A Fideicomiso is a unique bank trust used in Mexico to allow foreigners to legally own property in the “restricted zone,” which includes areas within 50 kilometers of the coastline and 100 kilometers of the border. Mexican law prevents non-citizens from directly owning land in these areas. The fideicomiso provides a legal way to have rights of possession of a property as well as rights to remodel, sell, bequeath to a beneficiary for a certain number of years.
• Legal Act:
A Mexican bank acts as the legal titleholder of the property, while the foreigner (the beneficiary) has full ownership rights and can use, modify, or sell the property.
• Duration:
The fideicomiso is currently a 50-year trust, renewable for another 50 years.
• Benefits:
The beneficiary of the trust enjoys all the rights and benefits of a fee-simple title, including the ability to inherit the property.
• Parties to the transaction:
The parties are the foreigner with RIGHTS to the property, the trustee (the Mexican bank), and the second beneficiary who receives the property upon the beneficiary’s demise.
• Tax implications:
IRS previously treated Fideicomisos as foreign trusts, requiring US taxpayers to file specific forms. However, this changed several years ago, and the Fideicomiso is now considered a nominee arrangement, not a trust for US tax purposes.
It is important to know that with the Mexican trust, you should name a second beneficiary in the case of death of the primary beneficiaries. This step assures that there will be not probate because the beneficiaries will be maintaining the trust and making the yearly payment to the bank holding the title.
The payment of capital gains still applies upon a sale of the property, to the current beneficiaries who are selling.
The basis of the sale will be the amount in pesos the original beneficiary paid for the rights to the property. This amount will be Mexican pesos on the date of transfer of rights to the new beneficiaries or closing in the notary office.
Since 2014, the notaries are required to send the buyers by email an official factura from SAT stating the price paid by the buyer in pesos at the time of the transfer of RIGHTS.
The notary now will be required to check the amount in the escritura and the amount in pesos in the xml file factura sent to the new beneficiary. If there is a difference, the xml file price in Mexican pesos will prevail. If the beneficiary cannot provide this, the basis could be zero. This added verification procedure is a result, also in 2014, of fear of falsified documents and criminals seeking to hide funds taking over properties with falsified deeds filed in the public registry.
Important that if you are a buyer since 2015, that you check you have this factura from the notary closing the transaction. The closing costs of the notary should be included in the email, which can be a deduction upon sale, and a pdf and XML file stating the price in Mexican pesos on the day of transfer of property.
This article is based upon available legal data, current practices, and my personal experiences. I recommend that each potential buyer or seller of real estate conduct his own due diligence and review.
