Tax Obligations for Rental Property Owners in Mexico

With a strong tourism industry, buying a second home in the Puerto Vallarta area is a popular choice for investors because properties in Banderas Bay are easily rentable. The rise in popularity of travel websites like Airbnb and VRBO make renting a property easy and 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. For example, if you rented your Puerto Vallarta or Riviera Nayarit property but your tenant was paying the rent to your American bank account, there is still income tax that must be paid in Mexico. An accountant can easily manage the details for you, including how to register to pay taxes and getting a Taxpayer ID Number (RFC).

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

  1. 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 against your Mexican taxes.
  2. 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.
  3. 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 were required to be retained.
  4. 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 be considered an overview and we always suggest that buyers who decide to rent their property should enlist the help of a professional accountant, as tax laws are always subject to change. Your Tropicasa agent will be happy to provide you with a list of accountants to help manage your tax obligations easily, so you can start enjoying the return on investment on your Puerto Vallarta property, worry-free.

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