Mexico has been a real estate investor’s dream for years, and with the advent of hosting platforms such as Airbnb, owners and investors have been able to realize significant returns on investment in popular tourist destinations like Tulum, Playa del Carmen, Cabo, and Puerto Vallarta. However, for years, there were no laws in place to ensure taxes were paid on income earned from hosting platforms.
All that changed with new tax laws that took effect in June 2020. Hosting platforms, such as Airbnb, are now required by law to collect taxes from any host who does not provide their Mexican tax identification known as an RFC (Registro Federal de Contribuyentes).
What are the tax implications of not registering my RFC?
If you have not registered your RFC, your hosting platforms are required to withhold:
- 20% Income tax
- 16% Value Added Tax (VAT)
Additionally, you will not be able to deduct expenses related to the lodging service.
However, if you have registered your RFC with your hosting platforms such an Airbnb, they will withhold a portion of your income and pay it to SAT as an advanced payment of your taxes. They will withhold:
- 4% Income tax
- 8% Value Added Tax (VAT)
However, it is important to remember this is a provisional tax payment and you may be required to pay additional taxes. The income tax rate in Mexico is progressive based on income and can vary from 1.92% to 35%. The withholdings made by Airbnb are subtracted from the total calculated tax. Additionally, you will be able to deduct expenses related to commercial activity of your rental property, meaning that the withholdings will be based on your profit not your total income.
In some cases, you can choose to consider the initial withholding as a final tax payment, but this only applies if your income generated through digital platforms does not exceed $300,000 pesos per year. Additionally, you do not have to file a tax return.
I don’t have an RFC. How do I get one?
If you are a foreigner and have temporary or permanent residence, you will have to register as a taxpayer with the SAT (Servicio de Administración Tributaria). You will need to make an appointment with your nearest SAT office. If you do not have residency, you will have to apply for residency (either temporary or permanent) and after completing the residency process, you will receive your CURP (Clave Única de Registro de Población), which you need to receive your RFC.
Is registering my RFC all I have to do?
No, you will need to file taxes monthly and annually according to the schedule outlined by SAT. If you are managing your property on your own, you will be able to deduct expenses allowing you to only be taxed on your profit and not the total income.
However, if you choose the option of working with a property management company, you will avoid needing to obtain residency and registering with the tax’s authorities in Mexico. Remember, this does not exempt you from filing tax returns in your own country.
How do I register my RFC with my hosting platform?
Each hosting platform is different. However, when you are logged in as a host, you should be able to update your tax payer information in your account settings. Remember if you are applying for your RFC with SAT for the first time, allow 72 hours from the time you receive the RFC until you register it in Airbnb so it can be validated.
For more information, please contact Mextax. Our experienced team will help you understand the complex tax system in Mexico and provide you with accurate and reliable information to assist you in making financial decisions.