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Trusts in Real Estate Development: Business or Management, Which One to Choose?

Abogada Mariana Espinosa

In the development of real estate projects, the legal and tax structure adopted can determine both the viability and profitability of the business. In our practice, many clients ask which legal and trust vehicle is more suitable: the Trust with Business Activities or the Management Trust. The answer, as with any structural decision, is that there is no universal formula; it depends on factors such as the business model, type of project, investment volume, investor profile, and how the tax burden is intended to be managed.

The Trust with Business Activities, primarily regulated by the Income Tax Law, is conceived as an autonomous tax entity, with its own Federal Taxpayer Registry and the obligation to comply with all tax liabilities arising from its operations. Under this scheme, the trustee institution withholds and pays taxes, so that the returns distributed to the Adhering Trustors (investors) are received net of taxes. Additionally, the trust may act as a credit subject, allowing the contracting of debt to finance the development, concentrating within its structure the taxation derived from the sale of real estate units. This model is ideal when the objective is to raise capital from multiple investors, operate the project as a business, or centralize tax management.

For its part, the Management Trust, regulated by the General Law of Credit Instruments and Transactions, is fiscally transparent, as it does not have a Federal Taxpayer Registry nor does it act as a business entity. The tax burden is transferred directly to the beneficiaries, who must individually comply with their obligations. However, this does not mean it lacks financial tools; for example, it is possible to obtain bridge loans or temporary financing, using the property on which the project will be developed as collateral.

This vehicle is frequently used in simpler projects, with fewer investors, or when operational flexibility is required without assuming the tax structure of a business entity, while preserving the possibility of obtaining strategic financing according to the needs of the development.

A trust is not an end in itself, but a legal tool at the service of your project. Therefore, specialized advice from the planning stage is decisive for the success of a real estate development.

At our Firm, we accompany our clients from the design of the structure through the execution of the project, ensuring that the chosen legal vehicle is aligned with their vision, operations, and financial objectives.

RELEVANT POINTS

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The legal and tax structure of a trust directly influences the profitability, operation, and viability of a real estate development. There is no single model; the choice depends on the type of project, investment volume, investor profile, and tax strategy.

The business trust operates as an autonomous tax entity.

The Trust with Business Activities has its own Federal Taxpayer Registry and directly assumes tax obligations. The trustee withholds and pays taxes, allowing returns to reach investors net of tax burdens.

This model allows the project to be financed as a business.

By being considered a business entity, the trust can incur debt and act as a credit subject. This facilitates financing for the development and centralizes the taxation arising from the sale of real estate units.

The management trust is fiscally transparent.

Unlike the business trust, the Management Trust does not have its own Federal Taxpayer Registry nor its own tax personality. The tax burden falls directly on the beneficiaries, who must individually comply with their tax obligations.

It offers operational and financial flexibility.

Although it is not a tax entity, this trust can access bridge loans or temporary financing using the property as collateral, making it suitable for simpler projects or those with fewer investors.

Specialized advice is key from the planning stage.

A trust is not an end in itself, but a legal tool. Proper legal advice from the initial stage ensures that the chosen structure is aligned with the project’s vision, its operation, and its financial objectives.

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