The restricted zone trust for foreigners, with residential purposes. (RZT)
1.- What it a Fideicomiso?
Think of a Fideicomiso like an adaptation of the American style trust to Mexican legal system. It is a legal instrument subject to mercantile federal law, that can be used in all sort of transactions such as family and living trusts, joint ventures, as a securitization instrument, for real estate developments, in warranty trusts as collateral for loans, administration trusts investment trusts, for securitization for all kind of assets and rights, infrastructure trusts to merge efforts of public and private companies and governments, public federal trusts and many more.
One of such uses of the trust in Mexico is to allow foreigners to have the use, enjoyment and disposition of real estate property for residential purposes, located in restricted zone as if they were the direct owner.
2.- Why is a Trust needed?
This type of trust is required because, in terms of Mexican Constitution (Article 27), there is a prohibition for foreigners to directly hold the domain of real estate properties for residential purposes in the “Restricted Zone” which was established as a) the 100 kilometers from any borders and 50 kilometers from any coastline. Because of that, the entire Baja Peninsula (north and south) and all real estate property located within the frontiers and coasts are part of such restricted zone. This is not the case for real estate property inland on the mainland, such as San Miguel de Ayende, Chapala, Ajijic, Queretaro, Mexico City and many others, foreigners can acquire the direct domain and hold direct title of real estate property, same as any Mexican citizen.
To comply with the Constitution, the execution of trusts within the restricted zone, requires the foreigner to obtain a permit granted by the Foreign Affairs Ministry first, this allows the Trustee to hold a specific property in trust on behalf of a specific foreigner. This is done during the closing process by the closing agent.
3.- How does it work? A Trust is comprised of 3 parties:
Trustor (settlor): Is the party who creates the trust and transfers the trust assets to the trustee, entrusting him to accomplish the trust objectives. I.E. The Seller.
Trustee: In Mexico, a trustee it is mandatory and must be authorized to act as such according to Mexican law. Currently, only banking institutions can be trustees. The trustee will hold the property of the transferred assets in trust, and is entrusted with accomplishing that trust objectives set forth in the trust. I.E. The Trust Bank-
Beneficiary: it is the person or entity that receives the benefits of the trust objectives and its assets. I.E. The Buyer
In the Restricted Zone trust, the Trustor is the Seller of the real estate property, who transfers to the trustee (The Trust Bank) the property and the ownership domain of the real estate, entrusting such trustee to hold the property on behalf of the Beneficiary (the foreign Buyer), allowing him the use, enjoyment and disposition of the property that the Beneficiary may choose for the property through the trustee, as if the beneficiary was the direct owner, but subject to the rules and restrictions contained in the permit and the trust.
The Trustee is a banking institution chosen by the buyer or his closing agent, but that may be provided by the seller, as well, as in the case of taking over an existing trust. An annual administration fee is charged by the Trustee to hold the property in trust on behalf of the foreigner or Beneficiary.
The Beneficiary is the foreigner Buyer that, as it has been said, can use the property freely, as if it was the direct owner, but, through the trustee and subject to the permit and trust restrictions. The beneficiaries can rent, sell, transfer, will, put a lien or mortgage on the real estate property at their free will but, they must do all through the Trustee, who holds legal title and is the legal owner. In other words, you must inform the Trustee is you plan to construct, demolish, change the use, etc.
Per the Constitution, these trusts are valid for 50 years, renewable for another 50 years, after which the beneficiary can make a new trust on his behalf. So essentially, trusts are a way of having ownership for a lifetime and beyond.
It is very important to be very clear, although the Trustee (the Bank) is the legal owner of the real estate property for all legal effects, trustee cannot use or encumber or sell the property for his own interest, and in his accounting must show any assets held in trust in an independent accounting. It is shown and held as assets in trust, so if the trustee fall into bankruptcy. It is not subject to a foreclosure or any lawsuit that leads to the loss of the Trustee’s assets. The trusts are protected by law. A judge is obligated to take all assets held in trust and designate a new trustee. There is no risk for the Beneficiary.
Also, when the acquisition is done through a trust, there is no purchase contract, the property title is held through the trust and is recorded in Public Registry.
4.- What is the SRE permit? (Secretaria de Relaciones Exteriores)
As we´ve seen, it´s a permit granted by the Foreign Affairs Ministry prior to the constitution of the Trust in the Restricted Zone, and such a permit authorizes the trustee to create a trust to hold the property and ownership of a property, on behalf of one or more specifically designated foreigners, for a period of 50 years renewable. There is one major condition to the granting of the permit: The foreigner, in all affairs referred to the real estate property, shall consider themselves as Mexican nationals and obligate themselves not to invoke the protection of his foreign country government in case of any controversy. Should the Foreigner fail to abide by this condition, they will lose the property in favor of Mexican Nation. (This makes sense, you cannot sue a person in the United States in Mexico for property in the United States!)
This event has never happened in the history of the Restricted Zone Trust, but, the reason it exists is historically because of the French invasion in 1838 and the North American invasion and loss of Texas in 1884.
Additionally to the permit, once the trust is executed, it has to be registered in the Foreign Investment Registry and in the Public Property and Commerce Registry.
It´s important to notice that the Foreign Affairs Ministry grants a permit in behalf of any Foreigner EXCEPT in the case of any citizen of the countries that figure in the Non-Cooperating Countries list of the Financial Action Task Force (FATF) because of international trades subscribed by Mexico.
5.- Which are the costs involved?
The costs of a closing are the same as in a direct purchase with nationals except for the following concepts:
a) SRE Permit Fee. The permit fee is fixed, but the processing fee to obtain the permit is variable depending on the company or person hired for the obtaining of the permit.
b) Foreign Investment Registry Fee is fixed, but the processing cost that its variable depending on the company or person hired to obtain the inscription.
c) Constitution of the Restricted Zone Trust: This is a very variable cost and changes from place to place, trustee to trustee, but regularly it is a fixed fee that has no relation with the cost of the property and is more or less standard in every location.
d) Annual administration fee: This is also a very variable cost and changes from place to place, trustee to trustee, but regularly it is a fixed fee that has no relation with the cost of the property and is more or less standard in every location.
6.- What benefits does the restricted zone trust provide?
Besides being the only legal way of acquiring a real estate property for residential purposes in restricted zone for a foreigner, it provides the following benefits:
Discretion: In real estate transactions with nationals, the names of the purchaser and seller are public and can be known by everybody because the purchase is registered on the Property and Commerce Public Registry and in the inscription the relevant information of the transaction appears and if property is owned trough a trust, Public registry only shows that the property is under trust number “X” and the beneficiary information stays confidential. This benefit is so big that many Mexican nationals make trusts just to keep their patrimony (real estate assets) information private.
Protection of patrimony: The legal owner of the property is a trustee, not the foreigner and because of that, so no lien can be placed over the property for debts of the foreigner or a Beneficiary and his creditors cannot know who the owner of a certain property is. Many Mexicans hold their properties in trust for this reason as well.
The free ability to designate substitute beneficiaries: It doesn´t matter what a will establishes in Mexico or a foreign country, the designation of substitute beneficiaries in a trust prevails.
Support of a Financial Institution: The trustee, by law, must be a financial institution, a bank is the owner and in case of any legal situation, he´s involved as legal owner and defends the title in court.
All trust are regulated in Mexico by mercantile, federal laws, so most trials or legal disputes has to be under Federal Laws and in Federal Court, so this avoids confrontations on the local level or local domestic regulations in local trials.
7.- Who can be designated as beneficiary in a Restricted zone trust?
A trust can be executed in behalf of the following:
One or more individual persons even it they are under legal age.
An incorporated foreigner person (an INC, LLC, etc.)
A foreign trust (family or living trust in a foreign country)
A Mexican incorporated person that allows foreigners as partners of the company.
It´s important to notice that if more than one person acquires a real estate property in restricted zone for residential purposes, they´ll need a trust if only one is a foreigner. If you have a Mexican partner, but you are foreign, you need a trust.
8.- What happens if a foreigner becomes a Mexican citizen?
The trustee can immediately transfer the direct title to the beneficiary and there is no taxation regarding the acquisition or capital gains taxes, if requested.
9.- What restrictions apply for the constitution of a Restricted Zone trust?
There are only two restrictions to have in mind:
a) If the real estate property is subject to an “ejido” (a Mexican special type of communal ownership originally established for farming communities), such property must pass through the legal process of Derecho Al Tanto or it may not be legally transferred and may be subject to nullification of the transaction.
b) If the total land surface of the real estate property is more than 2000 square meters, the foreigner is obligated to subscribe and grant to the Foreign Affairs Ministry a Promise of Investment Letter, through which he legally obligates himself to invest certain amount of money into the property in a certain time frame according to the following table:
SURFACE AREA AMOUNT OF REQUIRED INVESTMENT
2,001 M2 to 3,000 M2 $250,000.00 U.S.D
3,001 M2 to 4,000 M2 $300,000.00 U.S.D
4,001 M2 to 5,000 M2 $350,000.00 U.S.D
5,001 M2 to 6,000 M2 $400,000.00 U.S.D
6,001 M2 to 7,000 M2 $450,000.00 U.S.D
7,001 M2 to 8,000 M2 $500,000.00 U.S.D
8,001 M2 to 9,000 M2 $550,000.00 U.S.D
9,001 M2 to 10,000 M2 $600.000.00 U.S.D
10,001 M2 to 11,000 M2 $650,00.00 U.S.D
11,001 M2 to 12,000 M2 $700,000.00 U.S.D
Increasing successively each 1,000 M2 or fraction.
By Raúl León, Attorney At Law, Expert in Mexican Trust (Fideicomiso), Commerce & Real Estate Attorney.From US: Cel. 011 521 624-151- 6332,, Local Cel: (624) 151-6332,
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