After selecting a property and signing-off on the Offer & Acceptance – Promissory – Purchase/Sales Agreements, it’s time to move forward in the closing on your investment. There are a few decisions on how to hold title on your new property in Mexico. Depending on any current or future plans you may be seeking, there are two possibilities regarding trust accounts. You need to figure out if a Mexican Bank Trust or a Mexican Corporation will suit your purpose. However, both have certain qualifications as well as financial benefits.
A Mexican Corporation is the best option if foreigners want to invest in Mexico by starting a business.
Here are several advantages that outline why you should create a Mexican Corporation
- A Mexican Corporation offers the same rights as if you are a home-grown entity. On the contrary, corporate trust allows purchasing property anywhere in Mexico. This includes owning real estate within the restricted areas – 50 km (31 miles) from the coast and 100 km (62 miles) from the border.
- There would be no need for a Bank Trust – Fideicomiso (escrow/trusteeship).
- The cost to open a Mexican Corporation vs. a Bank Trust is the much cheaper (approximate cost for a Mexican Corporation is $1,700 vs. a Bank Trust at $2,500 USD).
- Having a Mexican Corporation can be 100% owned by a foreigner(s).
- If you are looking to invest in prime vacation – commercial rental property, you can do so legally under a Mexican Corporation.
- A Mexican Corporation does not need the assistance of a bank trustee when the owner wants to make improvements, rent or sell/exchange property.
- There are no limits to how many properties a Mexican Corporation can own. Indeed, you can purchase as many properties – within local laws, as you desire.
- With this option, you can earn income and pay corporate dividends, in addition to, take full advantage of all the tax deductions Mexico’s Tax Authority (SAT) offers.
- To retire in Mexico and wanting to become a resident, having a Mexican Corporation helps with that process.
- If you are looking to purchase a single property, having a Bank Trust is most likely your best option.
- If you have no plans to own a business or purchase multiple and/or commercial properties, a Bank Trust is the best option.
Here are some advantage points that will help you understand the benefits of a Bank Trust
- The trust offers the owner the ability to have a home in Mexico to either use as a vacation home, retirement property and/or rental income property.
- A Bank Trust is much like an estate trust and gives the owner full rights to do what they see fit for the property.
- You can transfer the property, and the trust itself at the same time.
- To set up a Bank trust, one can use a Power-of-Attorney. It only takes one person to set up a trust.
- It takes 2 to 3 weeks to form a Bank Trust when following all of Mexico’s proper procedures. The Bank Trust makes it an official entity and is fully recognized by the Mexican Government with all rights reserved.
- The financial institution will pay the property’s taxes accordingly and on time and will pay the correct amount(s).
- One can add additional properties to the trust – fees will apply.
- Capital Gains and IVA taxes may be exempt if one meets certain requirements. Consult a local attorney regarding tax laws.
- The trust is renewable and virtually forever.
Listed below are some comparable points to consider between a Mexican Corporation and a Bank Trust
– A Mexican Corporation in particular, unlike a Mexican Bank Trust, is subject to an audit by the Ministry of Finance and Public Credit.
– A Bank Trust can be ‘willed to’ which by-passes probate court.
– When property in the Bank Trust gets transferred, unlike a corporate trust, you pay no taxes.
– A Mexican Bank Trust needs no by-laws, articles or annual reports. A Mexican Corporation must submit bi-annual and/or annual reports.
– A Bank Trust, in most situations, offers simple accounting.
– Making improvements on real estate held in a Mexican Bank Trust does not need to pay with trust funds. Moreover, any upgrades to a property held in a Mexican Corporation needs to pay with a corporate bank account.
– Any modifications made to a property held in a Bank Trust must report to the trustee. Such improvements need to report to Mexico’s IRS (SAT) department for tax purposes.
These are basic differences between a Mexican Bank Trust and Mexican Corporation, but, depending on your intentions, it is advisable to consult with a lawyer regarding which trust would benefit you more.
Especially, being a casual investor will determine what your next move will be when securing your property(s).
Remember, at Top Mexico Real Estate… we make it happen!