50 Year Renewable Trusts In The Mexican Restricted Zone
By Peter Thompson, Attorney-At-Law
The most important Mexican real property law affecting foreigners is Article 27 of the Political Constitution of the Mexican United States ("Mexican Constitution") which provides in relevant part "Within a zone of 100 kilometers (about 62 miles) along the borders, and 50 kilometers (about 31 miles) along the coast, no foreigner shall under any conditions acquire legal title (dominio directo) of lands and waters". These "Prohibited Zones" (also called "Restricted Zones") encompass about 45% of the territory of Mexico -- 2,400 miles of borders and about 6,300 miles of coastline, including the tourist areas of most likely interest to our clients, such as Rosarito Beach, Cabo San Lucas, Mazatlan, Puerto Vallarta, Cancun and Acapulco. For years, Americans tried to circumvent Article 27 through Mexican name-lenders, sports clubs or physical possession of bearer stock in Mexican corporations owning real estate. However, these procedures are illegal and now are punishable by fine and/or prison. In response to the obvious need to promote touristic-type investment while still enforcing Article 27, then President Echeverria authorized 30-year real estate bank trusts by decree of April 29, 1971. The main idea of the bank trust is that a Mexican landowner transfers legal title to a Mexican bank, which acts as a trustee for the benefit of a foreigner. The purchase price is paid by the foreigner to the original Mexican owner, and the foreigner must pay all the fees connected with setting up the trust except the seller's capital gains tax which is either 40% of the gain or 20% of the sales price. Fees payable by the buyer in setting up a new trust are the Tax on Acquisition of Real Property (about 2% of the appraised value), notary fees, the fee for registration in the National Registry of Foreign Investment, land appraisal, trust permit fee and trustee start-up and the first year fees. The trust must terminate no later than 50 years, at which time the bank trustee must convey the property out of the trust to a Mexican citizen, or to a Mexican company with a constitution which allows such ownership or to a different trust. The net proceeds of the sale go the foreigner. According to present law, the 50 year period can be renewed. The constitutional prohibition on ownership by foreigners does not apply to real property in the interior of Mexico.
