Should you get a Fideicomiso or form a Mexican Corporation? – Easy Legal México (2024)

FAQs

Should you get a Fideicomiso or form a Mexican Corporation? – Easy Legal México? ›

In our opinion, a Fideicomiso is the way to go if you plan on buying property in Mexico and use it for residential/personal reasons that will not generate an income. If you intend to open a business or if you're buying the property to function as a business, then you will want to form a corporation.

Also, since the legal life of the trust is 50 years, the buyer/beneficiary can renew the trust as well. Fideicomisos cost about $1600 to set up, and about $600 a year to maintain.

Essentially, fideicomiso is a trust held by a bank that allows foreigners to indirectly purchase property and enjoy all the benefits of direct ownership. The fideicomiso is a workaround for expats looking to own property in Mexico's Restricted Zone, the area that holds much of the country's most prized real estate.

In plain English, a fideicomiso is a bank trust that you need to form in order to invest in or own property in Mexico. This trust is set up with a trustor, a trustee, and a beneficiary.

A Fideicomiso can be set up between a trustor, trustee, and beneficiary for as long as 50 years with an option to renew it if needed. Once established, the trust deed will enable you to lease, sell, improve, bequeath, or encumber your real estate legally.

Downsides of a Fideicomiso

There are fees associated with the creation of the trust, as well as annual fees for the maintenance of the trust. These fees can add up over time and may make owning a property through a Fideicomiso more expensive than owning it outright.

The downside of forming a Fideicomiso would be the price. The initial bank fees (that include the permit, one yearly fee in advanced and expenses) are between $2,000 and $2,500 USD, which you pay on top of all the closing costs (acquisition property tax, rights, certificates, notary and attorney fees, etc.).

Real estate closing costs in Mexico consist of various fees and expenses. They generally total between 4% to 6% of the purchase price. These costs are always the responsibility of the buyer. The seller, on the other hand, will have to pay other real estate fees and their capital gains taxes.

Foreigners can acquire real estate through a bank trust which grants them the use of the property for 50 years and the trust is renewable every 50 years. A foreigner can also acquire property by establishing a Mexican corporation.

Is a fideicomiso no longer considered a trust by the IRS? ›

Yesterday the I.R.S. released PLR 201245003, which concluded that a Mexican fideicomiso (or Mexican Land Trust) was not a trust for U.S. tax purposes. If a Mexican fideicomiso is not a trust, then it is not a foreign trust and no Form 3520 or 3520-A would need to be filed.

“The fideicomiso is a safe way to hold property in the Restricted Zone. It grants the title to a bank chosen by the buyer. The bank cannot treat the trust-held property as an asset of the bank.

The difference between a Trust and a Trust Fund is small but important when it comes to understanding Estate Planning. A Trust is an agreement used to specify how certain assets will be managed and distributed. A Trust Fund is the legal entity those assets are placed into when the Trust is created.

Some states (California, for example) have adopted a different, simpler version of the rule, which allows a trust to last about 90 years. (This is called the Uniform Statutory Rule Against Perpetuities.)

There is an initial fee to set up the trust, which varies depending on property and institution. On average, however, it costs $700 USD. Annual fees also vary depending on the institution.

By federal and state law, a trust can remain open for up to 21 years AFTER the death of anyone living at the time the trust was created. The special needs trust remains in effect throughout the person's lifetime.

One of the most significant disadvantages of a trust is its complexity. Generally, trusts use very specific language, which can be difficult to understand for those who are not often involved in estate law. Because trusts were once written in Latin, there are many legal terms that still carry over.

The major disadvantages that are associated with trusts are their perceived irrevocability, the loss of control over assets that are put into trust and their costs. In fact trusts can be made revocable, but this generally has negative consequences in respect of tax, estate duty, asset protection and stamp duty.

One major disadvantage is that they can be complicated and expensive to set up. Although the idea of avoiding probate costs is attractive, it's important to realize that trusts come with their own costs, including legal fees and compensation for the trustee, if needed.

If your property was purchased legally, The Mexican government has no legal right to take the property, nor do they want to discourage tourism of foreign investments. Under the North American Free Trade Agreement, NAFTA, Mexico may not directly, or indirectly, expropriate property except for a public purpose.

Why are closing costs so high in Mexico? ›

Many buyers are surprised to see that the taxes they pay at the time of closing are much higher than they are used to paying in the United States and Canada. The reason is the Mexican Government collects a large percentage of the property taxes at the time of closing.

Similar to the FDIC in the U.S., the Mexican Institute for the Protection of Banking Savings (Instituto para la Protección al Ahorro Bancario, or “IPAB”), insures deposits and investments of small and medium-sized investors in Mexican banks.

To open a bank account in Mexico as a US citizen, you'll usually need to provide the following original documents: Valid passport. Proof of residency - such as your FM2 Immigration credential photo, FM2 Book with Immigration status, Temporary Resident Card or Multiple Immigration Form.

Investment or bank accounts with a monthly ending balance of at least 300 days of the current general minimum wage in Mexico City (approx. $2,500.00 USD).

Bank of America in the U.S. is affiliated with Scotiabank in Mexico. HSBC in the U.S. is affiliated with HSBC Mexico. Santander, in the U.S., is affiliated with Santander Mexico.

Whether you are a Mexican national, a Mexican resident or a foreigner, if you are selling your property in Mexico, you may be liable to pay a capital gains tax. There are ways to reduce or claim exemption from capital gains.

When you sell property or real estate in the U.S. you need to report it and you may end up owing a capital gains tax. The same is true if sell real estate overseas, and we don't recommend trying to avoid a capital gains tax on foreign property.

In Mexico, real estate transferred on death is exempt from capital gains, but an acquisition tax applies, and is payable by your heirs. The acquisition tax ranges from 1% to 4% of the property's value at time of death, depending on the State in which it is located.

Can you own beachfront property in Mexico? Yes! Foreigners interested in properties within 50 km of the coast or 100 km from a border will have to purchase the beach property through a trust with a Mexican bank known as a fideicomiso. It is a fairly straightforward process, and nothing to be scared of.

Does Mexico recognize US trusts? ›

Unlike many jurisdictions, Mexico not only recognizes the existence and uses of trusts but will enforce United States trusts in certain circ*mstances. However, this is a complex process requiring numerous translations and various court appearances.

This rule generally prohibits the IRS from levying any assets that you placed into an irrevocable trust because you have relinquished control of them. It is critical to your financial health that you consider the tax and legal obligations associated with trusts before committing your assets to a trust.

The IRS and Irrevocable Trusts

When you put your assets into an irrevocable trust, they no longer belong to you, the taxpayer (this is different from a revocable trust, where they do still belong to you). This means that generally, the IRS cannot touch your assets in an irrevocable trust.

However, when married couples are transferring property to one another, they can avoid estate taxes by filing an AB trust (also known as a bypass trust). This allows them to give assets to each other without being subject to gift or estate taxes.

New Mexico has the Deed of Trust Act. Foreclosure can be done non-judicially, saving time and expense.

Deed of Trust and Title are both terms you'll likely hear when purchasing property, but they actually are different in purpose and meaning. A Deed of Trust is the loan on the property, and a Title expresses the actual ownership of a property.

Land ownership is evidenced by providing the title deed (Escritura Pública) recorded with the Public Registry of Property regarding private property and a Parcel Rights Certificate recorded with the Agrarian Registry regarding Ejido or communal land.

There are several benefits of creating a trust. The chief advantage is to avoid probate. Placing your important assets in a trust can offer you the peace of mind of knowing assets will be passed on to the beneficiary you designate, under the conditions you choose and without first undergoing a drawn-out legal process.

Funds received from a trust are subject to different taxation than funds from ordinary investment accounts. Trust beneficiaries must pay taxes on income and other distributions from a trust. Trust beneficiaries don't have to pay taxes on returned principal from the trust's assets.

What is the 5 year rule for trusts? ›

The five-year rule stipulates that the beneficiary must take out the remaining balance over the five-year period following the owner's death. If the owner died after age 72, the payout rule applies.

A dynasty trust is a great option for families that are seeking to transfer wealth from generation to generation. If you have a sizable estate and wish to transfer wealth without triggering certain estate-planning taxes, a dynasty trust could be a great option. As a reminder, dynasty trusts are irrevocable.

Unlike most other types of Trusts, perpetual trusts are designed to operate indefinitely. An individual could place their assets into a perpetual trust, and then name certain conditions and restrictions for how the money should be passed down and distributed.

Also, since the legal life of the trust is 50 years, the buyer/beneficiary can renew the trust as well. Fideicomisos cost about $1600 to set up, and about $600 a year to maintain.

BBVA Bancomer is one of the largest and most popular banks in Mexico. It has a strong reputation for offering a wide range of financial products and services, including savings accounts, checking accounts, credit cards, loans, investments, and insurance.

The Timeline for Challenging a California Trust

Once a beneficiary or heir receives this notice, they have only 120 days to contest the trust. If they wait more than 120 days, their challenge will be dismissed without consideration, and they will be forever barred from attempting another contest.

The rate is determined at the end of each month and applies to new investments in the following month. The numeric average of the 12 monthly interest rates for 2022 was 2.958 percent.

Even though you can easily live on $1500-$2000 USD a month in Mexico, you have to consider that to qualify for a residency visa, you'll have to prove you've earned more or saved more. The 2023 Economic Solvency Requirements for A Temporary Residency in Mexico start at $2,600 USD and go up to $3,300 USD a month.

How much money do you need to open a bank account in Mexico? ›

Bank Fees & Minimum Deposit

many branches will require a minimum holding deposit, and, to avoid bank fees, this can be around 1000 MXN (50 USD); you will need the required documents to open a bank account as a non-resident, including identification and your immigration documentation to prove your status.

The Mexican Government official website states that Mexican citizens residing in the U.S. don't need to leave the country or residence to open a bank account in Mexico. This process can be done online.

Bancomer Transfer Services (BTS) is a subsidiary of BBVA Bancomer USA Inc., and is based in Houston. Bancomer is also widely recognized as the largest financial institution in Mexico. BTS has been providing stellar money remittance services since the 1990s, and offers more than 40,000 payment locations.

To open a bank account in Mexico as a US citizen, you'll usually need to provide the following original documents: Valid passport. Proof of residency - such as your FM2 Immigration credential photo, FM2 Book with Immigration status, Temporary Resident Card or Multiple Immigration Form.

If you are a U.S. citizen, you may receive your Social Security payments outside the U.S. as long as you are eligible for them.

In Mexico, you can live a comfortable life on $1,000 a month. The average cost of living for expats, digital nomads and retirees varies between $600 to $2,000 depending on one's lifestyle choices and their location. Baseline costs in Mexico are around $750 a month.

If you're wondering how much cash you can bring to Mexico, the answer is up to $10,000 USD, or about $186,00 MXN. If you bring more than this, you will have to declare it with customs (if you're just visiting for a short period, you definitely won't need this much!)

The Takeaway

You'll likely have to exchange those foreign funds to U.S. dollars first, then make the deposit. A local bank or credit union may be willing to convert your foreign currency if you have an account there.

According to the regulation, banks must observe the following limits: Individuals that are account holders of the bank can deposit no more than USD 4,000 per month in all banking branches. National citizens that are non-account holders of the bank can deposit USD 300 daily, but no more than USD 1,500 monthly.

Where is the cheapest beachfront property in Mexico? ›

Holbox Island is the cheapest beach town to live. Which side of Mexico has the best beaches? The Caribbean Coast of Mexico is one of the most renowned beach destinations in the world and certainly the most popular in the country.