By Jorge Alberto Cadena Lobato
One of the fastest-growing economic activities in Mexico is the hospitality sector, and one of the new business models in this sector is offering services through digital platforms. In recent years, Mexico has become one of the top tourist destinations for vacations, including important tourist areas such as Puerto Vallarta, Nuevo Nayarit, Punta Mita, Sayulita, San Pancho, Riviera Nayarit, Los Cabos, Ixtapa Zihuatanejo, among others.
If you own a property and promote lodging services through digital platforms such as the well-known VRBO, Airbnb, etc., this article will be of interest to you, as we will discuss important points to consider before starting this business activity in Mexico.
The following summary will address key points to consider for a foreigner who earns income through the aforementioned platforms as an individual, rather than through a Mexican corporation.
Mexican Visa Type
Let’s assume the scenario where the property owner is a foreign tax resident earning income from this activity. The first legal step regarding immigration is to obtain a Mexican visa, either as a temporary resident with permission for lucrative activities and/or as a permanent resident (we will discuss this topic in a separate article).
Income Tax (ISR)
The main federal tax is Income Tax (ISR), where for this type of business activity, the ISR rate is progressive based on net income (gross income – expenses/costs), ranging from 1.92% to 35%.
Unlike other countries, in Mexico, it is necessary to file monthly tax returns as part of the annual declaration. Therefore, taxpayers are required to make partial ISR payments, which can either be through withholdings made by the digital platforms or directly by the taxpayer on gross income.
The annual declaration, where the final ISR on net income is reported and paid, must be filed each April for the previous fiscal year with the Mexican tax authorities (SAT).
Other Taxes Payable by the Guest
The taxpayer is also required to charge and pay taxes to the Mexican tax authorities that are the guest's responsibility, such as Value Added Tax (IVA) and Lodging Tax (ISH).
The general rule for IVA is 16%, which must be charged to the guest. There is a mechanism where the taxpayer can recover IVA paid to suppliers through monthly tax returns submitted to the Mexican authorities.
As for ISH, it is a local tax charged to the guest, which varies depending on the state where the property is located. For example, in Nayarit, the rate is 5%, in Jalisco, it’s 3%, etc. In some states, the ISH is collected directly by the digital platforms, while in others, the taxpayer must pay the local authority.
These two taxes are paid by the guest, so the real tax burden for the taxpayer should be the ISR, which may be credited in the taxpayer’s country of tax residence, provided that Mexico has a treaty to avoid double taxation, such as with the United States and Canada.
If you find yourself in this situation, please do not hesitate to contact us. Each case is unique and requires personalized attention to analyze the best tax strategy for the specific business model.
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