New Airbnb Tax Goes Into Effect In Mexico
Account holders on Airbnb who use the platform for rentals of their properties recently got an email stating a change to the tax plan in Mexico. For some who got the email, it was a little confusing or even stressful since it was a new taxation plan. Many use Airbnb for properties they purchase as investments, so a change in taxation could affect your return on investment (ROI). So what is new about this tax and what are the implications? We talked with a local accountant to get some details.
Here is the email that was sent out by Airbnb
|This email is to remind you that starting on October 1, 2020, we’re making some changes to the federal taxes collected through Airbnb, and it may affect your listing(s) in Mexico. It is important that you read this email and take action.
To whom these changes apply?
If you are a company (persona moral), Airbnb will not withhold any federal taxes from your payouts nor remit such taxes on your behalf directly to the Mexican tax authority. You will only need to provide your company RFC by clicking the link below so we can validate you are a company (persona moral).
If you are an individual (persona física) you can benefit from reduced withholding rates for both VAT and Income Tax by clicking the link below.
Please note that Airbnb will determine the withholding regime that applies to your case by using your RFC information, so it is very important to submit your RFC ID in our Platform today. Without this information you will not benefit from reduced withholding rates – or no withholding at all if you are a company – and 20% of Income Tax will be deducted from your earnings going forward.
I already included VAT in my prices, now what?
Mexican Hosts should no longer use the additional taxes feature to collect VAT nor include it in their cleaning fees and rates. The platform will automatically do it for you going forward, so you need to ensure your prices submitted in our platform are VAT exclusive. If you’ve added any of the above taxes to your listings, please remove them to avoid charging duplicate taxes and ensure that your prices remain competitive.
Why take action today?
In addition to benefiting from a reduced withholding on income tax and VAT from your payouts (or no withholding at all if you are a company) you will be able to get an invoice for and deduct the Airbnb Host Platform Service Fee and credit the VAT charged to you.
What are the implications for foreigners that do not have a residential visa for Mexico?
Anyone that does not have an RFC (type of Mexican tax id number, it stands for Registro Federal de Contribuyentes) will automatically be taxed at 20%. This is in addition to the IVA tax of 16% Airbnb charges to the guests. Owning a property in Mexico is a help for getting a visa for Mexico. Of course, you do not need to own a property to get a visa, but it can make it easier.
How will having a visa and RFC help reduce your tax?
If foreigners get a visa for Mexico, they can get and RFC and submit this to Airbnb. This can lower your tax bracket down to 10%. Within the 10% you can deduct expenses. These expenses are things like electricity, maintenance fees, internet services, laundry, cleaning services, cable tv, property taxes and anything related to the rental. This can reduce your tax burden too much lower than 10%.
If you are interested in getting a visa for living in Mexico, either full time or temporary, we have a great recommendation for immigration help. Milly Arceo comes very recommended from readers also and assist many in the area to get their visas. We have a full article about her business, “Legally in Mexico” here with her contact information as well.
Will you need to declare your income in your home country if you are paying taxes in Mexico?
There are double taxation treaties between Mexico and some of the countries that foreigners come from. The Mexican IRS (Hacienda) will provide a document stating that you payed taxes. If you do not have an RFC and you pay 20% tax on the money you gained via your rental, then this would be deducted from your tax rate in your home country. For example, if your tax rate is 30% in your home country and you paid 20% in Mexico, then you would pay 10% in your home country.
This will be different for each individual depending on what country is your tax home. This is where an international accountant can be handy.
Does this make setting up a company and buying real estate in Mexico better?
There are two main ways people buy property in Mexico.
- One is as a person. If the property is on within 50km from the coast you need to set up a bank trust called a fidecomisco. With the bank trust, you own the property and can do what you want with it. If you buy multiple properties, you need a fidecomisco for each property.
- The second option is setting up a corporation and the corporation owns the property or properties you acquire. If you set up your company in Mexico to purchase property. No tax is deducted by the Mexican government, but you need to have an accountant to do your monthly paperwork.
There are advantages in both situations. It will depend on your personal situation, what might work best for you.
What if you have a property manager?
A property manager can can make your life a whole lot easier or be a headache. Management can come in many forms. Some management is a simple service of cleaning and opening the property for guests. Other management is a full service, one that handles all the payments and taxes and deposits the profits to you. Depending on your management service, you might be able to work out a fiscal strategy that works best for you and your bottom-line. However, no matter what, you are responsible at the end of the day for your taxes, and you will need proof of all payments and deductions. This means overseeing the management company to make sure this is being done correctly.
So what is the bottom line?
New types of business models like Airbnb and ridesharing apps are changing how economies and people work. Usually governments are a little behind in formulating a tax plan for these types of business models. Mexico is on a path of reforms and regulations in many areas. Real estate, immigration, legal reform and many other areas are being streamlined. It seems that each year things change and it is important to stay up with the current rules and regulations. For this reason, it is good to have a good accountant, realtor, or even local lawyer working on your behalf.
Taxes should have always been paid on rentals in Mexico, just now, it is becoming more regulated and a fair playing field for all. We might see some rentals change in price, since some were not paying the “overhead” that should of been paid. Others with more casual rentals, might drop out of the market all together.
For years the hotel industry has seen their bottom line hurt by individual rentals. Hotels are taxed and regulated and some of this tax money goes toward the promotion of the area as a touristic destination. The hotel industry accurately claimed that it was an unfair advantage over people with rentals not paying taxes because they were benefiting from the promotion of the area, but not paying for it.
Hopefully now that things are becoming more streamlined, not only will people feel more sure of how taxation works, it will also help further the promotion of the area and help touristic infrastructure through the tax revenue.
What is the best move for investors?
Since many people are “investors” in the area, what is the best move for you? Many of our readers look to buy a condo, rent it out while they are not in Mexico. Some others buy as an investment and have plans to retire in a few years. Regardless of your situation, how can you maximize your investment?
The first step is understanding the market. Where do people like to rent and what type of clients rent where? What areas are developing into better areas to rent and live? What areas will have the most appreciation over the next 5 years? This is where starting with a good realtor is important. One realtor that helps to write articles like What You Can Expect For ROI? and videos like our one about the Tulum real estate market is a good person to talk to about investing in the area. Not only is Sebastian a local realtor, he is also an investor in the area and has guided many of readers to find what was best for them. If you want to contact him and ask him some questions, here is his email.
The second step is setting up your investment for success. This means everything from marketing to design of your rental. We have some great tips here about how to set up your rental. We have seen a lot of mistakes made by people that buy condos to rent out. It can be simple things that are wrong or a collection of them.
The last step is keeping up with trends. The travel world is always changing and faces unique circumstances. There are also new regulations like this tax plan with Airbnb. We try to keep our readers aware of what things are like in the Riviera Maya and also contribute to the promotion of the area. We hope you follow along with us as we discover new places and keep people aware of the changes here.
previously it was profitable to have a condo in Mexico, now the government takes 20% income tax, 16% rental tax and 3% state tax. Now you have to pay the maintenance fee, property manager fee, internet and maintain the property! All that added up and you are not likely to even break even!
As far as an investment its a big looser now! Playa and Cancun are flooded with new properties so the rentals are far and few between. You have to drop your prices to compete and then you make even less!
I bought several years ago and the condo didn’t quite pay for itself. That was OK as I got my vacations in. Now because of all the taxes and fees I am better of not renting it other than to friends. Renting cheaper attracts a lower class of people and your property takes the hit for it with wear and tear!
Overall if this was the situation before I bought I would never invest so much money into a loosing investment like this!
You do realize that taxes were supposed to always have been paid and if you had a management company handling it, it should of done this. Airbnb just started collecting taxes to help make sure Mexico was being paid. There are ways to subtract expenses and pay very little. If you registered correctly for your tax id number in Mexico and are doing your taxes, you can deduct many of the operating cost from what you actually pay tax on. 2020 was a challenging year for rentals. But Mexico in general fared much better than many places due to it being open for tourism.
It is an interesting article. Very helpful to understand some of the Mexican guidelines.
You are lucky at 20%. As of June 15, 2021 Airbnb is taking out 16% for VAT AND 16% for Mexican taxes, and I am a resident with a RFC and tax I.D. number. Tried to solve this with AIRBNB and nothing but crickets. They can’t even answer questions that are clearly on their platform!
When will Hacienda receive the Taxes from Airbnb? Is it done at the end of the year? My husband is a Mexican citizen has his RFC and register with SAT but when we log on with SAT we don’t see any taxes being paid by Airbnb. We have rented out our home since late 1/2021 and it’s almost been rented every weekend since then. Our home is located in Baja California Norte. Thank you
I had the same problem, due to dual citizenship, I had to change my US ID to a Mexican ID and add a Mexican bank account. Then, once this was straightened out (Airbnb told me I would lose all my reservations if I changed my ID , took 4 months before I was “allowed” to change it). Then only reservations made after this date were charged and remitted to SAT correctly. After more than 6 months, I still have some quotes that are not correct
How often will they be deducting the tax from the airbnb rentals? Im located in Jalisco and can’t find anything stating how often this is.
I love to read the responses that shred Airbnb. They are AWFUL about helping with taxes. Their platform is SO hard to understand, and their helpdesk is really really bad. They have very rookie people answering phones that really do try their best, but they are just wanting to refer you to the same worthless documents that you already read or reviewed to try and figure out their stuff. Similar to an earlier post, I setup an entirely new airbnb site – my existing one had my home address (USA) in the account, and therefore the factura would not generate from their system even though I had given them my RFC and CURP. So I setup a new site, now I can see them collecting (hopefully remitting) local taxes, but no idea what is happening to RFC yet. The new site won’t even accept my RFC and CURP, until I accidentally figure out I need to first give them a W9 (which has NOTHING to do with Mexico taxes, it is a USA IRS requirement), then their system magically allows me to put in RFC and CURP. So now here I go again testing and retesting their system because their helpdesk is inept. I was asked for feedback and sent them a video explaining the issues. No response. I get a voicemail from someone saying they tried calling at 2 in the morning, and that due to the time difference we will never be able to connect (unless presumably I want to stay up all night waiting). I simply CAN NOT get connected to a knowledgeable Airbnb person. I am so frustrated and I am in disbelief that I’ve spent all this time trying. Hopefully someone and Airbnb reads this and realizes they are losing lots of mexico business to people like me that actually want to pay taxes correctly, but can’t navigate their arcane system/policies. Moving my business to VRBO I guess…
thank you for your direct comments. We have heard of many dropping off the Airbnb platform due to less than popular reasons.
I went through the same excrutiating sht for 3 months with Airbnb!
If anyone hears of a good alternative Platform to Airbnb/VRBO, I would like to know about (as I am sure that many are scrambling to find this very place right about now). With 35% charged to the guest for making a Mexican booking, that is $35.00 on a nightly rate of $100.00. I dont know about you, but I find this exhorbatant. And I am not even talking about the 20% withholding taxes which is a whole other issue. Most travellers are going to be searching on-line for less expensive methods of booking their vacations. Or, the most popular Mexican tourist destinations will become only available to the well off traveller that can afford these new prices. I do not believe that these folks chose a hotel over an Airbnb or vice versa. Its a completely different type of traveller. If this is a ¨re-set¨for Mexico, then those on a budget will be camping on the beach instead.