LEGAL INFORMATION REGARDING PURCHASING PROPERTY IN MEXICO
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REAL ESTATE
Article 27 of the Mexican Constitution discusses the ownership of lands and waters. The Article grants to the Mexican Nation ownership of the land and water within the national territory, and provides that the Nation shall have the power to transfer ownership rights to such properties to private individuals, thereby creating private property.
Section I of the aforementioned Article 27 grants the right to acquire the dominion of land and water only to Mexican individuals and companies, and grants to the State the discretionary power to grant the same right to foreigners, subject to the condition that the foreigners agree with the Ministry of Foreign Affairs to consider themselves Mexican nationals with respect to the property acquired and not to invoke the protection of their home governments with respect to the same. If said covenant is breached, all rights to such property shall revert to the Nation.

Moreover, said Section prohibits foreigners from acquiring direct ownership over land and water in the "prohibited or restricted zone." (See Section III.A.6. hereinabove).
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ACQUISITION OF REAL ESTATE BY FOREIGNERS
As a general rule, a foreign individual or company may directly own land in Mexico. However, as stated, foreigners (including individuals or companies) may not acquire direct ownership over land and water located within the restricted zone. Although foreigners may not acquire direct ownership in the prohibited zone they can acquire other rights over real estate in the following cases:

A 100% foreign-owned Mexican company may directly acquire property within this zone to perform non-residential activities, i.e., industrial, commercial or tourism activities. The acquisition must be recorded at the Ministry of Foreign Affairs.

If the real estate is for residential purposes, foreign individuals or companies and Mexican companies with 100% foreign capital stock may acquire the rights of use and benefit from the real estate through a trust. The duration of the trust may be 50 years, and the term may be extended upon request of any person having an interest in the property.

Foreign individual or companies may lease real estate and other properties in Mexico without limitation.

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AGRICULTURAL, LIVESTOCK AND TIMBERLAND
Foreign and Mexican individuals may acquire land for agrarian, livestock and forestry purposes subject to the restrictions and requirements mentioned above and the following size limitations:

Individual agricultural property generally cannot exceed 100 hectares of irrigated land.
Land used for the production of cotton cannot exceed 150 hectares of irrigated land, and land used for the production of a very few specialized crops, like coffee, bananas, cacao and fruit trees may not exceed 300 hectares of irrigated land.

Individual property used to raise livestock cannot exceed an amount of land necessary to raise a maximum of 500 large farm animals or its equivalent in small farm animals.

Individual forest property can be any type of timberland, as long as it does not exceed 800 hectares.
As a general rule a foreign company cannot directly own land in Mexico for agricultural, livestock or forestry purposes. However, Mexican companies may own agricultural, livestock or timberland, in tracts not greater than twenty-five times the factor of individual landholdings regarding each of the three types of uses mentioned above.

A Mexican company owning land must have a sufficient number of individual shareholders or partners to justify its total landholdings. For example, if the company owns 2500 hectares of irrigated land, and the individual irrigated landholding is limited in size to 100 hectares, the company must have at least twenty-five individuals as shareholders or partners.

In addition the capital stock of the company must include a special series of shares or partnership interests identified with the letter "T." Series "T" shares or partnership interests are equivalent in par value to the value of the capital contributed in agriculture, livestock or timberland, or those funds destined for the acquisition of such land, depending on the value of the land at the moment of the contribution or acquisition. Foreigners, either companies or individuals, can acquire no more than 49% of series "T" shares or partnership interests; the remaining 51% must be held by Mexicans. In addition, the company may issue an unlimited number of shares through capital contributions, which may be subscribed 100% by foreigners.

Further, no individual, either directly or through a company, may hold more series "T" shares or partnership interests than those equal to one individual landholding.

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FORMALITIES CONCERNING THE TRANSFER OF PROPERTY
There are several verification requirements to be carried out before the sale of the property. Mexican law also requires several formalities that must be satisfied to transfer real property.

Verification requirements
Prior to any sale, all individuals or companies, either Mexican or foreign desiring to purchase real property should verify the absence of any liens. If the property is mortgaged, the lien will follow the property and therefore the new owner may have the risk of forfeiting such property in case of the seller's default on payment obligations.
Also, the prospective buyer should verify that the seller has paid the Real Estate Property Tax and water contribution fees for the previous five years.


Legal formalities
Sales of real estate with an appraised value not exceeding N$6,679.50 that is the equivalent of 365 times the daily minimum wage (currently at N$18.30 daily), may be executed privately between the parties to the contract, provided that two witnesses sign the agreement before either a Public Notary, competent judge or public property registrar.

Sales of real estate with an appraised value greater than N$6,679.50 must be executed before a Public Notary, in a public instrument.

The sale must be recorded in the public registry of property with jurisdiction in order to produce effects before third parties.

Immigration status of the foreigner
All individual foreigners, independent of their immigration status, may acquire real estate in Mexico, directly or acting through an attorney-in-fact, without the need of a permit from the Ministry of the Interior (which was required in the past). Moreover, they can carry out any other act of dominion over real estate, without need of a permit.

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TAXES
Both the seller and purchaser are liable for taxes upon the purchase and sale of real estate located in Mexico.

Income tax
If a foreign individual or company is the seller, the sale of real estate located in Mexico will be subject to a 20% capital gains tax on the gross amount of the operation.

If the purchaser is resident in Mexico or resident abroad with a permanent establishment in Mexico, he should have to withhold the tax. Otherwise, the seller should pay the corresponding tax by means of a tax return filed to the Ministry of Finance within 15 days of obtaining the income. In practice, this presents a problem to the seller resident abroad, as he does not have his Taxpayers' Registration Number necessary to carry out business in Mexico. Therefore, the withholding of the tax is done by the Public Notary and is considered as final payment.

However, foreigners who conclude the sale through a public deed may choose to pay 35% tax on the net profit obtained. The Public Notary is responsible for calculating the income tax and including it in the public instrument. The Public Notary must also pay this tax to the Ministry of Finance within 15 days following the execution date of the public instrument.

The Tax Code considers that a transfer of property has occurred when a trust is created, if the grantor designates or agrees to designate a beneficiary different from such grantor and does not reserve the right to repurchase the property placed in trust, or when the beneficiary looses the right to reacquire the property from the trustee, if such right was reserved.

In addition, when the beneficiary assigns rights granted or gives instructions to the trustee to transfer the property to a third party, a transfer of property is considered to take place upon the issuance of said instructions or upon the assignment of rights.
Therefore, when a foreigner acquires beneficiary rights through a trust, and thereafter sells or assigns them, the foreigner will be subject to the payment of income tax in the terms mentioned above.


Income generated by foreign lessors of real estate in Mexico is subject to a 21% income tax on gross receipts. The lessee shall withhold the tax and pay it to the tax authorities.

If a foreigner is the purchaser, the tax authority may make an appraisal, and, if the value of the appraisal is greater than the purchase price by more than 10%, the purchaser will be required to pay a 20% tax on the difference between the two amounts. The taxpayer shall pay this tax within fifteen days following the notification.

Real Estate Acquisition Tax
Individuals or companies purchasing real estate, consisting of land, or land and its structures located in Mexico, as well as the accessions related to them, are subject to the payment of a Real Estate Acquisition Tax calculated at the rate of 2% of the value of the property, when located in the Federal District, or applicable rate in other states.
Purchasers of real property, irrespective of the nature of their operations, must pay this tax. That is, the tax must be paid whether the acquisition is carried out through, for example, a purchase and sale agreement, donation, trust, merger of companies, split-off, or payment in kind.


Value Added Tax
VAT shall be paid by the purchaser of structures at the rate of 15% calculated on the amount of the operation which shall include taxes, other fees, interests or any other concept.
No VAT is triggered on the sale of land used for any purpose and on constructions used for residential purposes. In the event that only part of the construction is used for this purpose, VAT will not be paid on such part.

CONDITIONAL SALES - RESERVATION OF TITLE
Seller may reserve title to the goods sold until complete payment by purchaser of the purchase price.
If the goods sold consist of real estate property or movable goods which can be identified, the clause containing the reservation of title shall be recorded in the Public Registry of Property in order to produce effects before third parties.

If movable goods may not be identified, the parties may also include in their agreement a clause of reservation of title, however this clause will not produce effects before a third party who purchased the goods in good faith.

When the seller rescinds and repossesses the goods upon judicial order, payments received must be returned to buyer less depreciation and fair rental.

If recorded in the Public Registry of Property and in the event of bankruptcy of purchaser, seller may request the Judge to separate the goods sold, whose price has not been paid, from the assets of the bankruptcy proceeding.

TRUSTS
Although the trust is widely used for many different purposes and a wide variety of transactions, such as to manage assets, to transfer properties, to invest shares and other securities and to creates a business concern, it may be used as a vehicle to guarantee debts when the security involves a substantial amount of property.
A trust is created through an agreement between the grantor or grantors and the trustee which may only be a banking institution. A beneficiary or beneficiaries are also named which are the persons entitled to the benefits of the trust agreement. Grantors may also be the beneficiaries.

The trustee will perform its duties through its agents which may accomplish the purposes of the trust through a technical committee which may be designated by the grantors. The trustee will be personally liable for the failure to perform its fiduciary duties.

Property and rights of all types may be placed in trust. Trusts affecting real property must be recorded at the Public Registry of Property of the situs in which the real property is located. Trusts involving movable property will be effective against third parties once the following requirements have been fulfilled:

if on non-negotiable credit instruments, or personal rights, from the date the obligor is notified of the trust;
if on nominative instruments, from the date of endorsement of the instrument to the trustee and the recording of such endorsement in the registry of the issuer if applicable; and if on tangible property or bearer instruments, from the moment of possession by the trustee.
Trust are extinguished:

by the fulfillment of its purposes;

by the impossibility to fulfill its purposes;   through the exercise by the grantors of the right to revoke, if applicable; the agreement between the grantors and the beneficiaries; and

the removal or resignation of the trustee without designation of its substitute.
Foreclosure may be achieved extrajudicially in a guaranty trust by incorporating a conventional procedure in the trust agreement or with the intervention of a court following the procedure applicable to conventional pledges for the sale of assets.

LEASES
Lease agreements may be structured in certain cases to be in effect, security arrangements.

Lease with purchase option
These are governed by the general lease rules contained in the civil codes for each State or the Federal District. A lease agreement may grant the lessee an option to purchase the leased merchandise either during the lease term or the expiration thereof. The purchase price and payment conditions may be determined in the lease agreement.
The local civil codes usually require registration at the Property Public Registry of leases for real estate beyond a certain duration (i.e. 6 years) to be effective against third parties.


Financial lease
Financial lease agreements are regulated by the General Law of Auxiliary Credit Organizations and Activities and may be granted only by financial leasing companies (See Section II E. 5. hereinabove) which acquire the title of the merchandise and lease same to individuals or legal entities for a compulsory period of time. The lessee pays a determined amount which includes the price of the goods, the financial and other costs. On termination of the lease, the lessee may: a) purchase the merchandise at a value lower than the original purchase price paid by the lessor or market value; b) extend the agreement paying a lower rent in accordance with the terms established in the agreement; c) participate in the proceeds from the sale of the leased merchandise to a third party as may be agreed.

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