Must I Incorporate a Bank Trust or Fidecomiso?

ventanamagazine.com
Author: 2009 Raúl Jaime


In most cases you do. Remember that the restricted zone only includes land within 50 km of the ocean or 100 km from the border, so if you are buying inland you do not need a bank trust. It is important to keep in mind that the restricted zone and the Bank Trust system are only meant for acquisitions where the main purpose of the real estate is residential use. If you are buying within the restricted zone and the purpose of your investment is other than residential, there is the option of buying property through a Mexican corporation.

In order to decide which acquisition system is best for you, the first thing you have to decide is the purpose of your acquisition. If you plan to purchase a house or condo for residential use and as an occasional rental, buying through a Bank Trust is your best option. If, on the other hand, the main purpose of your purchase is as an investment that will produce regular cash flow from rentals, setting up a Mexican corporation would be the better choice.

While setting up a Mexican corporation will help you save on the Bank Trust fees, there are fees inherent to the set-up and registration process, and you will need to retain the services of an accountant to assist you in preparing your tax returns. As a Mexican entity, you will be required to file annual tax returns and provide valid invoices to your renters.

The advantages of buying through a Mexican corporation only exist if you are truly planning to use the real estate for commercial purposes. As a corporation, you will have a wider range of tax deductions, but you must also keep strict accounting controls and reports. If you are planning on purchasing more than one property or if any of the properties you are buying is a commercial space, it is strongly recommended that you set up a corporation in order to comply with local laws.

A lot of people will tell you that they have never heard of anyone being audited for their income on rentals in Mexico, and that you can have many properties producing rental income and never pay taxes on them. This is fiction; the fact is that even though being audited in Mexico is rare, auditing does happen. When you buy through a Bank Trust, you are also declaring that the main purpose of the real estate is residential and not commercial. So, if you ever were to be audited regarding the income that your properties produce, you could face serious legal consequences if you don’t have the proper ownership system. The risks clearly outweigh the benefits.