BajaNomad - CORPORATION VS FIDEICOMISO

CORPORATION VS FIDEICOMISO

Marla Daily - 5-22-2008 at 06:42 PM

Probably time to separate the existing Fideicomiso thread. Any opinions re: benefits of Fideicomiso vs Corporation? Seems lots of folks in Loreto are opting for formation of a corporation in purchasing land, especially former ejido lots—declaring the business to be some form of rentals around their own home. We were told by a notary this is seen as a legal loophole to getting a Fideicomiso. To what end?. I don't get the advantage????? Monthy accounting fees? Annual taxes? What am I missing here? Corporations sound like a royal pain to me.

I can say that our annual Fideicomiso fee is $330. Our Municipal property taxes are $11/year.

FIDEICOMISOS: If property is already in a fideicomiso, probate and transfer tax are avoided when the property is transferred.
Regarding Inheritance: Nonresident individuals inheriting Mexican property are taxed at a flat rate of 20%. The tax base is the official assessed value of the property. No deductions are allowed. No inheritance tax is levied on the gross inheritance of nonresident individuals, other than on immovable property located in Mexico. Resident Foreigners: Inheritance or gifts of residents are not subject to tax in Mexico. No Value Added Tax (Sales Tax) is payable on residential property.
[www.property-mexico.com.arproperty_transaction_costs_fees_mexico.html]
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REGARDING MEXICAN CORPORATION TAXES:
A Mexican company will be subject to the following taxes during its operation:
A corporate tax assessable at a maximum rate of 35% must be paid ANNUALLY to the tax authorities on the company's taxable profits. The procedure to calculate such profits is by deducting certain allowed expenses from the total accruable gross income. Most of the company's income is considered accruable for income tax purposes at the time any of the following situations occur:
invoices are issued;
goods are delivered to the buyer or services are rendered;
when total or partial amounts of the transaction is collected or is payable, including advance payments.
Basically, the allowed deductions are all costs and/or expenses strictly necessary to carry out the company’s business. Except for the first year of operations, all Mexican corporations must file their income taxes through monthly provisional payments. These provisional payments will be credited against the annual income tax return.

A Mexican corporation may be 100% foreign-owned, and may purchase property in a restricted zone without a fideicomiso. But property owned by a corporation is commercial property, and pays higher water, electric, and telephone rates. However, a Mexican corporation MAY NOT own a single-family residence.
The Tax Authority may choose to perform a commercial appraisal after the purchase. If appraisal value is 10% greater than the declared value, the difference between the two amounts is subject to 20% Appraisal Tax, payable within 15 days after the appraisal. Commercial Property transactions are liable to VAT (sales tax) at the current rate in addition to the Acquisitions Tax.

And what happens if someone has a corporation, wants to close the business, and wants to change to a Fideicomiso? Anyone with experience out there?

Osprey - 5-22-2008 at 06:49 PM

Marla, Skeet and Capt. George both said they bought/held/sold pieces of property in Loreto via corporations. There are countless threads on here that will give witness to this fact. Perhaps they will jump in, tell you how they did it. If not you could contact them privetly U2U or otherwise to learn more about how they fared. Skeet said he bought many, many pieces of land in the Loreto area using corporations.

2008

Marla Daily - 5-22-2008 at 07:22 PM

Thanks for your tips. We know Skeet and remember well his extolling the virtues of a corporation. We also remember when he received an unexpected knock on the door from the Feds asking to see his corporate accounting books. This was many years ago. He's got great memories on how he was able to do things back when.

That was long before the Loreto ejido broke out lots, long before Loreto Bay and San Bruno and Villas Group, and all the other mega developments and foreigners here. Many laws have changed and I'm sure he would be the first to tell you that 2008 is a very different Loreto. I think it would be great to get some current views and experiences. There are lots of them happening right now as people wait for their titles to come in from purchasing ejido certificados.

Diver - 5-22-2008 at 07:32 PM

Quote:

Originally posted by Marla Daily
I'm sure he would be the first to tell you that 2008 is a very different Loreto.

Nope, it's all the same; especially the fishing !! :lol:

We have a corp for our lots but I don't claim any expertise in the area.
No requirement to invest and no income for now.
Still have to do the accounting even for $0.
Any homes built on the property must be for rent, lease or sale except for a potential manager's quarters ? :light:

Right Bob ?? :yes:

Pescador - 5-22-2008 at 07:56 PM

If my info is correct, the cost to disband a corporation is even more expensive than the money to set it up in the first place. But that would only happen when you go to sell or otherwise stop doing busiess as the corporation.

Diver - 5-22-2008 at 09:24 PM

So what happens if you sell all the properties owned by the corp and then dissolve it ?
Or transfer some of it to a Fido ?
I am not aware of a high cost to close the business other than gains or income taxes.
Not to say they don't exist, I just haven't heard of this before.
Where is Bob when you need him ? He is the "corp" guy.

Bob and Susan - 5-23-2008 at 05:49 AM

i'm no expert and make ALOT of errors...but...
this is what i understand

corps MUST conduct business...always

diver is correct...
"No requirement to invest in the property
and no income needed (immediately) for now"
"Still have to do the accounting even for $0."
"Any homes built on the property must be for rent,
lease or sale except for a potential manager's quarters ?"
(the homes MUST look or act like a business...
you'll get burned if they don't)

when you split the property from the corp into lots
you take the sales price of each lot as income and
pay the tax to the government...

the tax (value) is paid in the year when the fido closes with the bank

don't think you can split a lot that cost you 100k into 4 pieces and
sell each for 25k and
have NO TAX...WRONG...

you pay tax on 25k for each of the lots...
each time you sell
EVEN if you DO NOT make a profit

you CANNOT live in a single family house with a corp title

you must file monthly taxes even if you dont make any money that month AND complete BIG report at the end of the year

capt. mike - 5-23-2008 at 07:18 AM

Bob - if and when you ever parcel.............you'll be a gazillion aire!! :bounce:

ncampion - 5-23-2008 at 07:52 AM

Quote:

Originally posted by Bob and Susan

"Any homes built on the property must be for rent,
lease or sale except for a potential manager's quarters ?"
(the homes MUST look or act like a business...
you'll get burned if they don't)

you CANNOT live in a single family house with a corp title

Bob,
I believe you live on your property, are you considered the "manager" and is your home the "manager's home". We are building guest rooms on our property for rent and we intend to live in the same structure and serve as "managers". Is this withing the regulations as you understand?

Gadget - 5-23-2008 at 08:38 AM

Our friend Bill, who owns El Pozo Hondo B&B in Pescadero also indicates that along with the above you need to have, if you are reporting income, a full time Mexican national employee on the books.

He has a guy, who even in the off season when he has no income, show up every day. He rakes and waters and pulls weeds. Worked one day putting it the vegy garden. The place is always immaculate. This could be a drain on valuable resources.

Diver - 5-23-2008 at 08:47 AM

I do not believe that you need a Mexican employee if you have an FM3 lucrativo which allows you to work in Mexico. But then, who else would you hire ? And isn't that part of the reason we are there ?

flyfishinPam - 5-23-2008 at 09:40 AM

Quote:

Originally posted by Diver
I do not believe that you need a Mexican employee if you have an FM3 lucrativo which allows you to work in Mexico. But then, who else would you hire ? And isn't that part of the reason we are there ?

you need a Mexican employee if immigration says you do. they always ask for my list of employees as shown on the IMSS forms.

some expenses in having a mex corporation that I have-

accountant $1,900/mo
bank internet fees $220/month (you have to pay taxes each month via the internet)
you have to have a brick and mortar office so either you'd have to build that or rent
you must have a phone line (Telmex) in the corp's name
you must be conducting business every month through the established bank account that you pay monthyl taxes from

there are other things too like local and state permits, state taxes, etc.

yeesh its much easier to have a fideio than this.

the new tax law is tightening things up even for my independent panguero husband who is a persona fisica and also pays taxes. as someone stated this is 2008 and technology has changed and hacienda has become and continue to become more efficient in their checking. I'd really hate to be a property owner in the wrong position and have them come knocking to check on things.

longlegsinlapaz - 5-23-2008 at 09:55 AM

Hmmmmmm...could the accountant be considered the one full-time employee? Just a thought. Nothing I've ever heard about corporations seemed beneficial or easier than a fideicomiso in my personal situation; seems like they're much more labor intensive & costly in the long run. The bulk of people I know that I'm aware has a corp has it primarily to avoid having a fideicomiso on their primary residence! I KNOW there are a lot of people out there who DO have a legitimate business reason for having a corp; like Bob & Susan; but I know many people take that route feeling they'll save in the long run on the fideicomiso fees; nothing I've ever heard/read has convinced me that's remotely true. One of these days when someone knocks on their doors to audit, there might be some pretty unhappy campers! :no:

bajabeachbabe - 5-23-2008 at 11:55 AM

Found this on a website about buying property in Mexico. It was written by an attorney. Looks like a potential "catch 22".

Some people put title in corporations to avoid the bank fee and because they feel more secure having a title instead of having title in a trust. A foreigner can set up a Mexican corporation. You only need two shareholders and one can be a U.S. LLC. You cannot live in a house that is owned by your Mexican corporation. There is ambiguity in the law as to whether you can own residential rental real estate in a Mexican corporation if you don’t live in it.

Cypress - 5-23-2008 at 12:18 PM

And on and on!

Just when you think you've followed all the rules and regs., paid your dues etc., there just happens to be a little problem, but for a small fee it can be taken care of. :lol:

LaTijereta - 5-23-2008 at 12:40 PM

Why not just get through your mexican citizenship..
Then you can hold title to "all" your properties :light:

Many persons here in Loreto have now completed the process, and are up to holding titles on their properties.
In the mean time keep the titles in a fideicomiso, unless you find the need to run a project

Bob and Susan - 5-23-2008 at 01:47 PM

yes ncampion...
we have a full time employee...martha
she works in the kitchen and takes care of the place
she does all the real work

and yes we manage the work and the place and live here

and yes the accountant idea worked for a while and
was argued by our accountant when he was audited during construction but...
in the end you need a fulltime employee or more...

and la tiera i dont think you can hold title in the "forbidden" zone unles you are born in mexico...unless the law has changed
immigrados cannot hold title...i'm pretty sure

[Edited on 5-23-2008 by Bob and Susan]

fulano - 5-23-2008 at 04:52 PM

At the risk of stepping on a lot of people toes, I can see no advantage to ever owning residential real estate anywhere in Baja. It makes more sense to just rent the house you like. Let's assume, for discussion purposes, that the average house a gringo would want to live in in Baja costs $250,000 outright. Let's assume that the opportunity cost of your money is 6%. (The means you could either invest your money at 6% in the stock market, or in a CD, or it would cost you 6% to borrow the $250,000 in the US to buy the Baja house).

6% on $250,000 works out to $15,000/year or $1,250/month. $1,250 per month will rent you a lot of house anywhere in Baja. Even in the resort areas. Some would argue that if you rent you give up on the up-side appreciation, which is true, if there is any. But you also avoid a whole lot of downside, such as:

1. You don't need a fidecomiso to rent a house. Also no annual fees.
2. You don't have to deal with a notario and a lawyer to buy or sell the property.
3. You don't have to deal with the extremely inefficient Mexican real estate market to sell, e.g you are not trapped in your house.
4. If you don't like your colonia or your vecinos, you can just move to another rental.
5. You don't have to pay for repairs.
6. And the best of all... you don't have to worry that some pocho is going to show up at your door with a piece of paper in Spanish that says he owns the property.

Gadget - 5-23-2008 at 08:01 PM

OK, and I hope this is not hijacking your thread Marla,

But I am still working on this info and seem to be getting at least somewhere???

My interest is regarding BoLA. Our folks have a place there and Chubasco has receintly made them an offer to sell it. They have a double wide lot, and with it layed out back to the main dirt road its about 2.5 arcres. With a beach you can launch a boat off, close to town, but far enough away, its a great place as many of you know.

If there is fideicomiso in BCN, why does Chubasco say it is not for sale with one?

Can the seller choose or not, to sell the land into a trust?

Or is there just not fide in this area for some reason?

Some have jumped on the land coming for sale and are forming corps.

Our folks rent now and have a good deal as the math above by fulano proves out. Only problem fulano, is a lease is only good for 10 yrs less a day legally, and there are no legal rental contracts in Baja. So you are at the mercy of the landlord regarding their ethics, hikes or the boot. Not so secure if you really like a place and want to grow some roots.

But us kids are looking at the offering from a longer term and the prices now are pretty darn good.

Anyone have a link for legit BCN fedeicomiso info?

Bob and Susan - 5-23-2008 at 08:10 PM

the fido may take up to a year to complete...

the cash may get to the seller later not sooner

he may want cash NOW!!!

Gadget - 5-23-2008 at 08:20 PM

I don't think any of the Diaz's are hurting for $$, but I could be wrong.

The time concept is something I hadn't considered though.

Hope you are both well, Bob and Susan.

fulano - 5-23-2008 at 08:42 PM

Quote:

Originally posted by Gadget
Only problem fulano, is a lease is only good for 10 yrs less a day legally, and there are no legal rental contracts in Baja. So you are at the mercy of the landlord regarding their ethics, hikes or the boot. Not so secure if you really like a place and want to grow some roots.

You're missing the point. The best lease in Mexico is a handshake month-to-month deal. I wouldn't sign anything, if I didn't have to. I don't understand your comment about there being "no legal rental contracts in Baja". A lease is a contract to rent. There are rental properties everywhere and tenants are not that easy to find. If your landlord wants to be a pain then you are better off being able to leave, than being locked-in for 10-years with a pendejo landlord. A long-term lease is not to your advantage. If you sign for 10-years and then get sick and have to go back to the states in a couple of years, you still will owe another 8 years' rent.

The highest leverage you will ever have as a foreigner against a Mexican landlord is to be able to say, "OK, si Ud. no arregla el techo, entonces adiós.".

Roberto - 5-23-2008 at 09:09 PM

Quote:

Originally posted by Gadget
I don't think any of the Diaz's are hurting for $$, but I could be wrong.

One thing you may consider about the Diaz is that they are in perpetual disagreement of which one owns which part of the pie left by the parents .... if you get my drift.

Bob and Susan - 5-24-2008 at 06:15 AM

foolano...there are renters and there are buyers...

its not about the "owning"...sometimes...
its about the "journey"

do you think "oladulce" from this board ONLY wants to own a house...
look at her reasearch WOW

and the JUNK "for rent" here in baja

you may not even be able to live in it

remember...you can't take the money with you!!!

remember people here put in ($$$) only what they can loose

you didn't work ALL your life to suffer with BAD toilets, dirty floors, mold, and stink did you???

[Edited on 5-24-2008 by Bob and Susan]

Gadget - 5-24-2008 at 09:57 AM

Quote:

Originally posted by fulano

Quote:

Don't get me wrong fulano, your points were well made and received. My comment regarding no rentals was more from the perspective of a legal standpoint. A lease is a long term rental, granted but differs IMO from a month to month rent which can change any or every month.

Now than said, my In-laws have a sweet deal at BoLA. I think they very much trust Chubasco and the "hand shake" rental agreement they have with him. They pay the rent annually. But, they have also put a pretty good chunk of money into improvements to make a place nice that they don't own. They could walk away from it but it wouldn't be happy trails.

If Chubasco, or another of his decendants decided to be a pendejo and sold the place out from under them, Pa-in-law would go get Rogers backhoe and knock some stuff down before he left.

From my limited 1st hand knowledge, I think BoLA is a very unique situation regarding realestate, just like it is in it's natural uniqueness. That said, change is on the wind and I think some of the, little out of the way, security of dealing with a very small number of land owners is starting to change, just as Roberto stated.

I am just trying to get more understanding of, if or how, a fide applies to the area as I know the folks are too busy dealing with the boat flipping, to work on any other research.