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TREC LICENSE # 0303291
 CASCO
mAIN oFFICE
210-692-0990
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Restrictions on foreign ownership
Amendments (1996) to Article 27 of the
Mexican constitution (1910) allow foreign ownership of fee simple
property. There does remain the requirement of the 1910 constitution
that requires that foreigners accept the "Calvo clause" of
Article 27. It is simply a requirement that foreign individuals and/or
corporations agree before the Ministry of Foreign Affairs to consider
themselves as Mexican nationals with regard to their acquisition of land
or waters. They must also agree not to invoke the protection of their
own government in regards their property. Failure to comply with this
clause can result in forfeiture of property to the Mexican nation. It is
difficult to see this practice as having much validity under Nafta or
other investment protection and arbitration agreements that Mexico has
entered into with other nations and international organizations. That
said, an exemption from the openness of the new amendments exists in the
form of restricted border zones: 100 kilometers (62 miles) from any land
border, 50 kilometers (31 miles) from any coastline.
There are two major ways for foreigners to
bypass these restrictions: (a) indirect property ownership through a
trust with a Mexican bank; and (b) indirect property ownership through
foreign ownership of a Mexican corporation which itself can own land in
the restricted zones. Mexican corporations with foreign ownership can
only acquire direct ownership
of property in the restricted zones for non-residential
purposes.
Investors should also keep in mind that
indirect real estate investment in the restricted zones must be approved
by the Secretariat of Foreign Affairs (Secretaria
de Relaciones Exteriores, or SRE).
Permits from the SRE are legally supposed to be decided upon within 5
days of the filing of applications with the competent central
administrative unit or within 30 days of filing with the corresponding
local delegation. Special note:
Foreign individuals or corporations or foreign-owned Mexican
corporations must all create a real estate trust when acquiring property
for residential purposes in the restricted zones.13 Current provisions
give real estate trusts a lifetime of 50 years, and they can be renewed.
All real estate trusts must be registered at the National Registry of
Foreign Investment.14
North American dual citizens
A new Mexican dual nationality law in
effect since 1998 allows: a) American children of Mexican parents and,
b) Mexican natives who became American citizens before March 20, 1998,
to apply for and obtain dual citizenship. They can
also own property in the "restricted zones." The law does have
a time restriction: applications for citizenship can continue until
March 20, 2003. No extension is yet under discussion. Those who obtain
citizenship before then will automatically retain it. The potential
eligible population has been estimated at between 1-5 million people.
Before this law, Mexican immigrants living in the United States lost
their rights to own property in Mexico if they became U.S. citizens -
especially prior to the new legal changes. Some Mexicans living in the
United States were thus dissuaded from becoming U.S. citizens because
they did not want to lose their right to a dreamed-about future property
purchase in the land of their birth. Other Mexican citizens regretted
that the loss of property rights was part of the sacrifice necessary in
becoming U.S. citizens. This new possibility of dual citizenship is
designed and has the potential to direct significant capital flow into
Mexican real estate from Mexican-Americans in the United States.15
Ownership and taxation
All foreigners, regardless of their
ethnicity or national origin, should be aware of all of the possible tax
liabilities arising at during the purchase of real estate in Mexico and
possibly afterwards. Some states in Mexico have a transfer of property
tax. There is also a value-added tax, known as the Impuesto
Sobre Valor Agregado (I.V.A.),
at the federal level that is 15% of the transaction price in real estate
transactions. There is also a Real Estate Acquisition Tax of 2% of the
value of the property. Foreigners will also be taxed on income arising
from any property owned in Mexico. This is the Mexican equivalent of our
capital gains tax. It is known as the Impuesto
Sobre la Renta, and is a 20%
tax on the transaction costs on all real estate transactions involving
foreigners as the sellers
of property, which can alternatively be assessed at 35% of on the profit
margin of the sale. A reliable local attorney should be consulted
regarding the taxes incurred both at the transaction, from continued
ownership, and at the sale or transfer of property to heirs.16 |
COPYRIGHT© 2002
NATIONAL ASSOCIATION OF REALTORS®
REALTOR® - A registered collective membership mark
that identifies a real estate professional who is a member of the
NATIONAL ASSOCIATION OF REALTORS® and subscribes to its strict Code of
Ethics.
The National Association of REALTORS®, 430 N.
Michigan Ave., Chicago, IL 60611 Telephone:
1-800-874-6500
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