Mexico is a popular tourist destination with lots of affordable real estate opportunities. It’s no wonder that many Airbnb hosts choose Mexico for their first international rental. However, Mexico Airbnb hosts need to keep up with Mexican taxes or they risk penalties and fines. If you have a Mexico Airbnb property, you need to understand how to calculate and pay Mexican taxes on your rental income.
Tax Considerations for Mexico Airbnb Hosts
In Mexico, there is no differentiation between residents and non-residents when it comes to the payment of taxes. You must pay taxes on your Mexico Airbnb income, even if you’re a U.S. citizen.
As a rental property owner, you are required to pay Mexico Income Tax, called ISR (Impuesto Sobre la Renta) in Spanish, and Mexico Value Added Taxes, called Impuesto al Valor Agregado (IVA) in Spanish. Thanks to a tax treaty between the United States and Mexico, the IVA that you pay is deductible on your US tax return and you can use the amount of Mexico Income Tax paid to offset your US taxes so that you are not doubly taxed.
How to Pay Mexico Airbnb Taxes
In order to pay income taxes in Mexico, you must first register with the Servicio De Administración Tributaria (SAT), which is part of the Finance Ministry (the Secretaria de Hacienda). If you earn income in Mexico, you must register for taxes. The rules are the same for both residents and non-residents. Upon registering with the SAT, you will receive a tax identity, known as Registro Federal de Contribuyente (RFC).
For non-residents, only income that is earned in Mexico is subject to taxation. While Mexico does require both individuals and businesses to pay taxes, they pay taxes at different rates. You must submit your annual tax return by April 30th of the following year. For example, you have until April 30, 2021, to file taxes for the tax year 2020.
How to Calculate Mexican Rental Tax
There are three main methods of calculating the tax on rental income:
1. You can claim a blind deduction equalling 35% of your total income, without any additional deductions. You must pay a 35% tax on whatever is leftover.
2. Taxpayers can also deduct permissible expenses and pay a 30% tax on the leftover net income. Qualified deductions include property tax, maintenance, employee wages, and other business-related expenses.
3. If you’re a non-resident of Mexico and you don’t have an RFC or FM3 visa, you can pay a 25% Income Tax (ISR). However, you must still collect IVA from your Airbnb guests. If you own Mexican property through an LLC, you can also qualify for this program.
Mexico Airbnb: IVA Tax
You must collect IVA from your Airbnb guests. The IVA tax rate is 16% in the country’s interior and 11% in the border zones. Due dates for IVA vary based on your RFC number. You can find the IVA deadline schedule here.
Each state government also has its own taxes on lodgings which you are required to pay. This tax totals roughly 2-3%. The municipal government may also tax your rental property, so check local regulations to stay in the clear.
More Help with Airbnb Taxes
International Airbnb income makes tax time a lot more complicated. Luckily, you’re not alone. Shared Economy Tax can help you develop tax planning strategies to minimize your Mexico Airbnb taxes. Our tax pros have been working with Airbnb hosts like you for years, so we have expertise and experience that most firms can’t match. Get started today with a one-on-one strategy session with a certified tax expert and get answers to all of your most complex tax questions. You can also sign up for our complimentary tax tips newsletter using the form below.