ILN: BUYING AND SELLING REAL ESTATE - AN INTERNATIONAL GUIDE

[BUYING AND SELLING REAL ESTATE IN MEXICO] 164

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or tourism related activities and generally those used by entities pursuant to their corporate purpose, such as sales or transfers, urbanization, construction, or development of real estate projects. Finally, foreigners may acquire real estate properties outside of the Restricted Zone provided that they must obtain a permit from the SRE for such purposes. III. Ways of Acquiring Real Estate Property in Mexico After the prospective buyer has find the desired real estate property and its offer has been accepted by the seller, there are several legal vehicles or capacities classically used to own real property in Mexico. An individual may hold title over real estate property in Mexico, directly or indirectly, allowing her/him to use, enjoy and dispose such property, through three different means: (i) as the direct owner, holding a property title under her/his name; (ii) through a Mexican corporation, as a stockholder; or (iii) through a bank trust, as a beneficiary. As a foreigner, the latter two would be the most recommended vehicles to hold title. (a) Foreign-Owned Mexican Corporation A foreign-owned Mexican corporation (a “ Mexican Corporation ”) is a vehicle frequently used by foreign investment to do business in the country, not just to hold title over real estate. As a national, provided that all LIE requirements are met, a Mexican Corporation complies with the Mexican Constitution requisite in order to hold title over private property. However, it is important to point out that holding title of real estate through a Mexican Corporation has to be pursuant to the corporate purpose of the entity.

indemnification. As a rule, only Mexican citizens, by birth or naturalization, and Mexican corporations have the right to acquire real estate property or to obtain concessions from the Mexican State to exploit national natural resources. However, the Mexican Constitution states that the Nation may grant the same rights to foreigners, provided that they agree with the Mexican Ministry of Foreign Affairs ( Secretaría de Relaciones Exteriores or “ SRE ”) to consider themselves as nationals in respect of such acquired property and shall agree not to invoke the protection of their government in respect thereof, under the penalty, in case of failure to honor such commitment, to forfeit such real estate property to the benefit of the Mexican Nation. This covenant or statement is known as the “Calvo Clause”. Another restriction to foreigners imposed in the Mexican Constitution is that they will not be able to acquire real estate within 100 kilometers (approximately 62.13 miles) along the borders and 50 kilometer (approximately 31.06 miles) from the coast, referred to in Mexican law as the “ Restricted Zone ”. However, pursuant to the Mexican Foreign Investment Law ( Ley de Inversión Extranjera or “ LIE ”) and its regulations, foreigners may acquire property located in the Restricted Zone for non- residential purposes, in which case, they would require to give a notice to the SRE of such acquisition within the next sixty (60) days following the date of the acquisition. In such cases, as we will analyze hereinafter, a foreign- owned Mexican corporation or a Mexican trust must be created to indirectly acquire real estate property. Non-residential purposes pursuant to the regulations of the LIE are considered as those destined to time sharing, industrial, commercial

ILN Real Estate Group – Buying and Selling Real Estate Series

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