The Paper Chase | Real Estate & Business Consulting


One reason for being concerned with this issue is the tendency of many foreign individuals buying Mexican homes to use their “house” in a commercial activity in order to offset the costs of maintenance and Fiduciary (bank) fees.

Legitimate Hotel and inn owners frequently complain of the many foreigners owning houses in Mexico who rent them out or use them for other money-making activities and not paying taxes in Mexico, constituting unfair competition to their businesses.

But, is the beneficiary of a Mexican Real Estate Trust or fideicomiso allowed to rent said property? In order to answer this question, we must first understand two very important concepts: RESIDENTIAL OR NON-RESIDENTIAL USE.  Knowing the difference between these two terms will help you understand  whether property indirectly owned by foreigners in the Restricted Zone must be owned through a Mexican trust (Fideicomiso) or Mexican corporation, and if renting  property in fideicomiso is permitted or not. Learning the two definitions will give you a better understanding of what is residential (held by bank trust) and not (held by corporation).

According to the applicable Mexican Legislation, The “explotacion lucrativa” or commercial operation of property held in fideicomiso is possible if proper permit from the Secretariat of Foreign Affairs (SRE) is obtained.

The Law defines residential use as the one “that is intended exclusively as housing, for the use of the owner or for third parties” and non-residential use as “anything not “residential,” specifically non-residential use listing the following:

“I. Those [properties] intended for time-share,-…”

  1. Those intended for any industrial, commercial or tourist activity, and that may be simultaneously used for a residential purpose;…”
  2. In general, real property intended for activities related to commerce, industry, agriculture, livestock raising, fishing, forestry, and the providing of services.”

(*Articles 11 and 12 of the Foreign Investment Act allow and Regulations to the Foreign Investment Law, Article 5).

Conclusion is, when property is to be used for commercial purposes regularly or if the foreign individual (beneficiary of the Fideicomiso) is really operating a business, the owner should form a Mexican Corporation, do business properly and pay taxes in Mexico.

If you are considering renting your property (in Fideicomiso), but you want to do it properly and in compliance with the laws, review your Fideicomiso contract, see what the conditions are and what is permitted under the Permit Granted to your Bank by the Secretariat. Also keep in mind that income on your rental activities must pay taxes either by you reporting it directly or having your property manager reporting in your behalf and always get receipts of taxes paid.

The following is the exact translation of the permit granted by Secretariat of Foreign Affairs-SRE to establish a Real Estate trust (Fideicomiso) which outlines the responsibilities or the three parties involved (Seller or Trustor, Buyer or Beneficiary, Bank or Fiduciary) and describes the permitted use of the property. You can find this document in all the Fideicomiso Contracts of this type.

“The secretariat of Foreign Affairs (SRE), based on the provisions of article 11 of the Foreign Investment Act, Grants to: (name of the authorized bank or credit institution), permit to acquire as fiduciary the ownership of the immovable assets subject to the fideicomiso detailed hereby. The corresponding fideicomiso contract shall be subject to the following characteristics and conditions: Trustor (Seller’s name and nationality), fiduciary (name of banking institution), beneficiary (name and nationality of foreign beneficiary(ies)-buyer). Duration: fifty years. Purpose (goal): residential use. Immovable assets object of the fideicomiso contract (description of location, total area, city, state, measurements and boundaries as depicted in the enclosed official blueprint).  Total area: (size in square meters). Distance from maritime federal zone or border: (in meters)


  1. The beneficiary(ies), in conformity with what is provided by the first paragraph of Article 27 of the Political Constitution of the United Mexican States, expressly agrees before the Secretariat Of Foreign Relations to consider him/herself as a Mexican national regarding the rights acquired over the immovable assets object of this trust contract, and not to invoke, therefore, the protection of his/her government with respect to said assets, under penalty, in case of violation, of forfeiting to the Mexican Nation the properties thus acquired;
  2. The goals of the fideicomiso derived from this authorization shall consist for the Fiduciary to always retain ownership of immovable assets subject to this trust contract and, without granting any right in rem (real rights), allow for the temporal use and enjoyment of said assets, in favor of the Beneficiary, or the individuals designated by said Beneficiary, to devote said assets to a residential use;
  3. In April of every year The Fiduciary shall report to the Secretariat of Foreign Affairs and the National Registry of Foreign Investment all authorized trusts (Fideicomisos), transfers of rights, change of fiduciary, designations of substitute beneficiaries or transfer of rights to foreign entities or individuals of all properties acquired for Residential Purposes;
  4. The Beneficiary is under the obligation to report to the Fiduciary, on the implementation of the trust contract’s goals and the compliance of the conditions contained in this permit;
  5. The credit institution acting as Fiduciary is under the obligation to monitor and report to The Secretariat of Foreign Affairs on the compliance of the goals authorized to this trust contract and of the conditions contained in this permit;
  6. The Beneficiary and the Fiduciary agree that, as a result of the breach of this contract or of the violation of any of the conditions established by this permit, at the request of the SRE, the Fiduciary shall cancel and liquidate the trust contract within one hundred and eighty days counted from the date of the serving of the notice by the SRE;
  7. In case of cancelation of the fideicomiso, The Fiduciary shall give notice to The Secretariat of Foreign Affairs within the following forty days.
  8. If the Fiduciary intends to extend the matter object or the purpose or use of the Fideicomiso, authorization from the SRE must be previously obtained;
  9. The duration of this trust contract may be extended as provided by Article 13 of the Foreign Investment Act (12 of its Regulations), in the understanding that the Fiduciary shall request the corresponding authorization prior to the extinction of the contract;
  10. This trust contract shall be registered with the National Registry of Foreign Investments pursuant to Article 32(III) of the Foreign Investment Act and 41 of its regulations;
  11. This permit is conditioned upon the Beneficiary to make an investment of $250,000 U.S. dollars in a period of three hundred days counted from the date of issuance of this permit; (Translator’s note: This condition does not apply in all cases).
  12. The Fiduciary and the Beneficiary are under the obligation that regarding the immovable asset object of this trust contract no walls, fences or any other elements that may impede the free access to the Federal Maritime Land Zone may be placed or erected, considering that said Zone, in conformity with Article 29(V) of the General Act of National Assets, constitutes an asset of common usage. Noncompliance by this trust’s beneficiaries shall be subject to the penalties described by articles 97, 1 and 2 of said Act without prejudice to the provisions of clause 6th of this permit.
  13. In accordance with Article 13(II) of the Foreign Investment Act, the SRE reserves its right to verify at any given time the compliance to this permit, its conditions and purpose; its usage implies its unconditional acceptance and its breach or violation shall result in the imposition of the sanctions hereby provided, independently of those imposed by the other applicable laws.

This permit is granted based on Article 27(I) of the Political Constitution of the United Mexican States; Articles 10 (II), 11(I, II), 13 and 14 of the Foreign Investment Act; 28(V) of the Federal Public Administration Act; 11 and 12 of the Foreign Investment Regulations, Act 14(VI), 33 (VI, XXXII) of the SRE’s Internal Regulations and the Agreement which Delegated Powers to  Public Servants of The Secretariat of Foreign Affairs), published in the D.O. of 28 April 2005.

The full text of this permit shall be reproduced verbatim in the corresponding trust contract’s public deed to be established in conformity with this permit. This permit will lose its validity if not used within 180 days of its issuance.  Granted in Mexico City, (Date)”.

*** For further information contact: Alba Walker, Attorney at Law and Official Translator, Tel. (612)1656503.

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 What is a FIDEICOMISO and what does it have to do with a Bank?

 FIDEICOMISOS (Real Estate trusts) are the only 100% legal way in which a foreigner can have property in the restricted zone of Mexico (located within a 100km band from the geographical borders of the Country and a 50km band along the coasts, which includes the whole State of Baja California Sur).

The Mexican Constitution forbids foreigners to acquire property in the restricted zone. It is by means of this fideicomiso that foreigners are allowed to purchase property within the restricted area for residential purposes.

A Fideicomiso is a contract similar to an American Trust. By this legal document the foreign acquires the “propiedad Fiduciaria” or Fiduciary rights of real estate.

The foreigner cannot gain the title to that land, but he would have instead the unrestricted right to use the property. In compliance with the Foreign Investment Law (Ley de Inversion Extranjera) the Minister of Foreign Affairs gives authorization to the credit institutions (fiduciaries) to acquire real estate property in this area and designate a foreigner as fideicomisario.

 Parties to a Trust

 Three are the parties involved in this transaction; the fideicomitente, the fiduciario, and the beneficiary or fideicomisario.

 1)  Settlor (Fideicomitente): is the person that creates the Trust and must be legally capable. The Fideicomitente is usually the seller in a real estate transaction. Once the creation of the Trust has taken place, the settlor has no further role in the Trust. The settlor cannot interfere in the Trust once it has been created, unless he has reserved for himself a specific authority as trustee or as a beneficiary.

 2) Trustee (The Bank or fiduciario): The Mexican bank acts as the fiduciario. The fuduciario is the person to whom the property is conveyed to be held in trust for the beneficiaries. The Mexican bank acting on behalf of the foreigner purchases the property and holds the title of the property; the buyer pays the bank the purchase price agreed with the seller and in return, becomes the beneficiary of the property.

Even though the trustee is the legal owner of the property, the trust property (or funds) is deemed to be separate from the trustee’s personal property. The trustee represents and acts on behalf of the Trust and has fiduciary and good management obligations to comply with, in order to protect the beneficiaries’ rights under the Trust. The trustee has to do what is best for the beneficiaries.

The buyer’s beneficiary rights are limited to a period of time of 50 years, which can be renewed for the same period.

The bank is responsible for getting the trust permit from the Ministry of Foreign Affairs to establish the real estate trust for the benefit of a foreigner.

Article 385 Ley de Instituciones de Credito (bank Law) establishes that only credit institutions are allowed to act as fiduciaries.

 3) Beneficiary (ies): Usually the foreign buyer. As the beneficiary or fideicomisario the person or persons for whose benefit the property is held in Trust, and who have an equitable interest in the trust fund. The law establishes no restrictions as of who can be a beneficiary to a Trust.

The beneficiaries have rights in rem, which means they have rights on the trust property and rights in personam; or in other words, they have rights against the trustee in case he commits a breach of Trust.

 Why is it important to choose the right bank for your trust (fideicomiso)?


In the years I have been working with Fideicomisos I have found that most buyers do not really realize the importance of choosing right when it comes to choosing a bank (trustee), this could be for one of the following reasons:

 1. Most real estate companies usually have agreements with a certain closing company who in turn has some kind of arrangement with a particular bank. Under this situation, the clients are never informed of the different options so they go with the bank they are told.

       At the paper chase we have worked with all the banks that offer Fideicomiso service in the State of Baja California Sur. There are banks that have except customer service and the lowest fees; there are some that have the most expensive fees and truly faulty customer service; some banks only have an office in Mexico City; other banks do not allow partial assignments of fideicomiso rights, some do; some banks subcontract their own closing companies; some banks have representatives that are very well informed about Fideicomiso contracts and speak English fluently, most banks don’t, etc, etc.

      Usually it is the buyer that pays the closing cost; if the buyer is paying for these services, it is in his interest to hire his own closing agent; it is preferable that the buyer has a Mexican attorney (or a closing agent) to make sure his interests are really represented.

 2. Most buyers do not want to deal with the paperwork involved so they don’t bother with this leaving it for the Real Estate Agent to handle.

      First of all, the Fideicomiso contract will be valid for 50 years (subject to be renews past that time), this means once you have signed with a certain bank you are “stuck” with it, unless you g through the process of changing banks which means additional expenses and paperwork. This is costly, time consuming and redundant so why not choose right from the beginning?

 A buyer should get a clear idea of all the alternatives when choosing a bank. It is the buyer who has to deal with the bank in the future.

 Two types of situations can be found when you buy real Estate in the restricted zone:

 1) Property is already in a trust:

If this is the case If, you should ask all the important questions before signing; ask how much the annual fee is, how much is fee for assignment of rights, how complicate it is to deal with the bank, if the bank’s representative speaks English (you will have to deal with him once a year at least), where the bank’s office is located, etc. In my years of practice I have seen clients walk away from a purchase just because they did not want to deal with the trustee!),

 2) No existing trust:

If you are buying property which is not in an existing Fideicomiso ask your closing coordinator what the differences is in price and service of the different banks and choose the one that better fits your needs, not the sellers or the Real Estate agents needs, after all you will be the one who would have to deal with that bank once the closing is finished.

 Here is comparison chart of costs for the different banks:



































































 Hope you find this information useful .




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