A TRUST OR A CORPORATION?
It is well known that in acquiring real estate in the Riviera Maya, the law provides that since it is a restricted zone, foreign individuals have to incorporate a transfer of dominion trust in their favor with a credit institution, i.e. a bank. Nevertheless, the law itself, permits a Mexican corporation with foreign participation to acquire the property in a restricted zone, whenever these are devoted to those very purposes it was incorporated for. This ambiguity together with a wrong idea of reducing costs, it has caused that a great part of those acquisitions of real estate in the Riviera Maya are made by means of Mexican corporations. Consequently the scope of work implemented by many realtors and attorneys has been limited to the incorporation of a mercantile corporation and the acquisition of land on the name of such corporation, a fact that in most cases, causes corporations to exist as “ghost corporations”, that is corporations without any commercial activities.
It is important to know that the incorporation of a Mexican corporation implies many tax, legal and migratory liabilities and that if at first glance it is apparently less costly than the incorporation of a Transfer of Dominion Trust with a bank, in the long run it is not so cheap. It should be of prime importance to consider the the law permits the acquisition of real estate on the name of Mexican corporations solely and exclusively for the due fulfillment of their corporate activities and the purposes of a corporation are not in brief words, and shall never be residential. Furthermore, there is a series of liabilities, reports, and legal as well as tax reports involved in the incorporation of a mercantile corporation, and therefore there is the need to hire a professional whether in the accounting or fiscal area, for the due compliance of the corresponding liabilities. It is also important to observe that the corporation already incorporated, shall have an Administrator or a Legal Representative, who shall be in charge of signing on behalf of the corporation, a fact that in case the foreign people who deem to be the administrators in their own corporations, they shall require to process the Migratory Form 3 (FM3), which by the way it is harder to get day by day due to the strict regulations the Migratory authorities are imposing in these and other cases.
On the other hand, the Trust only implies the liability to pay on annual basis a fee for administration and grants all the rights to the owners, granting the benefit for leasing, subleasing, granting in guarantee as well as other benefits corresponding to a regular owner.
Consequently it is recommended for a foreign person, that before they decide to acquire real estate in the Riviera Maya by means of a corporation, to please go through the purposes for acquiring such real estate, as well as the reasons for staying in Mexico, that is if their intention is to live in Mexico in a permanent or continuos way, if the intention is to do business in Mexico, as well as to invest in projects and produce, just in these cases, it would be recommended to incorporate a Mexican corporation and acquire property for the corporate purposes of such corporation. But this is not advisable in case you want to acquire real estate for residential purposes only. Therefore, before you decide to choose this option and avoid the incorporation of a Transfer of Dominion Trust, check with your realtor or the attorney advising you, to thoroughly explain all the tax, migratory and legal liabilities this would involve in relation with incorporating a Mexican corporation.
