If you are planning to invest in real estate property or you already own a property in Mexico, you should know that there are different types of taxes that apply related to real estate rentals:
- Capital Gains Tax. Capital Gains Tax (CGT) is a federal tax applicable on all income received and arising from any source, including rental income. CGT on rentals for non-residents is 25% of the property’s income, without deductions. CGT on rentals for Mexican residents can be up to 35% depending on the property’s income, with the possibility of deducting certain expenses or a blind deduction of 35% might be applicable at owner’s election (individuals). CGT is paid directly by the owner every month together with the corresponding filings.
- Value Added Tax. Value Added Tax (VAT) is a federal tax applicable to the lease of a house or a condo with furniture and appliances based on a 16% tax rate over the rent. If the house or condo is leased without furniture, this tax does not apply. VAT is paid by the tenant with the rent and reported every month by the owner together with the corresponding filings.
- Lodging Tax. Lodging Tax is a state tax applicable to the lease of a house or a condo on vacation rentals based on a 3% tax rate over the rent. Vacation rentals are for tourist purposes only, meaning people traveling temporarily out of their primary residence with recreational or any other purpose. Vacation rentals always include furniture and utilities (water, gas, electricity, Wi-Fi, among others). Lodging Tax is paid by the guest with the rent and reported every month by the owner together with the corresponding filings. Some online platforms, such as Airbnb and Vrbo collect and pay the Lodging Tax on behalf of the hosts at the time of booking.
If you own a real estate property in Baja California Sur and you wish to obtain a profit from it, you have two options to pay your taxes: A) Appoint a personal representative, who will issue receipts, pay taxes and present the corresponding filings on your behalf; or, B) Change your immigration status to a Mexican resident and request a taxpayer number, to comply with your tax obligations and contribute with Country’s development.