(SAS - Mexican, A One Stockholder Corporation)
Many clients have asked us about how foreigners are able to acquire real estate in Mexico.
It is important to mention that there are three ways by which a foreign individual can acquire real
estate in Mexico.
In accordance with the Mexican Constitution, only Mexican individuals and Mexican corporations can acquire real estate within 100 kilometers of the beach and 50 kilometers from the border (called the “Restricted Area”). In addition, a foreigner is only able to acquire real estate in the Non-Restricted Area with the condition that the foreigner will not request the protection of his government regarding the Mexican real estate (Calvo Clause). Nevertheless, the Foreign Investment Law establishes an exception to such rule, which will be explained in this document.
ACQUIRING REAL ESTATE IN A NON-RESTRICTED AREA
As I explained before, the Mexican Constitution establishes that only Mexican Individuals and Mexican Corporations will be able to acquire real estate in the Restricted Area, therefore a foreign individual and corporation will only be able to acquire real estate in the non- restricted area if such individual declares that he will not request the protection of his government about regarding Mexican real estate (Calvo Clause).
But it is common that a foreigner is interested in buying real estate near the beaches of Mexico - for the beautiful view, weather, culture, business or many other factors that a foreigner has considered, to live or start a business rather than in the non-restricted area.
The Foreign Investment Law allows, as an exception to the Constitution, that a foreign individual or corporation will be able to acquire real estate in a Restricted Area with a Trust (Fideicomiso), which will be formed by a bank (In Mexico all trusts must be administrated by a Bank) and with a beneficiary (the Foreigner).
In Mexico, all Trusts must be administrated through a bank (Trustee) and it will be necessary to pay a fee to the Trustee for the administration of said Trust. (Trust fees)
The Foreign Investment Law establishes that such trust will not last more than 50 years, but could be renewed without issue.
This is the way that most foreign individuals had acquired real estate in Mexico in the Restricted Area, due to the fact it was the only way before 2016 that just one foreign individual could acquire real estate in the Restricted Area.
CORPORATION AND ONE STOCKHOLDER CORPORATION (SAS)
Before the 2016 amendment to the General Corporation Law, the only way that a Foreign Individual could acquire real estate (including the Restricted Area in Mexico) was to incorporate a Company of two stockholders in Mexico or by a Trust.
With the 2016 amendment of the aforementioned law, Mexican corporations named Sociedades Anonimas Simplificadas (SAS – Simplified Anonymous Societies) are allowed to incorporate, with the limitation that those companies will not have more than 5,000,000 million pesos (260,000.00 dollars) of income per year (note that income is different to contribute stocks). It is important to mention that the regulation of the SAS does not restrict Real Estate acquisition.
As we mentioned before, if a corporation incorporated by foreigners, whether it is a two stockholder corporation or a one stockholder corporation, shall state in the Bylaws that the Foreign Stockholders will not request the help of their governments regarding the company assets and goods (Calvo Clause).
SAS (One stockholder's corporation)
It could be attractive for the Foreign Individuals to acquire Real Estate by an SAS instead of a Trust, because they will not have to pay the annual fee that bank charges for the administration of the Trust and they will be able own the whole corporation (they will not have to have a partner to invest in Mexico), but due to the fact that the SAS is a Commercial Corporation such company must have, in fact, a commercial purpose and report monthly to SAT through the corporation’s accountant.
Therefore, in conclusion, a Foreign Individual will be able to acquire Real Estate in any place in Mexico, by a corporation of just one or more stockholders (the option of a corporation of one stockholder was incorporated in 2016).
In order to formalize the acquisition of Real Estate, there are many steps that will need to be done as explained below:
1. It is important to hire a lawyer or a company specialized in Real Estate review, in order to perform all due diligence of the Real Estate (This step is not necessary but it is highly important in order to prevent future problems with the land/or property
2. Regardless of whether the Real Estate is acquired by a Trust or a Corporation, it will be necessary that the Foreign
Individual have the Immigration ID issued by the National Immigration Institute to be a party of the Trust or Stockholder of the Corporation.
3. Obtain the Certification of No-Tax Debt and/ or a Certificate of No-Encumbrance, which will be issued by the State and County Authority, and the Public Registry of Property and Commerce. A Title Search is always a good idea.
4. A Site Survey and a Property Appraisal, that will need to be by the County Real State Authority (Catastro), must be issued and obtained.
5. Pay the Real State Acquisition Tax (2% of the land value) and the Federal Capital Gains Tax that shall have been paid by the seller depending on his gain. (Our firm has won many cases to recover part or all of the Real Estate Acquisition Tax).
6. Once all of the above documents are completed, the buyer/beneficiary and the seller/trustor shall formalize the Real Estate acquisition in a Deed before a Notary Public (Notario).
7. Finally, such transaction shall be registered before the Public Registry of Property and Commerce. Monthly Notice to the SAT (Tax Authority)
It is important to mention that if the Corporation is created to acquire Real Estate, the income tax law and other tax laws state that the Corporation shall send by internet monthly notices about its income, that the company can send it by itself or with the help of an accountant. The reality is that due to the specialized software to report to SAT, an accountant is almost always required.
IRS NOTICE AND OTHER COUNTRY NOTICE
It is important to mention that according with the United Legislation, American Citizens will have to notify the IRS of all the assets that they acquire outside the US, therefore American Citizens shall need to be advised by an Accountant or Tax Lawyer about the acquisition, and it could also apply to other countries.
Daniel Ruiz de la Peña Sandoval is a Tax and Corporate Mexican Attorney with more the 13 years of experience, Partner of Ruiz de la Peña y Asociados, S.C., Cel +521(664) 3-09-62-09 Office + 52 (664) 6840287, email@example.com