Mexican Taxes on Timeshare Rentals

[Chris from Texas]

I've been renting my timeshare week located in Cabo San Lucas on VRBO for a few years. VRBO has been withholding 19% for IVA or VAT. Beginning last month, VRBO also withheld and extra 25% for Mexican income tax. I am a US citizen and only travel to Mexico occasionally for vacation. VRBO insists that the only way they will not withhold for income tax is if I provide an FRC number. I did a little research and I am not eligible for an RFC since I am not a Mexican resident. I even emailed a Mexican tax company I found online and they told me I should not pay income taxes in Mexico because it is a timeshare. Then I contacted VRBO to discuss this, but they insist they have to withhold income taxes on my rentals without an RFC even though it is a timeshare. Airbnb does not seem to withhold either income taxes or IVA/VAT, but I am not 100% sure since I have not rented on Airbnb yet. Demand is much stronger on VRBO, so I want to keep renting there without paying tax that I'm not actually required to pay.

Does anyone know if I am really obligated to pay both income tax and IVA/VAT when renting a timeshare unit as a US citizen? If I'm truly not required to pay either, any suggestions on how to communicate to VRBO such that they will stop withholding it?

 

[bjones9942]

From what I've always been told, México taxes income sourced in México. Since the timeshare is within the borders you would need to, at a minimum, file a tax return. Whether or not your situation creates a liability in which you would owe income taxes is a subject for a tax accountant conversant in Méxican laws and regulations.

In the last couple of years México has been tightening down on foreigners who don't have permission to work (ie earn income). It was my understanding that most of the listing companies (VRBO, AND AirBnB amongst others) response to a potential ban in México was to put these requirements of their owners in place.

It's my suggestion that the internet is NOT the place for medical, legal, or tax advise. Find yourself a professional.

 

[bizaro86]

It doesn't seem likely that timeshare rentals would be exempt from Mexican income tax.

The US charges withholding taxes on foreigners who earn income based in the US, I'd expect other countries to do the same.

 

[dioxide45]

It doesn't seem likely that timeshare rentals would be exempt from Mexican income tax.

The US charges withholding taxes on foreigners who earn income based in the US, I'd expect other countries to do the same.

The difference though is that Vrbo is not a Mexico based company. I don't think foreign companies withhold US taxes for the IRS. Of course, a US company would withhold US taxes for a person living outside the USA. If I live in Canada and rent out my timeshare through a Canadian company, I don't think that Canadian company withholds US taxes. Now if I rent it out through Vrbo, then they would have to withhold because they are a US based company.

 

[bizaro86]

The difference though is that Vrbo is not a Mexico based company. I don't think foreign companies withhold US taxes for the IRS. Of course, a US company would withhold US taxes for a person living outside the USA. If I live in Canada and rent out my timeshare through a Canadian company, I don't think that Canadian company withholds US taxes. Now if I rent it out through Vrbo, then they would have to withhold because they are a US based company.

This isn't true. Withholding isn't based on where the company involved is based, but where the work is done. I run a Canadian company that hires work in the US. We have to withhold US federal income taxes on that work.

That seems obvious to me, because otherwise it would be a huge loophole, and everyone would use foreign companies to avoid taxes. Just because VRBO isn't a Mexican company doesn't mean they aren't subject to Mexican law when they operate in Mexico.

A Canadian company renting out a US timeshare for a Canadian would still be obligated to withhold US taxes for the IRS.

 

[Arusso]

I've been renting my timeshare week located in Cabo San Lucas on VRBO for a few years. VRBO has been withholding 19% for IVA or VAT. Beginning last month, VRBO also withheld and extra 25% for Mexican income tax. I am a US citizen and only travel to Mexico occasionally for vacation. VRBO insists that the only way they will not withhold for income tax is if I provide an FRC number. I did a little research and I am not eligible for an RFC since I am not a Mexican resident. I even emailed a Mexican tax company I found online and they told me I should not pay income taxes in Mexico because it is a timeshare. Then I contacted VRBO to discuss this, but they insist they have to withhold income taxes on my rentals without an RFC even though it is a timeshare. Airbnb does not seem to withhold either income taxes or IVA/VAT, but I am not 100% sure since I have not rented on Airbnb yet. Demand is much stronger on VRBO, so I want to keep renting there without paying tax that I'm not actually required to pay.

Does anyone know if I am really obligated to pay both income tax and IVA/VAT when renting a timeshare unit as a US citizen? If I'm truly not required to pay either, any suggestions on how to communicate to VRBO such that they will stop withholding it?

I lived in Mexico many years ago (not far from Laredo) and my recollection is that foreign companies operating in Mexico were supposed to pay local taxes. The issue of US companies doing income abroad is another matter. We are in 2022 and just as tax laws in the US changed it's very likely they changed in Mexico and other countries as well. It may also be likely that hospitality and travel companies that should have paid Mexican taxes have not in the past and the Mexican government is clamping down now. It is just as likely that VRBO may be assessing a tax that is bogus.

My advice is to contact the nearest Mexican Consulate to you in Texas and pose the question to them. If, for some reason they do not or are unwilling to answer the question specifically, you can rest assured they can refer you to a professional contact who is conversant with Mexican tax law.

Buena suerte !

 

[mkimber]

Looks like Mexico has started doing to its foreigners what US has done to foreigners here for many years.

 

[Arusso]

Looks like Mexico has started doing to its foreigners what US has done to foreigners here for many years.

The US government certainly does not discriminate when it comes individuals paying income taxes. In fact, the US government happily collects withholdings from employers based on the SS number submitted even if the number was never issued to the individual actually employed ! No further comment is required here.

It's no secret that US tax law is unique in the world. From what I understand, Canadian tax law is similar but has some significant differences. Simply, as a US citizen, any and all income (earned, unearned, inherited, etc), is subject to FIT regardless of country of residence. Any wonder why some US citizens with the ability to do so access asset protection specialists and use strategies to protect their domestic and / or foreign business interests and personal income from being taxed? Some countries do not tax their citizens who earn income abroad. Currently, there 23 countries (would you consider going to Pitcarin island in the south Pacific?) that do not levy income taxes on their citizens and residents.

Vrbo is an American travel company acting as a broker between owners of residences and short term renters. In the issue posted by "Chris from Texas," I surmise Vrbo's client is a registered Mexican entity (individual or company) that was issued a Registro Federal de Contribuyentes or RFC number and therefore subject to Mexican taxes. I conclude that Vrbo's client is, in an ackward way, attempting to collect the tax from "Chris from Texas."

 

[bizaro86]

The US government certainly does not discriminate when it comes individuals paying income taxes.

The US government "discriminates" against foreigners in literally exactly the same same the way the Mexican government discriminates against foreigners here.

A US resident renting out a timeshare will get a tax slip from the broker (1099 iirc). A non-US resident has a significant portion of their proceeds withheld and submitted to the IRS. They can get it back by filing a US tax return if nothing is owing.

I don't see any reason why anybody would think the Mexican government's rules would be any different than the US government's rules in exactly the same situation.

It shouldn't be a surprise that Americans are subject to local laws when transacting business in other countries.

Although to be fair I've witnessed people telling a police officer American law allows them to do something, when outside the US. Some folks never got the memo that US laws end at the US border.

 

[jorcus]

I did find this article which explains the basics. Looks like you could get money back though tax filing but if you are only renting out a week or 2 could be a lot of work. There is no way VRBO is not going to collect this tax if you are using them.

What You Need to Know About Your Rental Property and Mexico's tax laws. - MEXLAW

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.

mexlaw.com

 

[easyrider]

I've been renting my timeshare week located in Cabo San Lucas on VRBO for a few years. VRBO has been withholding 19% for IVA or VAT. Beginning last month, VRBO also withheld and extra 25% for Mexican income tax. I am a US citizen and only travel to Mexico occasionally for vacation. VRBO insists that the only way they will not withhold for income tax is if I provide an FRC number. I did a little research and I am not eligible for an RFC since I am not a Mexican resident. I even emailed a Mexican tax company I found online and they told me I should not pay income taxes in Mexico because it is a timeshare. Then I contacted VRBO to discuss this, but they insist they have to withhold income taxes on my rentals without an RFC even though it is a timeshare. Airbnb does not seem to withhold either income taxes or IVA/VAT, but I am not 100% sure since I have not rented on Airbnb yet. Demand is much stronger on VRBO, so I want to keep renting there without paying tax that I'm not actually required to pay.

Does anyone know if I am really obligated to pay both income tax and IVA/VAT when renting a timeshare unit as a US citizen? If I'm truly not required to pay either, any suggestions on how to communicate to VRBO such that they will stop withholding it?

Many resorts have a facebook buy sell and rent page or a members group where timeshare transactions can originate. I know VRBO is a huge platform so if everyone is paying the tax it should reflect in everyone's rental price.

Bill

 

[T_R_Oglodyte]

It seems to me that VRBO withholding and remitting for Mexican tax due for short-term rentals in Mexico is almost exactly the same as VRBO withholding and remitting taxes charged by state and local governments in the USA short term rentals in the USA.

If you conduct business in Mexico, your activities are subject to Mexican law and taxation. The fact that you conduct all of the contractual arrangement in the USA is irrelevant; if the actual rental occurs in Mexico,

Just like in the US, it's easier for Mexico to work directly with the rental platform (VRBO and AirBnB) for collection and remittance.

 

[jk123]

I've been renting my timeshare week located in Cabo San Lucas on VRBO for a few years. VRBO has been withholding 19% for IVA or VAT. Beginning last month, VRBO also withheld and extra 25% for Mexican income tax. I am a US citizen and only travel to Mexico occasionally for vacation. VRBO insists that the only way they will not withhold for income tax is if I provide an FRC number. I did a little research and I am not eligible for an RFC since I am not a Mexican resident. I even emailed a Mexican tax company I found online and they told me I should not pay income taxes in Mexico because it is a timeshare. Then I contacted VRBO to discuss this, but they insist they have to withhold income taxes on my rentals without an RFC even though it is a timeshare. Airbnb does not seem to withhold either income taxes or IVA/VAT, but I am not 100% sure since I have not rented on Airbnb yet. Demand is much stronger on VRBO, so I want to keep renting there without paying tax that I'm not actually required to pay.

Does anyone know if I am really obligated to pay both income tax and IVA/VAT when renting a timeshare unit as a US citizen? If I'm truly not required to pay either, any suggestions on how to communicate to VRBO such that they will stop withholding it?

Since timeshare owners do not own real estate, it seems they wouldn't qualify for a RFC, like property owners in the business of renting their property. I would hope VRBO could work out an exception on the 25% withholding of gross rents for timeshare rentals based on the obvious. Profit after maintenance costs and rental expenses would be zero , hence no Mexico income tax due.

Does anyone know if the 16% IVA is due every time a timeshare is sold/transferred to a new owner
(or just due on the original sale) and thereafter on the fees paid to an agent?