Friday, January 11, 2019

THE 3% HOSPITALITY TAX AND ITS IMPLICATIONS FOR RESIDENTIAL RENTALS

Many have suggested that the 3% hospitality tax needs to be paid by owners of residential rental properties (single family homes, condominiums) Airbnb is trying to collect it.

Following is an explanation by a Mexican certified public accountant of the tax provided in 2015:: .

The 3% hospitality tax is a local tax, not a federal tax.    If paid by the owner of a home (house or condominium) in Mexico, the tax is being paid  in an improper manner, contrary to the purpose of the tax.

The 3% hospitality tax is not paid by those who handle rental properties (understanding that rental properties is the temporary use or enjoyment of a real property that has a residential dwelling or commercial use.).    Those who pay the hospitality tax are those whose activity is hotels.    The hotel business is a totally commercial and touristic activity. The real properties destined for hotel usage were not designed to be residential dwellings such as the ones non-resident owners have in the Mexican bank trust (fideicomiso).  The local authorities should not request same tax from you since you are not managing hotels.

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As US tax professionals we express no opinion on Mexico's tax structure and suggest you contact a Mexico tax accountant to advise you on your personal situation if you are a rental property owner.


Wednesday, January 9, 2019

Need a Good Mexican Accountant for your Mexico Taxes and Accounting?

We are often asked about referrals to a Mexican Contador/ CPA. The following firm is an excellent choice for your Mexican tax and accounting needs:

LS Accounting & Tax Services SC is a firm located in Cabo San Lucas, BCS Mexico
The owners are USA and Mexico CPA’s with decades of experience, zero language barrier and many proven local contacts.

The services provided range from monthly accounting and tax compliance to banking administration, budgeting, operational reporting, internal control audits, legal representation services, legal domicile services, new business formation, immigration services and legal documentation. The firm provide these services to a wide range of clientele from construction companies, restaurants, hospitality, retail, tourist activities, etc. The firm also  partners with US CPA firms  and Attorneys to provide a streamlined service for their  US tax payer clients and for US nonresidents who wish to do business in the US..

LS Accounting & Tax Services SC
LAT180131E55
Plaza Novva Local #37
Colonia El Tezal
Cabo San Lucas, BCS Mexico
MEX: +52 (624) 128-3700
USA: +1 (949) 436-7737
E: Sarahi0585@icloud.com

Tuesday, December 11, 2018

2018 Tax Planning Letter for US Expatriates Explaining New Laws, etc.

There is still time left before the end of 2018 to take steps to save taxes under the new tax laws enacted last year. READ AND DOWNLOAD OUT 2018 TAX PLANNING LETTER HERE.

Kauffman Nelson LLP, CPAs is a firm of CPAs and Attorneys with 30 years experience in US expatriate, international and US nonresident taxation.  We prepare your 2018 tax  return and assist you with planning, problems, audits, and all other US tax matters. Email us at taxmeless@gmail.com 

DOWNLOAD OUR 2018 EXPAT TAX RETURN QUESTIONNAIRE AND SEND IT IN FOR A FEE QUOTE HERE. GET STARTED EARLY AND SAVE TIME AND MONEY.  It is in MS Word Format to make it easy to complete on your computer or tablet.

Sunday, December 9, 2018

2018 RATES, Standard Deductions and More - See What will Happen to You

Forbes: IRS Announces 2019 Tax Rates, Standard Deduction Amounts And More. READ MORE HERE FROM FORBES MAGAZINE.  Need year end planning, email us at taxmeless@gmail.com. Attorney and CPAs will be there to help you find the best strategy.

Rental taxes on foreign property owners in Mexico, municipal taxes, IVA, and Mexico Income Taxes

               According to some very sharp Mexican  rental tax accountants, foreigners renting a home or condo (or even two of them) should not be liable for the 3% hospitality tax.   It is a municipal tax designed to be paid by hotels and larger establishments who do business generated from tourism, not the little guy with a unit or two who rents periodically.  

AirBnB is currently negotiating with collecting  the  tax for local governments who love them by promising increasing income.  No tall vacation rental sites are doing this.
What they do not consider is the FEDERAL taxes that are all important and charged by SAT.  For the non-resident owner of a home or a condo who rents it out the tax is 25% of gross income and there is an additional obligation to collect the 16% IVA tax and send it to the SAT authorities.   Additionally it is necessary for the non-resident foreign owner to appoint a Mexican company or individual to collect and pay their taxes for them.
All these payments are then deductible or can be taken as credits on that same rental income as required to be reported on their US federal and state tax returns. Therefore there is no double taxation
Failure to declare and pay Mexico's FEDERAL taxes can result in heavy fines or even loss of the property.  The same can be said for failure to report to the IRS.
The Settlement Company has a program which takes care of these people; making declarations and providing accounting and receipts for tax payments.   For further information:   info@settlement-co.com.
If you need information on the US tax consequences of your foreign rental property and how to reflect it on your return email: ddnelson@gmail.com

Tuesday, October 16, 2018

Better Pay your Mexico Taxes on Your Mexico Rental Property or Else

The Facts:

Bill and his wife Sarah rent out their  condominium in San Jose Del Cabo for 5-6 months out of the year on a

weekly or monthly basis to tourists.  They never paid any Mexico rental taxes. Their neighbors have told them not to worry, since no one ever pays taxes on vacation rental income in Mexico and probably do not have to.    
Is it True that you do not have to pay Mexico Taxes on your Rental Income?  No!  Definitely not!   Bill and his wife must pay taxes on their income which is generated in Mexico!
If Bill and Sarah are NON-RESIDENTS of Mexico:
What kind of taxes should they be paying and how much?.  They must pay the ISR tax, a type of income tax, in the amount of 25% of the gross rents and, if the unit is furnished,  a 16% Value Added Tax (IVA).
An important point  The ISR TAX they pay can become a tax credit in the US, so double taxation is avoided.   The 16% IVA tax is generally paid by the tenant and is simply declared by the landlord.
What are the penalties, interest, etc. they might incur?  The penalty for not being enrolled as a taxpayer is 2,740. to 8,230 pesos.   The penalty for not making declarations as required range from 1,100. pesos to 13,720. pesos per month in addition to interest for not paying on time and as required is 1.13% per month.
Are there any other possible legal consequences for failing to pay taxes on rental income from their condominium?   If the tax authorities have not discovered the illegal rental income and notified the landlords, back interest and penalties may be waived..   It is important, however,  to begin declaring and paying prior to discovery.
And  what about Phil? …………..another NON-RESIDENT with property in Mexico.
Phil owns a home in Cabo San Lucas.   He leases it to a Timeshare salesperson on a yearly basis.  The renter pays the monthly rent directly to Phil's US bank account and no money is paid in Mexico. 
Does Phil have to pay taxes on that income in Mexico?. Absolutely!  Phil has an obligation to pay taxes on any income generated on property located in Mexico.
What are the taxes and when are they due?.  Phil must pay the ISR tax, a type of income tax, in the amount of 25% of the gross rents and, if the unit is furnished,  a 16% Value Added Tax (IVA).
What are the consequences of failing to report the rental income in Mexico? Much the same as Bill and his wife in the example above, Phil will be liable for not being enrolled as a taxpayer which can cost him 2,740. to 8,230 pesos.   The penalty for not making declarations as required range from 1,100. pesos to 13,720. pesos per month in addition to interest for not paying on time and as required is 1.13% per month.  The amount of the penalty may depend upon whether or not this is a first violation for Phil.
Should he go back and pay in those taxes for past years when he failed to pay the taxes?   If the Mexico tax authorities have not notified Phil he is in violation of the tax code, he probably will not need to file back taxes.   The important point is to begin and to be consistent in the future.
Since Phil is a nonresident and does not have a factura number, how can he pay taxes?  Phil must appoint a Mexican company or an individual to be responsible for the retention and the filing of these taxes.    His official representative will issue the correct invoice or factura as required..
THE ABOVE IS FOR NON-RESIDENTS.   IF A FOREIGNER IS A RESIDENT OF MEXICO,  OR A MEXICAN CITIZEN, TAX TREATMENT IS DIFFERENT:
I.          RESIDENTS in MEXICO can obtain their taxpayer identification number, electronic signatures and file taxes monthly using a blind deduction of 35% of income and paying tax on the remainder.   No receipts are required for this tax payer status.   An annual declaration must be filed in addition to monthly declarations.
II.         RESIDENTS in MEXICO can obtain their taxpayer identification number, electronic signatures and file taxes monthly declaring all income and providing receipts for certain allowable deductions.  Tax on a sliding scale is assessed on the profit.  .   An annual declaration must be filed in addition to monthly declarations.
NO DOUBLE TAXATION:  Income taxes paid in Mexico are eligible for US tax credits against the US income tax on the same income. That is a dollar for dollar offset.  You can deduct IVA as an expense on your US tax return.

US TAXES ARE ALSO DUE:  Many Americans do not report their rental property on their US tax return.  It must be reported or you will incur severe penalties.  You may also have to file special forms if you have a foreign bank account , have a foreign corporation, or have significant foreign financial assets. The penalties for not filing these special foreign reporting forms are also large. Often $10,000 or more. There are techniques available to surface with the IRS with your Mexican property and other foreign assets and avoid penalties. We can help.

Want to learn more about paying rental taxes in Mexico and handling the rental on your US tax return. Contact us a ddnelson@gmail.com or phone US 949-480-1235.

Thursday, August 16, 2018

AIRBNB TAXES IS NOW WITHHOLDING LODGING TAX IN SOME PARTS OF MEXICO - The Hacienda will collect income taxes and IVA next.

On August 6th the Gringo Gazette published an article by Doris Open regarding the impact of the Airbnb rentals in Mexico.    In Baja California Sur alone there are 2,400 owners registered with Airbnb!
    Now  owners renting properties through Airbnb in some parts of Mexico will be paying the 3% lodging tax to the municipal authorities.  This will be taken out of rental income BEFORE it goes to the owner!!

   Rental owners of property in Mexico also owe Federal Income Tax Mexico and IVA Tax. Failure to pay these taxes on rental income can result in severe penalties.

    One to these two taxes is the Impuesto Sobre la Renta (ISR) is the owner’s tax on income.    The other, the Impuesto al Valor Agregado (IVA) tax is a sales tax which must be paid by the tenant but collected by the owner and delivered to the Mexican authorities.

    These taxes must be declared MONTHLY and paid each month to SAT, the federal tax authority.
    
Many tax authorities and accountants do not believe the 3% hospitality tax is an obligation of the owner of one or two units who rents only occasionally.  This issue has yet to be determined with any certainty.

    No tax expert disputes the legitimacy of the two federal Federal taxes.    With all this publicity however, federal tax authorities will be looking more closely at the Airbnb websites and will be visiting those owners to check their compliance with federal tax laws.  They have already done so in some towns located on the Mexican mainland.

    It is strongly suggested you get legal  with the Mexican tax authorities BEFORE they knock on your door!

If you have questions on IVA and Income Tax owed on your Mexican rental property either in Mexico or in the USA (if you are a US taxpayer), contact us at ddnelson@gmail.com.  Visits our website at www.taxmeless.com.  We have been assisting US taxpayers living in Mexico with their US taxes for over 20 years.

To learn more about the details of these Mexican rental taxes  and Mexico real estate rental tax law visit www.rentaltaxmexico.com 
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The Settlement Company® has developed three options for meeting your obligations on income from rental properties located in Mexico.   For additional information; info@settlement-co.com

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