Memoramdum Foreign investement& Real Estate Law Pursuant to your kind request, following you will find a general guidelines and information about the legality of acquisition of real estate in the restricted zone by Mexican Corporations with foreign partners to do business in the State of Baja California – Mexico . Foreign Investment Laws relating to the acquisition of real estate by foreigners. First of all, it is important to review the content of the first section of article 27 of the Mexican Constitution that regulates the ownership of lands and waters in Mexico . The first paragraph of Article 27-I states, "Only Mexicans by birth and Mexican Companies have the right to acquire ownership of lands, waters and their easements, or to obtain concessions for the exploitation of mines or waters". Moreover, the same paragraph states, "The Mexican Government may grant the same right to foreigners provided they agree before the Ministry of Foreign Affairs to consider themselves as Mexican nationals with regard to said land and waters and not to invoke the protection of their governments in matters relating thereto, under penalty, in case of default to comply with this agreement, of forfeiture of the property they had acquired to the benefit of the nation". The referred article adds that under no circumstances foreigners may acquire direct ownership of lands or waters within a zone of one hundred kilometers from the borders and fifty kilometers from the seashores of the Mexican Republic . These zones are known as the restricted zones. In order to provide a specific interpretation of the first section of article 27 of the Mexican Constitution, the Mexican Government enacted a new Foreign Investment Law, which was published in December 27, 1993 . Since then, the law has been amended in order to provide a more flexible and clearer interpretation of the aforementioned Constitutional provision, thereby facilitating its comprehension. In general, the Foreign Investment Law provisions allow foreigners to acquire real estate outside the restricted zone providing that such buyers file a petition before the Ministry of Foreign Affairs in which they agree to be considered as Mexican nationals, thereby waiving the protection of their governments with regard to such acquisitions, and in such case obtain an authorization from the Ministry of Foreign Affairs. The Ministry of Foreign Affairs will determine in which cases an authorization will not be required. On March 2, 1998 , the Ministry of Foreign Affairs published a resolution in which it was stated that all nationals from countries that maintain diplomatic relations with Mexico shall only be required to file a petition agreeing to be considered as Mexican nationals in the same terms as above. If the real estate or property is located in a municipality partially considered to be within the restricted zone, the Ministry of Foreign Affairs will resolve the petition for the acquisition permit within a 30-day period upon the filing of such. On the other hand, if such real estate is located outside the restricted area, the authorization will be deemed granted if the Ministry of Foreign Affairs does not publish its refusal in the Official Gazette, within 5 days of the submission of the petition. Article 10 of the Foreign Investment Law provides that a foreign owned Mexican Corporation may own real estate in the restricted zone ( Baja California ), provided that said property is destined for non-residential purposes (real estate, time share, tourist or vacation). In this case, registration of the acquisition before the Ministry of Foreign Affairs will be required within 60 days of the date of acquisition. The Calvo Clause is a conceptual waiver that the Mexican government uses in general terms regarding foreigners that acquire rights in Mexico (like real estate) or that do business in Mexico . It basically states that the foreigners will consider themselves as Mexican nationals regarding the rights and obligations they acquire in Mexico and will not request that their foreign government intervene upon their behalf in such matters. The Federal Mexican government presently has agreement terms for foreigners that are an extended version of the original Calvo Clause that it is using. The Restricted Zones in Mexico The Restricted Zone in Mexico (known in the past as the "Prohibited Zone") is set up as such in the Mexican Federal Constitution. It is: (1) the land area within 100 kilometers of Mexico 's international land borders (with U.S. , Belize and Guatemala ) (all of the border towns and a little more); and (2) the land area within 50 kilometers of Mexico 's ocean front areas (the coast line of Mexico ). In the Restricted Zone foreigners (individuals) to Mexico can not own direct (fee simple) title to real estate located therein. They can however hold the title thereto via a Mexican Corporation (depending upon the use of the property). In the case that the property in question is commercial (to be used for business purposes) then the foreigner can either hold the title to the property in the mentioned title through a Mexican Corporation, to which he can hold ownership (note: there are limitations on Mexican corporation ownership, depending upon the business activity it performs). Federal Maritime Land Zone in Mexico The laws of Mexico determine that there is a strip of land on the beach that is considered as part of the Federal Public Domain of Mexico, as is the sea along the coast of Mexico . This area comprises the full length of the beach along all of the coasts of Mexico and 20 meters in from the high tide of the sea at any one given location. This area is known as the Federal Maritime Land Zone of Mexico (ZoFeMaT = Zona Federal Maritimo Terrestre). The laws of Mexico foresee the possibility that the owners of the land located adjacent to this Zone may apply for and normally receive a concession on that portion of the Zone that is adjacent to their property. The office of government in Mexico that has direct control over these matters is the Federal General Administration of the Federal Maritime Land Zone(Dirección General de Zona Federal Maritimo Terrestre) , which is part of The Federal Sub-Ministry of Natural Resources (Subsecretaría de Recursos Naturales). This latter sub-ministry is part of the National Ministry of Ecological and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales). The party that wishes the concession must file certain papers. Once granted, the government will charge the concessionaire an annual fee for the concession Residential Property versus Commercial Property concerns in the Restricted Zone. Commercial Property is that which is used for such purpose. Where the acquisition by foreigners of real estate in the Restricted Zone may be acquired through a Mexican Corporation (please note that the limit on the ownership of the Mexican company is based upon rules set by the Foreign Investment laws - including the limitation based upon the corporate purpose). Under the 1993 Foreign Investment Law of Mexico, a Mexican b Corporation is considered Mexican under said law, even if all the shareholders are foreigners. Thus, foreigner can acquire real property in direct ownership (similar to fee simple) in the US . The Regulations of the Foreign Investment Law states which are considered the commercial activities or corporate purpose for the Mexican Corporation that owns property in the Restricted Zone (used for non-residential purposes), such as: 1. Promotion and sale of timeshare rights of use to real estate (here no ownership of real estate is given but rather rights of use); 2. For industrial, commercial or tourism activity that may simultaneously contain a residential component for the subsequent buyer; 3. Real estate acquired by credit institutions, financial intermediaries, and auxiliary credit organizations to recover debts owed to them and in the ordinary course of business; 4. Real estate used by entities in the course of their business consistent with sale, development, construction, subdivision and other activities included in the development of real estate projects, until these are sold to third parties that use them for residential occupation; and 5. Generally, real estate destined for use in commercial, industrial, agricultural, cattle, fishing, forestry, or service related activities. Notary Publics The Notary Publics normally perform their duties either in the issuance of a Public Instrument ("Escritura Pública") that will contain that sought by the parties or they will affirm to the signature of a party that signs a document before them. In Real Estate. In cases where title of ownership of real estate is transferred, the Notary Publics are charged with the preparation of the title transfer document/contract (their own document or a draft given by the intervening parties that they will review and revise as needed) which takes the form of a Public Instrument and with the acquisition and attachment (to the Public Instrument file) of documentation evidencing the seller's ownership, any power of attorney (in the event of an agent acting on behalf of a principal), the certificate of non-encumbrance and title holding from the corresponding Public Registry of Property, an affidavit of appraisal, non-debt of water, and non-debt of land taxes. As well, the Notary Public calculates the taxation and fees that will be payable to government agencies and collect them from the intervening parties and (when the parties so request) performs the registry of the new title at the corresponding Public Registry of Property. Mexican Corporation The "Sociedad Anónima" (Corporation) is a company with a denomination consisting of shareholders whose only obligation is to deliver the portions they subscribe to (in the corporate capital) and which are attributable to the company, which parts are represented by negotiable instruments (stock), (no bearer instruments/stock), and which company parts may or may not be of restricted transferability (depending on the company bylaws). This type of company requires a minimum of two stockholders in order to incorporate and exist. This type of company may, (if set in the articles of incorporation) have a variable capital portion which would permit it to raise or lower the variable portion without changing the articles of incorporation or bylaws (however it would require an extraordinary shareholders' meeting). This company type description (at the end of the name) can be abbreviated by the letters "S. A.", or if of the variable capital type then "S.A. de C.V.". Conclusions You as foreigner, don't need to worry about a title trust, you can take the beach property in a Mexican Corporation. If everything else is ok (regarding the title), and the preponderant purpose or sole purpose of use of the property is business, then a Mexican Corporation could hold direct title to it. If the Mexican Corporation is created correctly and the nature of the business it will do permits (by the Mexican Foreign Investment Law) foreign shareholders, then you may acquire shares of stock in the Corporation (to the limited permitted by the mentioned law). For additional information, please contact Luis Humberto Lopez or Eduardo Martinez at lhlopez@lmklaw.com or emartinez@lmklaw.com or dial to (++52) (664) 686.1006 at our Tijuana Offices or at (619) 595-3173 at our San Diego Office. |
