Creating a Real Estate Holding LLC in Mexico

Real Estate LLCs in Mexico

Incorporating a Mexican corporation or limited liability is an excellent, and perhaps the ideal option, for owning property anywhere in Mexico. Using a company to own property has the effect of reducing bureaucracy, improved operational flexibility, and decreased administrative costs in the case the property is sold. Of course, it also permits foreigners to own property within the restricted zones of 100km of the border and 50km from the coastline in Mexico, where direct foreign ownership of real property is prohibited.

Let’s discuss these benefits in detail…

How does this process work?

A foreigner can own a Mexican company without restriction in most cases, unless the company is involved in a restricted industry reserved for Mexican citizens (telecommunications, maritime transportation, electricity production…etc.).

• Incorporate either a corporation or a limited liability company. It is important to note that all legal entities in Mexico must have at least two shareholders… not just one. Therefore, step one is to decide who will act as the two shareholders/owners of the new company.

For example, let’s say a couple from Canada decides to purchase a home in Puerto Vallarta as a vacation property. In this case, both spouses would become the owners of the Mexican company in whatever percentage ownership split is desired (50/50%, 60/40%, 20/80%… etc). It is important to note that there is no specific requirement on the ownership split, which can be any percentage desired.

It is important to note as well that ownership is not limited to individual “physical” people. The company can also be owned with the participation of a foreign legal entity. Therefore, let’s say the couple has a company in their name in Canada. That foreign company or even multiple foreign companies or legal entities can also be the owners of the Mexican company.

What are the benefits of creating a Real Estate Holding Company in Mexico?

Ease of ownership of multiple properties and investments.

As we have mentioned before, using a company as the owner of Mexican real estate company, has great use as an investment vehicle. Let’s say a group of investors pool together funds to purchase an apartment building or multiple properties in Mexico. All of the properties can be purchased and owned by the Mexican company, which in turn (1) is owned by the group of investors as individuals, or (2) can be owned by a foreign company in which the group investors are shareholders.

Likewise, if the hypothetical Canadian couple wants to purchase several properties, one in Cancun and another in Mexico City, their new Mexican company can own all of their properties on the couple’s behalf.

Maintenance and administrative benefits.

In many cases, like contracting services such as water, internet, property taxes, signing rental agreements or other routine tasks, these actions require that the owner of the property attend to these matters personally to vary degrees. If the owners plan on using a property management company or a trusted individual to handle new renters and maintain the property in their absence, the management company or a trusted individual can be granted a corporate authority or power of attorney, and can attend to a whole range of administrative matters.

For example, if our Canadian couple appoints the office manager of their property management company with such a power of attorney, this individual could do things on their behalf like, contract insurance, sign rental agreements, cable and internet, or handle local property tax matters on the couple’s behalf, without their having to fly to Mexico periodically to handle basic administrative and maintenance duties.

Reductions in taxes, bureaucracy and transfer costs in the case of a sale.

The sale of real property in Mexico includes a host of administrative and transfer costs. For example, a notary who formalizes the transfer will generally charge large fees as a percentage of the property’s value, registration costs with the local property registrar, and income and estate taxes.

In executing a sale using a company, ownership is passed to a new owner via the execution of an assembly resolution, in which the shares of the Mexican company are simply transferred to new owners, but the actual ownership of the property or properties in questions remains the Mexican company. In such case, the transfer of beneficial ownership of all the properties is made in one single administrative act, while reducing or eliminating the costs of the transfer, registration fees, and significantly reducing tax exposure. The notarization and registration of a company assembly resolution is relatively easy and inexpensive. A good accountant with corporate experience should be consulted. In any case, the resulting tax burden can be significantly reduced or mitigated with proper planning, especially where the funds of the sale do not remain in Mexico.

Tax benefits using a Mexican company for renting on AirBnB or as a rental property generally.

As of June, 2020, renting a property via an online service like AirBnB, means that the AirBnB is automatically required to deduct on your behalf what should be paid in terms of Mexican VAT and income taxes. These deductions can be very high and do not permit you to right off any operational or administrative costs, or to otherwise calculate your local tax exposure on your own. Therefore, using a company to own and rent local property, can greatly facilitate the process of complying with local tax laws and prevent services like AirBnB from deducting taxes automatically from each transaction.

The Difference Between a Trust and a Real Estate LLC in Mexico

Comparing a fideicomiso or real-estate trust, to using a Company for Mexican property ownership.

 

Mexican Company

Fideicomiso (Realestate Trust)

Set up costs

2000 – 2500 USD

1000 – 2000 USD

Annual Maintenance

1000 – 1500 USD

1000 – 1500 USD

Foreign-owned Property in Restricted Zone

Yes

Yes

Multiple Property Holdings

Yes

No

Appointment of Local Representative

Yes

No

Investor Pooling and Protections

Yes

No

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Corporate Taxation in Mexico

Mexican LLCs (S. de R.L.) are subject to similar corporate tax requirements found in other jurisdictions and taxed independently from their shareholders. Mexican LLCs are subject to monthly and annual tax filing requirements. In most cases, for purposes. In Mexico, they are taxed in the same way as corporations and are subject to double-taxation upon earnings. However, they will be treated as a pass-through entity in foreign jurisdictions, which is their primary distinction and benefit from their counterparts, the S.A. de C.V., the equivalent of a corporation in Mexico. In this case, taxes paid in Mexico may be deducted in the form of a foreign tax credit in jurisdictions like the United States.

  • Income tax rate of 30%
  • Subject to monthly tax declarations
  • Subject to annual tax declarations
  • General sales tax on all goods and services 16%
  • Electronic invoicing for deductible transactions
Overview of Service

MexInc will complete the formation of a legal entity in Mexico for purposes of holding property in Mexico, including within the restricted zone located 50km from the coast or 100km from the northern and southern boarders.

The process can be performed without need to travel to Mexico for any reason. Additionally, MexInc will consult with the client concerning the most appropriate ownership structure taking into consideration whether the property will acquired for investment, by private individuals, by a group of owners, or will be owner by a foreign parent legal entity.

Will process all registrations for the company necessary for closing including, articles of incorporation, e.Firma, foreign investment registration, and bank account. Following incorporation, our firm can also handle maintenance and filings required by the company on a monthly and annualized basis at a reduced cost on par with the similar fees associated with use of a real estate trust (Fideicomiso).

All documentation is forwarded to client in PDF form, which should be signed, executed, legalized/apostilled, and returned to our offices in original. Furthermore, should client desire to open a bank account, this process is likewise completed without the need to travel to Mexico.

Procedures:

A. Client provides MexInc with corporate structure and copies of initial documentation uploaded via MexInc server.
B. MexInc requests authorization for use of corporate name from authorities
C. MexInc issues detailed instructional memorandum and powers of attorney
D. Client obtains certified copies of requested documents and executes powers of attorney
E. Client follows process for obtaining apostilles or document legalizations
F. Client forwards all original documents with apostilles or legalizations
G. MexInc translates all documents
H. MexInc notarizes and executes articles of incorporation on client’s behalf
I. MexInc registers company before the companies registry
J. MexInc obtains company tax identification (RFC) number from tax authority
K. MexInc obtains company e.signature (e.firma)
L. MexInc performs foreign investment registration

Additional Procedures:

• Bank account processing
• Real estate closing
• Foreign investment notification for property

Documents Obtained:

• Articles of incorporation and by-laws
• RFC inscription certificate
• e.Signature (e.Firma) inscription certificates
• Foreign investment registration certificate

Corporate Forms:

Sociedad de Responsabilidad Limitada (S. de R.L. de C.V.)
Limited Liability Company or Sociedad

Sociedad Anonima (S.A. de C.V.)
Corporation

Pre-requisites:

No specific actions must be taken prior to initiating service.

Basic Documentary Requirements:

• w/Parent Company
• Articles of Incorporation or certificate of organization
• By-laws, operating agreement, or equivalent
• Certificate of good-standing or similar
• Notarized powers of attorney
• Board resolution, certificate of incumbency, secretarial certificate
• Apostilles or legalizations

w/o Parent Company
• Notarized powers of attorney
• Apostilles or legalizations

Pricing Starting At:

Standard Real Estate Holding LLC – Starting at $2,500.00 USD [get quote]