Taking the leap and buying a property in a foreign country can seem daunting. Find out everything there is to know about buying, selling, renting and living in Mexico.
How do I buy in Mexico
Can I own property in Mexico?
One of the first questions often asked by foreigners. The answer is YES! Canadians and Americans are familiar with purchasing property through the process of “Transfer in Fee Simple”. The process of purchasing property in Mexico is similar and yet different. The Mexican Constitution prohibits foreigners from owning property within one hundred kilometers of the border and fifty kilometers from the ocean. These areas are known as the restricted zones. The entire Baja Peninsula is considered a restricted zone.
In 1970, a Presidential Resolution to the Mexican Constitution allowed foreign ownership of property in the restricted zones by way of a Bank Trust of Fideicomiso. Under the Fideicomiso, a foreigner is able to buy property in the restricted zones with the property held in trust by a Mexican bank. Under the Bank Trust Agreement (Fideicomiso), the foreign owner, as a beneficiary under the Trust, is able to enjoy the same rights as a Mexican citizen owning property in Mexico; i.e., they are able to build, rent, sell, etc.
The Mexican government issues a Trust Permit to a Mexican bank. The bank acts as purchaser, has official title of record to the property and is designated as the Fiduciario or Trustee. As beneficiary of that Trust, the purchaser is entitled to enjoy, develop and use the property as he or she so desires. The beneficiary may also instruct the bank to sell the rights of that Trust at market value.
Banks have a statutory responsibility to follow instruction submitted to them by the beneficiary, an obligation that is not to be taken lightly. Banks are highly regulated in Mexico and their fiduciary responsibility is pivotal to the Fideicomiso. They are the cornerstone upon which the entire process functions.
A purchaser should pay careful attention to the names that appear on Trust and Title documentation. At the time of purchase, it is best to name a substitute beneficiary in the event of divorce or death in order to facilitate future transfer of that particular trust. Beneficiaries are easily transferable.
One big advantage of a Trust is with the Beneficiaries and Substitute Beneficiaries. The Beneficiaries of the Trust are the original purchasers of the property. Often this is a married couple or partners. It the couple or partners split up or one dies, it is a fairly simple procedure to eliminate one from the title without incurring title transfer taxes. If something happens to all of the beneficiaries (like death) then the property passes to the substitute beneficiaries who are the heirs of the original purchasers. Once again, it is a simple procedure, but the added bonus is the property does not have to be probated. No will is needed with a Trust as long as the substitute beneficiary is appointed and mentioned in the title. Saving your heirs from probate is probably one of the best gift of time and money you can give them, especially if they have no expertise in dealing with Mexican law and bureaucracy.
Orignally the trust was set for a thirty year period. However, the government has amended the Trust Law and all new agreements are for a fifty year period with further renewals of the Trust for additional fifty year periods. The property owner has the obligation to pay the annual Trust fees to the bank holding the Trust on their property. Normal fees run between $350 and $500 approximately each year depending upon the bank.
Why do I need a bank trust (fido)?
The laws behind the fido date back to 1917, enacted to protect Mexico from foreign invasion. Its aim was to stop foreign interests from purchasing strategic coastal and border areas of the country. While the notion of foreign attack seems somewhat antiquated, this law remains a founding chapter in the Mexican Constitution.
As stated in the above FAQ, property located in Restricted Zones, land within 50 km of the coastline and 100 km from the border, require a Fideicomiso for foreign buyers. Under Mexico’s Ministry of Foreign Affairs, a fideicomiso (fido) is a trust is granted for a 50-year period, which is renewable at any time (for another 50-year period) by submitting an application to the bank. If the 50-year period expires without renewal, the owner has another 10 years in which s/he may submit an application to renew the trust. If property is purchased that already has a fideicomiso, it can be transferred to the new owner and will be good for the remainder of its 50-year period, or the trust may be renewed.
Is my money safe in Mexico?
There are no restrictions to take your money in or out of Mexico. The unit of currency is the peso and at the present time, the value is approximately seventeen pesos to one US dollar. Personal checks are not widely used in Mexico and will not be accepted in most stores. Major credit cards are widely accepted, but travelers cheques are not. You can exchange travelers cheques or cash for pesos at any American bank at the going exchange. If you pay for purchases in dollars, you will usually receive change in pesos. A prospective investor in Loreto would be wise to open a bank account in the community (a US dollar account) and transfer funds from their foreign bank account when required.
How do taxes in Mexico work?
Mexico has concluded a tax treaty with Canada and the U.S. among other countries to avoid double taxation and prevent tax evasion. Non-resident individuals pay Mexican income tax only on income sources located in Mexico. Resident individuals are taxed on their world-wide income through a progressive income tax with an upper limit of 35%. Capital gains tax in Mexico (called Impuesto sobre la Renta) is also charged, but is only due on the gain derived from the sale of land without any improvements. Property tax or “Predials” is the local tax on the assessed value of a property. The concept is not unlike our own system of property taxation yet the amounts involved in Mexico are much less.
It is always recommended that you seek the advice of a competent tax accountant prior to purchasing property in Mexico.
What are the requirements for residency?
Mexican regulations require any foreigner who enters the country temporarily for up to six months to carry a valid tourist card in addition to a passport. The tourist card can easily be obtained north of the border at any Mexican Consulate, offices of Mexican tourism, offices of Mexican airlines, car insurance companies and many travel agencies. It can also be obtained at any immigration office at a port of entry into Mexico.
Foreigners may reside in Mexico on a permanent income basis if they are at least 55 years old and have a minimum income earned abroad of one thousand dollars ($1,000.00) U.S. per month plus five hundred dollars ($500.00) per month for each dependent over 15 years of age. This is called “Immigrante-Rentista” status. There are two other categories of residency status – “Investor-Immigrant” status and “Non-immigrant Visitante-Rentista” status.
Living in Mexico
What about healthcare?
There are excellent doctors and dentists available in every major city in Baja, as well as good hospitals and specialized medical personnel. A hospital was recently opened at the entrance to the city of Loreto.
Expatriates can join the Mexican health care system (IMSS) for a very nominal amount per year. This plan is very inexpensive and covers ambulance service, pharmaceuticals, office calls, and hospital expenses. Additional coverage can be obtained through the purchase of supplemental policies.
Can I own a business in Mexico?
The North American Free Trade Agreement (NAFTA) combined with Mexico’s new Foreign Investment Law provide the necessary safeguards for a North American entrepreneur to operate a business in Mexico. These policies have created a level playing field so that the small business owner can compete with larger counterparts in one of the richest marketplaces in the world. Foreigners can now own businesses in Mexico as sole proprietors or as an incorporated company without having to have a Mexican partner.
Since NAFTA, there is a new category of immigration into Mexico called FMN. The FMN is available on demand and provides the easiest process for a foreigner wishing to do business in country. The FMN is meant to be a provisional thirty day work visa (renewable) to permit individuals to explore business opportunities. Once a business is established and working, the FMN can be converted to an FM-3.