There has recently been a crackdown in tourist beach communities, many homeowners that use their property as vacation rentals have received notice to ensure they are registered as rentals and claim the income they are receiving. Most rentals are listed on social media or Airbnb, making it easy for the government officials to find properties being used as a rental. It is not unheard of for authorities to base taxes and penalties on a perceived rental income by using the area’s occupancy rate, which will be much more expensive for you in the end.
According to the Ministry of Finance and Public Credit (SHCP), the evasion of ISR by lease represents 0.1% of GDP. In addition, according to a study by the University of the Americas Puebla, in 2016 the rate of evasion of natural persons who obtain income from leasing was 73.5%. To combat this, the Treasury implemented a reform that has already entered into force to inspect landlords.
Landlords must verify that they have been issuing CFDI for income from rentals. When a tenant does not pay the rent and a lease trial is reached, the judge will ask the landlord to show you the CFDIs that protect your income. If you do not prove them, the judge must notify the SAT no later than five days after the deadline.
The reform will change Article 118 of the Law of the ISR to be as follows:
“In the case of real estate lease judgments in which the lessee is ordered to pay the overdue income, the judicial authority shall require the creditor to verify that he issued the tax receipts referred to in this section. In the event that the creditor does not prove to have Once these vouchers have been issued, the judicial authority must inform the Tax Administration Service of the omission mentioned within a maximum period of five days from the expiration of the period granted by the judicial authority to the creditor to comply with the requirement.
According to some specialists, the proposal could achieve more revenue and an increase in the rental price. According to Arturo Rosales, director of finance at Homie, prices will increase due to legal processes.
For years foreign property owners have not paid their rental income taxes. Vacation property income seemed to fall under the radar of taxable income in Mexico, until recently.
Whether you are investing in Mexico, doing business in Mexico or retiring in Mexico, you need to learn about the Mexican tax system. Consult a tax attorney in Mexico when you make an investment purchase or rent out your home.
The Federal Government expects foreign owners to follow the Mexican tax laws that come with owning property investments in Mexico. Any rental property in Mexico, whether it is just a small suite or a luxury condominium, whether you rent it part-time and live there part-time or you rent it full time, these tax laws apply. Many foreign homeowners in Mexico are not complying with the laws, whether they choose not to, because they think anything goes in Mexico, or they are not aware of the Mexican tax laws and tax system. The reality is you can not escape taxes, no matter where you live. Avoiding these laws will put their homes at risk.
SOME FOREIGN OWNERS ASSUME THEY DO NOT NEED TO PAY TAXES ON THE PROPERTY BECAUSE THE INCOME FOR THE RENT IS PAID TO THEIR HOME COUNTRY BANK ACCOUNT, THIS IS NOT THE CASE. ANY RENTAL PROPERTY IN MEXICO IS SUBJECT TO TAX IN MEXICO, NO MATTER WHICH COUNTRY OR BANK ACCOUNT THE RENT IS PAID TO.
Property owners that do not comply with these laws may lose their rights as the property owner, face possible jail time, fines, deportation from Mexico and forced sale of the property.
Our year end 2019 Expatriate Tax Planning Letter can be read and downloaded here (pdf file). Read it to learn of tax law changes for 2019 and possible planning steps you can take before year end to save you money.
