BajaNomad - Question about setting up a Mexican Corporation

Question about setting up a Mexican Corporation

halcyondays - 1-15-2011 at 08:40 AM

I have brought it up a little in the past.....and I know some people on here will encourage my wife and I to NOT set up a corporation to purchase our property in Baja.

But I do have two friends who bought their property this way in La Ventana and it has worked out well.

We do intend on making money in Baja and it seems that setting up a corporation for our property purchase and house build will be a good idea. We will rent the house when we are not there. And we are close to the beach so we are considering renting beach toys like surfboards, bikes, umbrellas etc.

My question is....
We have been told the process is as follows:

Our friend in Baja is setting up the corporation since we are not there at the moment.
He is sending us paperwork in the US to allow us to REASSIGN the corporation to our name.
This process is about $2000.

He has a friend who will also be given power of attorney on our lot. I understand this must be done by law.

But we have been told we can reassign the corporation via paperwork and we do not need to have our FM3s to do so.

We (My wife and I's corporation) will then purchase the property on our next visit. We will have a full legal, and original copy, of the notarized title.

The real estate agent's office is going to then help us set up our FM3's on that visit.

I understand we will need an accountant to file our taxes each month.

That is the part that makes me a little nervous.
Trusting someone to file our corporate taxes every month.

Is is possible for me to file my own taxes online every month instead of depending on someone?

It's difficult to imagine having a home in Baja for the next 30 years and having an accountant file for us each and every month.

Does anyone have experience with this----and has anyone ever failed to file each month and then "caught up" somehow?

If we don't file each month I fear what would be the worst outcome?
Would the Mexican government just seize the property if they felt the corporation was not following exact guidelines?
(I am sure they can but does that REALLY happen?)

The developer is encouraging us to buy this way----as he has for all the other land buyers in the development.

He has also built a condo project on the cliffs over the ocean and the units are almost all sold. Each of the buyers purchased by first setting up a corporation.

...THANK YOU for your help and wisdom

Russ - 1-15-2011 at 09:19 AM

"The developer is encouraging us to buy this way----as he has for all the other land buyers in the development."
"He has a friend who will also be given power of attorney on our lot. I understand this must be done by law."
This sounds really questionable!
I admit that perhaps not all developers are bad but most if not all references to them here are not good.
Get a lawyer and have your corporation done through them. I just can't see anyone putting trust in their developer or real estate agent. I think you must already know you don't need corporate papers to buy land but to work it may be easier. I have friends that have gone with a corporation because they are doing a little crafts business and renting their houses. I don't remember them mentioning a monthly report to the government though. Also, I believe you can go directly to an FM-2 with a corporation.
GOOD luck and let us know how things progress.
Edit: Just an after thought.... You may want to see if you can get title insurance on the property. Stewart Title is one that comes to mind. It would seem you're going to be investing a good chunk of money so take it slow and CYA when possible. If you are pushed to hurry back out fast.

[Edited on 1-15-2011 by Russ]

gnukid - 1-15-2011 at 09:54 AM

There is a trade off between benefits and obligations between a fiduciary trust versus a corporation. A fidicomiso costs money to setup and yearly payments usually $300 or $600, a corporation costs money to setup and make changes and usually requires a monthly filing if it is active versus suspended. Even if you declare en ceros or zero income you must file with an accountant who charges about $80 a month. $80 x 12 at a minimum equals $960 versus the lower cost a reduced responsibility of a fidicomiso per year by comparison. After comparing known costs, there are the added costs of meeting your accountant and visiting the hacienda every month, the cost of gas plus time per month is a large burden that is often hard to maintain, let's say averaging an estimated $50-100/month plus a day of time and risk driving to the office and back home to La Ventana/El Sargento.

I am not an expert by any means so take these comments as chatter, one question which somes to mind is can you own a home under a suspended (non-active) corporation. Suspended corporations do not have to file monthly, yet you must demonstrate the last tax filing at most offices.

FYI there is also a office of economics where you must file yearly on a certain date to note your income and assets, if you fail to file there is a fine of about $1000-1500 pesos which must be paid prior to any other related renewels, such as hacienda, inmigration etc... You can file the with the economics office online if you capable of sifting through mexican online forms and are punctual.

So there does not seem to be an advantage to owning with a corporation and there are dependencies which can be costly and perhaps more risky than a fidi.

In the big picture, it seems the overall goal is not to increase your assets and obligations in mexico but instead to reduce your exposure and reduce the appraised values which in turn reduces your taxes and obligations and potential capital gains tax in a sale.

I am uncomfortable about having any power of attorney over my property by someone chosen by someone besides myself. That is a door left open that may be exercised to change ownership at any moment, if you are gone, you are at risk of having your property ownership transferred and the property inhabited by someone outside of your influence, leaving you with no legal recourse, no possession nor ownership.

Lastly, do not look to a third party lawyer, seller or developer to advise you in any transaction since they do not have any obligation to consider your best interests and in fact are there to look out for their own best interests. Many gringos come and go and some can not return due to issues at home and allow their property to become exposed to legal invasions.

Remember if it can go wrong, that is if there are open loopholes and requirements which you may fail to meet you likely will suffer from those exposures, if it's a vacation home why not reduce-reduce-reduce risk, costs, and burdens.

Having said all that, I do maintain a corporation and can answer specifics about that, - that is how to become your own legal representative and your own accountant - how to cancel third party power of attorney and how to do most of the filings online correctly, but very few people seem to be willing and able to understand the nuance, the details and fewer are willing to follow the dates and rules and it becomes incredibly costly even without fines.

Make two charts: one that itemizes the costs and ricks of fidicomiso and one that itemizes known costs and risks to a corporation, compare and share what you find here.

[Edited on 1-15-2011 by gnukid]

CortezBlue - 1-15-2011 at 10:14 AM

It sounds like you don't want to hear this, but, setting up a Corp thats soul purpose is to buy land and build a house is not a good idea.

If it is determined by the mexican govt that you are using the Corp for fraudulent purposes, which you are, they can and will close down the Corp and leave you without a house.

Now before you fire back an email regarding the term fraudulent, in this scenario you are opening a Corp that has no intentions of making money or adding to medicos economy, so therefore you are creating a shell company to hide behind. This would be considered fraud.

Now that being said and the fact that the folks you are dealing with want you to do this and if you are spending little to no money, it is probably wort the gamble. But if you are spending 100k or more, I would step back and examine your options.

Hope it works out in your favor regardless of which direction you go.

Bob and Susan - 1-15-2011 at 11:28 AM

CortezBlue is correct :light:

BAJA.DESERT.RAT - 1-15-2011 at 11:55 AM

if you would be interested in buying my inactive and never used mexican corporation, please u2u me.

if you would like more information from a once head of immigration that does corporations and immigration work, u2u me also. a highly recommended person in la paz that has been used successfully by friends in los barriles.

BIEN SALUD, DA RAT

longlegsinlapaz - 1-15-2011 at 12:07 PM

I agree with Russ, anytime a developer is encouraging/pushing a buyer towards anything the bells & alarms ought to be going off! What's he gain?

I can see no reason to go the corporation route. With an active corporation, you do have to file full reporting & pay taxes on any income on a monthly basis. Unless you're fluent in both Espanol & Mexican tax law, you would have to hire a Mexican accountant to do the monthly accounting & reporting whether you have any income or not. I'd equate it to the IRS annual filing requirements....but you have to file every month rather than once a year....regardless of whether or not you have any reportable income. IMO, what you describe here as the basis of buying into a corporation, doesn't fall under the requirements of having a corporation....the cost & hassle isn't worthwhile, or even necessary, & I personally wouldn't go that route.

Another thing that really raises a RED FLAG for me is giving Power of Attorney (PODAR) to anyone you don't personally know & trust with your investment. I could see giving someone PODAR to sign in your absence to close the deal if there is no way for you to be there personally, but giving PODAR over the property itself to a friend of a friend is not a wise thing to do. Mexican PODAR requires BOTH parties to sign for removing/canceling it. You could find yourself in a helluva bind if the other party refused to relinquish the property back to you. I also take exception to the statement that PODAR over the property "must be done by law".

When you buy an existing corporation, you buy a "pig in a poke", you're buying it warts & all. If the corporation isn't current on everything, taxes included, you become the legal owner of any preexisting liabilities & problems.

IMO, the reason the developer is pushing your buying into the corporation is he probably bought a over 2,000 sq meters of land for development & could only buy it through a corporation & unless the corporation is just over your individual lot, he most likely doesn't want to have to go through the time, trouble & cost of paying to have his corporation modified....but he should still have to modify if he's selling you anything he originally bought under corporation. :?:

There are WAY too many RED FLAGS based on the information as you conveyed it & all it does is prompt more questions.

IMO, a much safer, easier & cost effective way to go would be for you to buy it through a fideicomiso, register with Hacienda as a rental & pay IVA on your rental income.

If that property is such a wonderful deal & exactly what you & your wife want to buy, please take the time to personally do some research & buy it the way that makes more sense for you rather than some hidden agenda of what may be in the developer's best interest! I could recommended the owner of a real estate company in La Paz who has done business here for over 25 years. She's the most honest & ethical realtor I've dealt with here who could give you factual information for you to base your decision on, based on years of local experience.

If your gut hadn't already been sending you messages, then you wouldn't be asking here on Baja Nomad, would you? Listen to your gut!

toneart - 1-15-2011 at 12:31 PM

Wow!
There are certainly more "expert" responses here than I would have expected. People with actual experience. Far more than I.

What I would offer is the way I would make decisions if I were in your shoes: let my gut intuition overrule my strong desire to make it happen it the way I had really hoped would be the correct course of action. I would run!

You have probably done a great deal of research already. I have not! For me, it sounds too convoluted and confusing; too many potential pitfalls along the way. My attitude may be a lazy copout, but it will not be tested... for sure! :no:

I have a fideicomiso and even that was a leap of faith for me. It has worked out though.

For me, the major issue is trust. There aren't any principals in your proposed transaction to whom I would give that valuable and protective asset.

halcyondays

bajaguy - 1-15-2011 at 12:38 PM

Would you do it that way in the United States????

Why do it in Mexico??????

longlegsinlapaz - 1-15-2011 at 12:38 PM

Quote:

Originally posted by toneart
I would run!

Toneart, my initial reaction was to just respond with "RUN!! RUN REALLY FAST!!!" But then I figured factual information might be more helpful!

:lol:

wessongroup - 1-15-2011 at 12:53 PM

ARTICLE 27 FROM THE MEXICAN CONSTITUTION SAY THAT ALL THE LAND INSIDE THE MEXICO BORDERS IS BY ORIGIN NATIONAL LAND AND TO TAKE IT OUT OF NATIONAL LAND STATUS, YOU HAVE TO DO IT THROUGH A LEGAL TITE GIVEN BY THE NATIONAL LAND OFFICE ONLY.

Step one...

toneart - 1-15-2011 at 12:55 PM

Quote:

Originally posted by longlegsinlapaz

Quote:

Originally posted by toneart
I would run!

Toneart, my initial reaction was to just respond with "RUN!! RUN REALLY FAST!!!" But then I figured factual information might be more helpful!

:lol:

Whaaat??? Don't confuse my mind with facts. :lol:

CortezBlue - 1-15-2011 at 02:18 PM

Quote:

Originally posted by Bob and Susan
CortezBlue is correct :light:

Would someone please archive this, it rarely is heard or read anywhere on the planet

halcyondays - 1-15-2011 at 02:32 PM

This is all very good advice and I appreciate it.

As for my 'gut instinct' I wasn't nervous at all until I wrote on this forum.

We own a commercial fishing boat and we are used to having a lot of holes to jump through.....and it seems fedicomiso AND corporation are a little confusing.

We may not be able to purchase via Fedicomiso?
I will check on that.

But what if we DO want to work, own a business, make money from our home, in Mexico?
Wouldn't we still have to have a corporation?

Thanks!

business and taxes

BAJAWOMAN - 1-15-2011 at 02:32 PM

one of the price you pay for being in business in Mexico is an accountant
Owning a lot and building in a subdivision you first have to look at the size of the lot? not mentioned can you place several homes on your proposed purchase
will you be able to sub divide tha land What CC&r's are there set up with the developer ? CC&r's are very important in any development they would be attached to your document during closing the sale of the property

You can use a Poder anyone you want in Baja here can be a poder for you or act in your behalf for on signature even a foreigner as long as they have a legal ID and are legal in the country
very important what poder's or power of attorney's that you nominate can do on your behalf

Have you signed such a document ? If you did ? It must be signed at a notary here in Mexico or your signature would have to be apostilled there in the states at the secretary of state office closest to where you live

If you really want to go into business here live here for a while and just renting your personal home does not constitute a business you would have write off but a business would be if you built several homes or subdived and sold off lots etc.

You can own a home with the tourist Visa you can lend your home to friends and organize that from your home there in the states it is likely you will have to have money to contribute to the upkeep of this private home and you can have renters insurance to cover guests you can have toys kayaks kites etc for their use but a private vacation home is not a business
If you are not going to spend more than 6 months a year here you should not have a FM3 or a work visa or corporation as yo will not have what I would call a business

My experience is that a home costs money to upkeep here especially if people are using it there will be independent people you will need to hire like managers and they will have to hire cleaners and arrange maintenance they will be the ones that are doing business not you so If you have your heart set on this location for your vacation home and the land is legal to purchase

get the land sorted out first and in yours and your wifes name you will also name a substitute beneficiary over the fideicomiso trust this is a wonderful safe way to own any property even if you are in business and one day you decide to turn it into a guest hotel

You can decide if you want a corporation at that time but as far as I know you as a foreigner are allowed to have a business her with all the rights as a Mexican you just have to follow all the laws and have all the permits

Also if you have a Mexican corporation and it is not doing business you can put it to sleep if the land is just to large to hold in a fideicomiso without having the expense of many permit fees
until such a time you are doing business you can subdiviee the land and build on a small part your home have that title in a fideicomiso trust and hold the other part of the large land in a corporation if it isn't making any business you can put it to sleep until such time

so many things to consider all the posts you have recieved have a point

best wishes this is a wonderful place to live but if you cannot be here full time a business I would not advise and the fact you are asking for advice is good get all the advice you can

bw

monoloco - 1-15-2011 at 06:00 PM

It is not legal to hold your personal residence under a corporation. You can have a business in Mexico without a corporation.

[Edited on 1-16-2011 by monoloco]

roamingthroughbaja - 1-16-2011 at 07:42 AM

From my understanding (my husband is a real estate agent, and I am an English teacher, both with working FM2's, both independent...no corporation, just working individuals), what monoloco says above is true. You cannot hold your personal residence under a corporation. You can use the corporation's property and no one is the wiser, but you have to show some income from the corporation, it has to pay taxes and provide jobs.

We had a visit from the immigration guys a year ago here in El Centenario. They were checking all of the Mexican corporations registered in the area to make sure they existed and were active. They told my husband that they had checked out a corporation address in Comitan and found an empty lot, and that they would investigate and force the owner to dissolve the corporation and transfer the property to a fideicomiso.

The reports to hacienda every month were a painful lesson for us. It is very difficult for foreigners to understand and abide by all the rules. We tried to do the paperwork ourselves and ending up messing it up royally. We were bailed out (not literally) by a great accounting firm here in La Paz. I can highly recommend these people...Luz Armenta and Jorge Ibarra. Both speak English. Sorry I don't have their number in front of me right now, but U2U me for it. They are honest...I would trust them with more than just money, having seen their work for three years now.

Re bajawoman and the comment about an FM2. Yes, you can go directly to an FM2, but there are restrictions on how much time you may spend outside of the country on that kind of visa. If your place is only a vacation home, you should get an FM3.

Skeet/Loreto - 1-16-2011 at 08:33 AM

My wife and I set up a Corp. on the Advice of an attorney many years ago. We sent in our report through the Accountant when advised to do so.
I bought and sold Real Eastate for 16 years and never had any trouble at all.

Just get a good Attorney and do as he tells you. Cost wqas $1500. Each Real Estate costs $500 for hiom to clear title with the Supreme court.

Remember:

Nothing Ventured, Nothing Gained!!

DENNIS - 1-16-2011 at 09:00 AM

Quote:

Originally posted by Skeet/Loreto
Each Real Estate costs $500 for hiom to clear title with the Supreme court.

The Supreme Court? Really??

WOW....Talk about micro-managing a country.

That attorney of your was pretty creative, Skeet. I guess you're lucky he didn't have to take your issues to the Pope for divine protection.

Skeet/Loreto - 1-16-2011 at 12:59 PM

No Dennis he did Not.

His Father was a Congressman when the New State of Baja Sur was Founded, a very good member of the La Paz Community, a 32 Degree Mason and former Master of his Lodge. His Son was taught and Learned the way to be Good and Honest and Moral

Skeet.

gnukid - 1-16-2011 at 08:35 PM

An honest 32 degree Mason is an oxymarooon.

Skeet/Loreto - 1-17-2011 at 07:41 AM

As usual a dumb Diaperhead Post.

Santiago - 1-17-2011 at 08:04 AM

Oh for goodness sakes, here we go again.....

Skeet/Loreto - 1-17-2011 at 08:22 AM

No Santiago; No more.

that will be my only answer to a dumb Diaperhead like this Kid.

DENNIS - 1-17-2011 at 08:33 AM

Quote:

Originally posted by Skeet/Loreto
No Santiago; No more.

that will be my only answer to a dumb Diaperhead like this Kid.

OK...the betting window is open. :lol:

gnukid - 1-17-2011 at 08:34 AM

... because they don't tell you until you are a 33rd level mason?

Funny that we're discussing hidden aspects of real estate deals which may be created to mislead, disguise and create potential opportunity for theft which seamlessly opens a discussion about Masons in real estate? Just a coincidence...

tiotomasbcs - 1-17-2011 at 09:53 AM

Halycon, very careful with Cerritos Beach real estate. No names but a few shady characters. You need to be down here and ask around! A surfboard rental company was torched at the beach two years ago, too. There's lots of people in town at the moment--many who have bought there and know the inside info. Come on down if you're not workin! Tio