Buying Property in Mexico: Foreigner Legal Checklist

What are the main forms of owning real estate in Mexico?

The main ways to hold real estate in Mexico are direct ownership (fee simple), a bank trust (fideicomiso) for foreigners in restricted zones, and ownership through a Mexican company. There are also special forms such as condominium units, usufruct rights, timeshares, and communal ejido land, each with very different levels of security and flexibility.

Direct ownership (propiedad plena)

This is classic fee simple ownership recognized by the Civil Codes of each state and the Federal Civil Code.

• The owner appears in the public deed (escritura pública) as titular.
• Rights include use, enjoyment, and disposal of the property, subject to zoning and other regulations.
• Common for houses, apartments, lots, and commercial buildings outside the restricted zone or when held by Mexican entities or authorized structures.

Bank trust (fideicomiso) for foreigners in the restricted zone

Under the Ley de Inversión Extranjera, foreigners cannot hold direct title to residential property in the "restricted zone" (50 km from the coast and 100 km from international borders). Instead, they usually use a fideicomiso.

• A Mexican bank (fiduciario) holds legal title to the property.
• The foreigner is the beneficiary (fideicomisario) with rights equivalent in practice to ownership:
  • Right to use, lease, modify, mortgage, and sell the property.
  • Right to designate substitute beneficiaries.
• Initial term up to 50 years, renewable for further 50-year periods.
• Requires authorization from the Secretaría de Relaciones Exteriores (SRE).
• Common for foreign buyers in areas like Cancún, Riviera Maya, Los Cabos, Puerto Vallarta, and Baja California border communities.

Ownership through a Mexican company

Foreign individuals can also own real estate indirectly through a Mexican corporation (S.A. de C.V. or S. de R.L. de C.V.).

• Corporate ownership is often used for:
  • Commercial or mixed-use properties in the restricted zone.
  • Portfolio investments and developments.
  • Short-term rental businesses.
• The company must be registered with the Registro Nacional de Inversiones Extranjeras if foreign shareholders exceed specified thresholds.
• Corporate structures bring corporate compliance, accounting costs, and tax filing obligations, but may simplify operations for multiple assets.

Condominium regime (condominio)

Many apartments and some housing developments operate under a condominium regime regulated by local condominium laws.

• You own:
  • A private unit (departamento, casa, local) as exclusive property.
  • An undivided share of common property (hallways, gardens, pool, facilities).
• Governed by:
  • Condominium constitutive deed (escritura de constitución de condominio).
  • Condominium bylaws (reglamento de condominio).
• Monthly HOA fees (cuotas de mantenimiento) and extraordinary assessments are legally enforceable.

Usufruct and bare ownership (usufructo y nuda propiedad)

A property can be split between a usufructuary (who uses and enjoys) and the bare owner (who has title without current possession).

• Common in estate and family planning.
• Usufruct may be for a fixed term or for life.
• Buyer must confirm whether any usufruct or similar rights affect the property at the Public Registry of Property.

Ejido land and communal property

Ejido land is communal agricultural land governed by agrarian law, not standard civil law. Foreigners and ordinary buyers should treat ejido land with high caution.

• Ejidos are regulated by the Ley Agraria and supervised by the Registro Agrario Nacional (RAN).
• Ejido parcels cannot be freely sold as private property unless:
  • The ejido has been fully regularized and domain rights converted into private property, and
  • The conversion and later sale are properly formalized and recorded.
• Many frauds involve misrepresented ejido land near beaches or growth areas.
• Always require evidence of full regularization and registration before considering a purchase.

How can foreigners legally buy property in Mexico?

Foreigners can legally buy property in Mexico either by direct ownership (outside the restricted zone), through a bank trust (fideicomiso) in the restricted zone, or via a Mexican company. Each structure must comply with the Foreign Investment Law and usually requires either an SRE permit or registration with the National Registry of Foreign Investments.

Understanding the restricted zone

The Mexican Constitution and the Ley de Inversión Extranjera define the restricted zone as:

• 50 kilometers from any coastline, and
• 100 kilometers from any international border.

Foreigners:

• May not hold direct residential property title in the restricted zone.
• May acquire non-residential property (for example, industrial) in the restricted zone through a company with foreign investment, subject to specific rules.

Foreign individual buying outside the restricted zone

Outside the restricted zone, a foreigner can hold direct title as an individual.

1. Obtain a permit from Secretaría de Relaciones Exteriores (SRE) to acquire property, usually processed by the Notario.
2. Sign the standard "Calvo clause", accepting Mexican jurisdiction for disputes over the property.
3. Purchase is formalized in a deed before a Notario and registered in the Public Registry of Property.

Foreign individual buying in the restricted zone via fideicomiso

For residential use in the restricted zone, the typical structure is a bank trust.

1. Select a Mexican bank authorized to act as fiduciary (fiduciario).
2. The bank obtains:
   • SRE authorization for the trust.
   • Internal approvals and KYC compliance.
3. The seller transfers title to the bank, which holds it in trust.
4. You are designated as beneficiary with transfer and inheritance rights.
5. Trust is formalized in a deed and registered with the Public Registry and often the RAN if land had an agrarian history.

Term: up to 50 years, renewable. Renewal is typically a formal request to the bank with a fee, but you should check the specific bank's policy and timelines.

Buying through a Mexican company

Using a Mexican company is common when the property is used as a business asset.

• Typical entity types:
  • S.A. de C.V. - similar to a corporation.
  • S. de R.L. de C.V. - similar to an LLC, often favored for foreign tax reasons.
• Company incorporation steps:
  1. Reserve corporate name with the Ministry of Economy.
  2. Sign incorporation deed before a Notario.
  3. Register with the Public Registry of Commerce and tax authorities (SAT) to obtain RFC.
  4. Register with the Registro Nacional de Inversiones Extranjeras if foreign investment thresholds apply.
• The company then signs the purchase deed and becomes the registered owner.

Residency and tax identification (RFC)

Foreign buyers do not need Mexican residency to buy property. However, having at least temporary residency and an RFC (Mexican tax ID) can simplify tax treatment, especially for future sales and rental income.

• RFC is issued by the Servicio de Administración Tributaria (SAT).
• Some Notarios now strongly prefer or require an RFC for buyers and sellers to comply with reporting and e-invoicing (CFDI).

What is the standard process to buy property in Mexico?

The usual process to buy property in Mexico runs from offer and due diligence through notarization and registration, often taking 6 to 12 weeks. The Notario Público leads the formal legal process, but you should also engage your own lawyer to protect your interests and verify information independently.

Step-by-step process

1. Define the structure and team
   • Decide if you will buy as an individual, through a fideicomiso, or with a Mexican company.
   • Engage:
     • Independent real estate lawyer.
     • Reputable real estate agent familiar with the local market.
     • Tax advisor if investment or multiple properties are involved.
2. Offer and basic commercial terms
   • Negotiate price, currency, payment schedule, and included items (furniture, equipment).
   • Document in:
     • Offer letter or reservation agreement, sometimes with a small deposit, and/or
     • Promise to purchase agreement (promesa de compraventa).
   • Include contingencies: clear title, satisfactory due diligence, financing, permits.
3. Due diligence (run in parallel with contract drafting)
   • Title search at the Registro Público de la Propiedad.
   • Certificates:
     • Libertad de gravamen (no liens/encumbrances).
     • No outstanding property tax (predial) and water/utility debts.
     • Condominium no-debt certificate and bylaws, if applicable.
   • Verify:
     • Land use/zoning (uso de suelo) with municipality.
     • Construction permits and compliance if recently built or expanded.
     • If rural/coastal, possible environmental or maritime zone issues.
   • Confirm the seller's identity and authority to sell (individual, company, heir, developer).
4. Formal purchase agreement
   • In many states, the definitive agreement is the public deed itself.
   • For complex deals or where construction is pending, parties often sign a private purchase agreement first.
   • Include:
     • Accurate legal description of the property.
     • Exact payments, escrow arrangements, and deadlines.
     • Penalties for default, dispute resolution, and jurisdiction.
5. Anti-money laundering compliance and payment method
   • Real estate deals are "actividades vulnerables" under the Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita.
   • Payments in cash are strongly restricted and must remain below thresholds.
   • Notario and intermediaries must report certain transactions to the Unidad de Inteligencia Financiera (UIF).
   • Standard practice uses bank transfers, often via escrow or trust accounts, sometimes in USD but registered in MXN at the prevailing exchange rate.
6. Closing before the Notario Público
   • The Notario:
     • Calculates taxes and rights (especially ISR, acquisition tax, and registration rights).
     • Prepares the deed (escritura) or fideicomiso trust deed.
     • Collects funds for taxes and fees.
     • Verifies compliance with SRE permits or corporate registrations.
   • Both parties sign the deed; the Notario issues certified copies.
   • Buyer typically pays the purchase price either before or at signing through agreed mechanisms.
7. Registration and post-closing
   • The Notario files the deed at the Public Registry of Property.
   • Registration often takes several weeks or months, depending on the state.
   • Once registered, you receive a certified copy showing registration data; this is strong evidence of ownership.
   • Update:
     • Municipal property roll (catastro) and predial account.
     • HOA records and service accounts.

What are the typical costs and taxes when buying property in Mexico?

Typical buyer closing costs in Mexico are roughly 4%-8% of the purchase price, plus additional fideicomiso fees for restricted-zone foreign buyers. The main components are acquisition tax, notary fees, registration rights, appraisals, and, when applicable, trust set-up and VAT on certain services.

Main cost components

• Acquisition tax (Impuesto sobre Adquisición de Inmuebles - ISAI)
  • Charged by states/municipalities, often between 2% and 5% of the higher of:
    • Contract price,
    • Cadastral value, or
    • Official valuation (avaluo catastral or comercial).
  • Example: in Mexico City, the rate is progressive and can reach about 4.5% for higher values.
• Notary fees (honorarios notariales)
  • Regulated per state; often about 0.5%-1.5% of the property value, with minimum amounts.
  • Increase with transaction complexity and value.
• Public Registry and other rights (derechos)
  • Registration fees, certificates, cadastral updates, and municipal authorizations.
  • Usually a smaller portion of the total but still significant.
• Appraisal (avaluo)
  • Required especially for tax and registration purposes.
  • Cost depends on size and location, often several thousand pesos.
• Fideicomiso costs (if applicable)
  • Trust set-up fee: often around MXN $20,000-$40,000 (varies by bank and negotiation).
  • Annual trust fee: often around MXN $15,000-$25,000, sometimes more in resort markets.
• Legal and advisory fees
  • Independent lawyer, tax advisor, and possibly a due diligence consultant.
  • Legal fees may be a flat amount or a percentage of the purchase price.

Illustrative cost table for a MXN $5,000,000 property

The following is an approximate example to show order of magnitude. Actual figures vary by state, municipality, and service provider.

VAT (IVA) and new construction

• Residential property is generally exempt from VAT on the value of the construction; land is also VAT-exempt.
• VAT at 16% may apply to:
  • Professional services (legal, notary portion of fees, some commissions).
  • Commercial properties and certain mixed-use developments.
  • Furniture or equipment if billed separately.
• Your advisor should break down invoices to clarify what is VAT-exempt vs taxable.

How are ongoing ownership costs, taxes, and HOA fees handled?

Owners in Mexico must pay annual property tax (predial), utilities, and, if applicable, condominium or HOA fees. If you rent the property, you also face income tax on rental income and possibly VAT and local lodging taxes.

Property tax (predial)

• Levied by municipalities, often at relatively low rates compared with many other countries.
• Assessed on cadastral value, not necessarily market value.
• Payment:
  • Usually annual, with discounts for early payment in the first months of the year.
  • Can often be paid online or in person at municipal offices.
• Failure to pay accumulates surcharges and can eventually lead to enforcement actions.

Condominium and HOA fees

• Set by the condominium assembly under the condominium bylaws.
• Cover:
  • Maintenance of common areas.
  • Security, gardening, pool, elevators, administration.
• HOA can record liens against units for unpaid fees and block services or voting rights.
• Review:
  • Bylaws (reglamento).
  • Latest assembly minutes.
  • Current and recent budgets to anticipate future increases.

Utilities and services

• Electricity: Comisión Federal de Electricidad (CFE), with tiered tariffs.
• Water: municipal or local commission, sometimes included in HOA fees.
• Gas: piped or cylinder; private providers.
• Internet/phone: private carriers; quality varies by region.

Taxes on rental income

• Rental income is subject to ISR (income tax) and, in many cases, IVA (VAT).
• Individual owners:
  • Can pay under specific rental regimes with simplified deductions or actual expenses.
  • Need an RFC and must issue CFDI e-invoices to many tenants, especially corporate ones.
• Short-term rentals:
  • Often subject to 16% VAT on the service portion.
  • In some states, an additional lodging tax (impuesto sobre hospedaje) applies, usually collected via platforms or property managers.
• Non-resident owners must consider double taxation treaties, withholding rules, and local registration requirements.

How are real estate sales and capital gains taxed in Mexico?

When you sell Mexican property, the Notario calculates and withholds income tax on capital gains (ISR), applying different methods for residents and non-residents. The taxable gain is generally the difference between the updated acquisition cost and the sale price, subject to exemptions and deductions.

Determining tax residency

• Mexican tax residents:
  • Typically those with a center of vital interests in Mexico or who have lived there for more than 183 days in a calendar year, subject to SAT criteria.
  • Taxed on worldwide income, including real estate gains.
• Non-residents:
  • Taxed only on Mexican-source income, including Mexican real estate sales.

Capital gains for residents

• Gain = sale price minus adjusted acquisition cost, expenses, and authorized improvements.
• Acquisition cost can be:
  • Indexed for inflation if purchased long ago.
  • Increased by properly documented improvements (with invoices and permits).
• The Notario calculates ISR using progressive rates applicable to individuals under the Ley del Impuesto sobre la Renta.

Principal residence exemption

• Mexican residents may qualify for an exemption on the sale of their principal residence under specific conditions.
• Key aspects (subject to current law and limits):
  • Exemption applies up to a cap expressed in UDIs (around 700,000 UDIs, which can represent several million pesos depending on current UDI value).
  • The seller must prove residency at the property (utility bills, ID, RFC address, etc.).
  • Can typically be used once every 3 years.
• The Notario will require documentation before applying the exemption.

Capital gains for non-residents

• Common options under the ISR Law include:
  • 25% tax on gross sale price with no deductions.
  • 35% tax on net taxable gain, if the seller appoints a representative in Mexico and provides supporting documentation.
• The Notario acts as withholding agent and must withhold at closing.
• Double taxation treaties may reduce the effective rate or allow tax credits in the seller's home country.

Other sale-related taxes and costs

• Seller's broker commission (plus VAT if invoiced).
• Certificates and documentation required to prove tax status and allow more favorable treatment.
• Potential local transfer or registration charges if seller is covering any portion per negotiation.

What should buyers know about due diligence and common risks in Mexico real estate?

Thorough due diligence is essential in Mexico to verify title, zoning, and compliance, and to avoid pitfalls such as ejido land, unpermitted construction, or unpaid taxes. Many disputes and losses arise from skipping formal checks or relying only on informal agreements and oral promises.

Title verification and encumbrances

• Obtain a recent certificado de libertad de gravamen from the Public Registry of Property.
• Confirm:
  • Owner identity matches the seller.
  • Property description and boundaries align with physical reality and survey.
  • There are no mortgages, liens, embargoes, or annotations affecting title.
• Review the history of deeds to detect irregular transfers or unresolved inheritance issues.

Ejido, agrarian, and irregular land issues

• Request evidence that:
  • The land is fully private, not ejido; or
  • Any prior ejido status was properly terminated and registered.
• Check with the Registro Agrario Nacional (RAN) or specialized lawyers if there is any doubt.
• For rural, coastal, or edge-of-town parcels, treat offers at suspiciously low prices as red flags.

Zoning, land use, and environmental matters

• Verify zoning (uso de suelo) with the municipality to ensure your planned use is permitted.
• Confirm:
  • Construction licenses for existing buildings.
  • Environmental permits for projects near coasts, forests, or protected areas.
  • Coastal concession issues, if the property fronts the federal maritime zone.
• Ask for technical reports or involve an architect or engineer for large or complex assets.

Condominium and developer risks

• For units in condominiums or new developments:
  • Review the condominium constitution and bylaws.
  • Verify that the condominium regime is fully registered.
  • Confirm that common areas are transferred to the condominium and not retained by the developer.
• In pre-construction or off-plan projects:
  • Evaluate the developer's track record and financial standing.
  • Confirm permits and progress vs sales promises.
  • Use structured payment schedules tied to milestones and backed by guarantees if possible.

Common mistakes by foreign and domestic buyers

• Paying significant sums based only on a private contract without involving a Notario early.
• Buying ejido or irregular land without legal regularization.
• Skipping independent legal counsel and relying solely on the seller's or broker's advice.
• Failing to document improvements properly, which later increases taxable gains at sale.
• Ignoring HOA dynamics and future maintenance/upgrade plans that heavily affect ongoing costs.

How are leases and commercial property handled in Mexico?

Leases in Mexico are governed mainly by state Civil Codes and, for commercial relationships, sometimes by the Commercial Code. Residential and commercial leases differ in taxation, typical terms, and risk allocation, so careful drafting is key.

Residential leases

• Usually written contracts with:
  • Fixed term (often 1 year, sometimes longer).
  • Monthly rent in MXN (or converted from another currency with clear rules).
  • Security deposit, usually 1-2 months' rent.
• Common clauses:
  • Maintenance responsibilities (minor repairs vs structural).
  • Default and early termination penalties.
  • Subletting and guest rules.
• Evictions must go through court if tenant refuses to leave; summary proceedings help but still take time and cost.

Guarantees and enforcement

• Landlords often require:
  • Co-signer/guarantor (aval) with property in the same city, or
  • A surety bond (fianza) from a bonding company.
• Deposit alone may not cover long disputes or damages, especially in large cities with slow courts.

Commercial leases

• More flexible; parties have greater freedom to structure terms.
• Typical features:
  • Longer terms (3-10 years or more) with renewal options.
  • Rent in MXN or USD, with indexation to inflation indices or US CPI.
  • Triple-net or modified gross structures allocating taxes, insurance, and maintenance.
• VAT:
  • Commercial leases are usually subject to 16% VAT.
  • Landlords must be registered taxpayers and issue CFDI invoices.
• Shopping centers and industrial parks often use detailed standard contracts and may require revenue-sharing clauses, fit-out obligations, and strict use restrictions.

When should you hire a lawyer or other experts for Mexican real estate?

You should hire a specialized real estate lawyer in Mexico whenever the transaction is significant, complex, or involves foreign buyers, restricted zones, or investment use. The Notario is neutral and represents the state, so you need your own advocate to protect your commercial and legal interests.

Situations where a lawyer is strongly recommended

• Foreign buyer purchasing in the restricted zone with a fideicomiso.
• Any purchase involving:
  • Ejido or recently regularized land.
  • Coastal, rural, or environmentally sensitive locations.
  • Pre-construction or off-plan developments.
• Commercial property, hotels, rental portfolios, or industrial sites.
• Joint ventures, co-investment structures, or purchases with partners or family shareholders.
• Tax-sensitive sales where you want to optimize exemptions and deductions.

What a real estate lawyer typically does

• Performs independent title and regulatory due diligence.
• Flags legal, zoning, and compliance risks and proposes mitigations.
• Drafts or reviews:
  • Promises to purchase and sale contracts.
  • Development and construction agreements.
  • Leases and property management contracts.
• Coordinates with:
  • Notarios.
  • Banks (for fideicomisos or financing).
  • Government offices (permits, SRE, RAN, municipalities).
• Designs tax-efficient holding and exit structures in coordination with tax advisors.

Other key experts

• Notario Público - mandatory for property transfers; ensures formal validity, calculates and withholds taxes, and records the deed.
• Tax advisor (contador or tax lawyer) - structures rental income, corporate ownership, and sale exits.
• Architect/engineer - assesses building quality, structural issues, and code compliance.
• Property manager - crucial for vacation rentals and remote owners.
• Insurance broker - arranges property, liability, and, if relevant, business interruption coverage.

What are the practical next steps if you plan to invest in Mexican real estate?

The most effective way to move forward is to clarify your objectives, choose the right ownership structure, and assemble a local professional team before committing money. From there, you can follow a structured search, due diligence, and closing process that minimizes risk and surprises.

1. Define your objectives
   • Primary residence, vacation home, or pure investment.
   • Short-term rental vs long-term hold.
   • Budget, preferred locations, and risk tolerance.
2. Choose a target region and preliminary structure
   • Check whether it lies inside the restricted zone.
   • Decide whether a fideicomiso, direct ownership, or a Mexican company fits best.
3. Engage core advisors early
   • Local real estate lawyer experienced with foreign buyers or investors.
   • Reputable agent with demonstrated track record in your target area.
   • Tax advisor if you expect rental income or plan to build a portfolio.
4. Organize your documentation
   • Passports and IDs for all buyers.
   • Proof of address and tax IDs from your home jurisdiction.
   • Consider applying for Mexican residency and RFC if beneficial.
5. Start property search with clear filters
   • Set price range, property type, and must-have features.
   • Ask your team to screen out ejido or irregular properties.
6. Structure each potential purchase carefully
   • Use written offers with clear contingencies.
   • Do not transfer large deposits without legal review and appropriate safeguards (for example, escrow or trust).
7. Insist on full due diligence before closing
   • Title search, liens, and certificate of no encumbrances.
   • Verify zoning, permits, and condominium regime.
   • Assess tax impact and plan for an eventual exit.
8. Plan for ownership and operations
   • Set up bank accounts, property management, and insurance.
   • Register for taxes if you will receive rental income.
   • Integrate the property into your overall estate and asset protection planning.