruction from the beneficiary of the trust. The bank holds title to the real estate in trust, and

the foreigner is designated as the holder of the beneficial rights of the trust, which includes the

right to sell, improve, and will to heirs, or exercise any legal right under law.

As beneficiary, the foreigner has the equitable interest in the property through whatever market

variations may occur. In other words, any equity or the loss of equity accrues to the holder of the

trust, not the bank.

When the actual sale takes place at the office of a notary, the foreign owner may assign his/her

beneficial interest in the trust to the new buyer (for a Mexican National, he/she endorses the title in

favor of the buyer). The new owner may wish to establish a new bank trust where he/she is named

the primary beneficiary. In this case, he/she will issue instructions to the notary for this purpose.

This article is based upon legal opinions, current practices and my personal experiences in the

Closing costs for the buyer are normally acquisition tax, city appraisal, foreign permits, bank

trust set-up and first year administration fee, notary costs, title insurance or survey, if

requested.

Closing costs for the seller include payment of capital gains tax, trust cancellation, if

applicable, and real estate fees. Capital gains tax is computed using the declared value of the

purchase price in the seller’s deed and the tax value, which form a basis to index appreciation

or depreciation, and deduct allowable receipts to arrive at an amount of tax. Each individual

case will be different and proper analysis by a qualified professional is necessary. This

computation is usually done by the notary closing the sale.

Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of

Mexican real estate conduct his/her own due diligence and review.