The Digital Platform Tax Law

As from 1 June 2020, the Mexican Government requires that all the digital platforms operating in Mexico, such as Rappi, Uber, Mercado Libre, Airbnb, etc, withhold a percentage of their users’ sales as a tax payment. Digital platforms are requesting all their users provide them their RFC, that is their Mexican taxpayer registry number. For now, only individuals are liable for this retention. Corporations will keep reporting their taxes as before.

How does this apply to vacation rental providers?

All vacation rental platforms such as Airbnb, VRBO, Booking.com etc are affected.  If you host your own website and take bookings there, you are affected as well.

The platforms are required to register with SAT, the Mexican tax authority to share data with them on income earned via the platforms.

Why is it happening?

As a homeowner offering your home for rent in México, you have always had the obligation to pay taxes.  However, because the platforms were outside of México it has historically been hard for the Mexican government to find you and tax you.  

This new law changes that by ensuring that they are aware of all rental activities occurring on the platforms.  They now know what rental income has been generated and exactly who received it.  Therefore, not declaring this income is no longer possible.

What is tax withholding?

When receiving income in Mexico for a commercial activity such as rent from a property or the sale of an item, you are obliged to pay taxes for such income. The two main taxes are IVA or VAT (Value Added Tax) and ISR (Income Tax). To be able to pay these taxes, it is necessary to have an RFC number.

In addition to these taxes, there is also a lodging tax that platforms are already deducting from your payouts.  This started a few years ago.

Withholdings are considered installments on the taxes you owe and are thus prepayments on your final tax bill.  What you actually owe will be squared up when you file your taxes.

Amounts withheld from payouts

If you are a Mexican taxpayer, and have entered your details into to digital platform, you will be subject to the following withholdings:

  • Up to 5,000 MXN earned monthly - 2%

  • Up to 15,000 MXN earned monthly - 3%

  • Up to 35,000 MXN earned monthly - 5%

  • Over 35,000 earned monthly - 10%

If you are not a Mexican Taxpayer or have not entered your RFC into the digital platform, default withholding is

  • Tax withholding on Income (ISR) - 20%

  • Tax withholding on Sales Tax (IVA) - 16%

Who must comply?

You are required to pay these taxes as long as one or more of the following is true:

  • The business operation happens inside Mexico.

  • The payments are made through a digital platform located in Mexico.

  • They are requested from within Mexico.

  • A Mexican code phone number (+52) is used

As such, this law affects Mexican hosts as well as foreign hosts. However, it should be stressed again that this law is mostly for individuals.  If you are business, you are already paying taxes and so this law does not affect you greatly.

When does the new law start?

Booking.com and VRBO (and its affiliates) started deducting taxes in July and August this year.  On Airbnb, tax withholding deductions started on October 1, 2020.  The law applies to reservations taken after June 1, 2020.  The platforms are complying with different logic on their systems and in the first month, and changes are to be expected in the first few months of implementation.

What if I don’t rent on Airbnb, VRBO or other platforms?

Your obligations remain the same, even if you are renting directly and taking cash payments.  Failing to comply is tax avoidance, and the consequences if caught can be severe.

How to comply with the Digital Platform Tax law.