Tax Obligations for Rental Property Owners in Mexico

Nov 2, 2020 by Tax Obligations

With a strong tourism industry, buying a second home in Puerto Penasco is a popular choice for real estate investors, because properties on Sandy Beach are easily rentable. In the condo resorts, most have onsite rental companies which can handle all aspects of the rental business for an owner. However, the rise in popularity of travel websites like Airbnb and VRBO make it possible for an owner to rent a property on their own. Many owners see excellent return on investment because of the high demand for rentals, both short and long term.

But it is important that owners who rent their property understand the tax obligations in Mexico on rental income. If the property being rented is physically located in Mexico, there will be income tax owned on the rental income, even if that income never enters Mexico. Most on-site rental companies handle the tax part of the transaction as part of the service that they provide for the commission changed. For owners who rent on their own, those taxes are often not reported or paid.

As of June 1, 2020, the law has been updated to include digital rental platforms such as Airbnb or VRBO in order to help collect taxes owed in Mexico. Here is a quick summary of some of those updates.

* If you are working with a digital platform (Airbnb, VRBO, Expedia, FlipKey, etc.) directly and you are an individual, not a corporation, the digital platform will be required to retain a percentage of IVA (Value Added Tax) and ISR Income Tax funds. The amount depends on the funds received. For all funds retained, they will be required to submit to you a constancia (record) of retention to utilize if you file Mexican taxes.

* If you are working with an intermediary like a rental agency, whether they are promoting your property directly or through a digital platform, they may or may not retain the IVA and ISR funds. If they do, they will be required to remit to you the same constancia of retention for your taxes. If they do not, then you will file your taxes as normal with no need to balance the account with a constancia of retention. In some cases, if you do not have an RFC number, the rental agency may withhold all taxes owed by you to be remitted as required by the authorities.

* If you are receiving your rental funds directly through your own marketing efforts that do not include a digital platform, you will simply file your taxes as normal with no retention documentation required as no funds will have been retained nor required to be retained.

* This law only applies to individuals, not as corporations. Therefore, if you are receiving funds as a corporation, this law does not apply, and you will file your taxes as normal, with no retentions.

This summary should only be considered an overview and, of course, if you have questions you should enlist the help of a professional accountant.

This article is brought to you by the Sonoran Resorts Sales Team, www.sonoranresorts.mx, Jim Ringquist, Director of Sales and Marketing. Sign up for Jim’s Monthly Newsletter: http://www.tinyurl.com/JimNewsletter

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