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FIBRA stands for Fideicomiso de Infraestructura en Bienes Raíces (Real Estate Investment Trust, or REIT) and have various similarities to U.S. REITs. In accordance with Mexican law, a FIBRA must be established by contract as a trust. Mexican Income Tax Law requires that a FIBRA annually distribute at least 95% of its net taxable income.
The introduction of FIBRAs in Mexico, and the establishment of the tax regime applicable to FIBRAs in 2004 as an investment vehicle (through the securities it issues) represent a kind of security available to both retail and institutional investors. The legal structure of a FIBRA is derived from various reforms approved in the past several years to (i) provisions in the Mexican tax laws and regulations, (ii) operating, trading and other Mexican regulations, (iii) the investment regime of the Mexican pension fund administrators (Administradoras de Fondos para el Retiro, or AFORES) permitting the investment in FIBRAs by Mexican pension funds and (iv) annual tax regulations (misceláneas fiscales) issued by the Ministry of Tax.
In particular, recent regulations under the investment regime for the AFORES have classified FIBRAs as structured instruments. As a result, Mexican mutual funds specializing in retirement funds (Sociedades de Inversión Especializada en Fondos para el Retiro, or SIEFORES) may direct resources to CBFIs issued by FIBRAs, pursuant to their investment limitations (for SIEFORE 2, a maximum of 10%, and for SIEFORES 3, 4 and 5, a maximum of 15% of their net assets, observing their diversification criteria provided in Order 15-19 of the Retirement Savings System National Commission (CONSAR). In addition, certain private Mexican pension funds, subject to compliance with the applicable provisions of Article 188 of the Mexican Income Tax Law, may invest up to 10% of their reserves in CBFIs issued by FIBRAs.
Additionally, the economic stability of the Mexican economy in the last 17 years has contributed to the development of income-producing properties in Mexico, mainly in large and mid-size cities. FIBRAs encourage the development of the Mexican real estate market by providing a vehicle through which institutional and retail investors can access this market, by serving as a source of liquidity for developers and investors, and by contributing to the diversification of real estate risks for investors.
We believe that a FIBRA that is traded on the Mexican Stock Exchange has several benefits under Mexican tax laws, such as not being subject to income tax for some investors, and exempting its investors who qualify as exempted investors under the Mexican tax laws (such as individuals who reside in Mexico, tax-exempt entities or non-Mexican persons) from being subject to taxes with respect to secondary market transactions involving CBFIs.