VAT and tax withholding legislation in Mexico

Updated 1 month ago | 15 min read
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As of June 1, 2020, special rules apply to businesses in Mexico that provide digital and intermediary services. Therefore, Booking.com B.V. is registered for tax purposes in Mexico with the Registro Federal de Contribuyentes (RFC) number BBV9706235T7.

In this article, we'll cover some frequently asked questions about VAT and tax legislation in Mexico.


Informing the Mexican tax authorities of your digital business activities

You must inform the SAT each time a guest pays you for reservations made on our platform. These may be full or partial payments.

There are two steps to do this via the SAT’s Administration Service portal:

  1. If you’re not already registered with the SAT for the income you receive through our platform, you need to do so first. Click here to learn more about registering.
  2. If you’ve already registered with the SAT, you need to update your economic activities and obligations. Click here to learn more about how to do this.

If you permanently stop receiving income through digital platforms, make sure you inform the SAT about this, too. Click here to learn how.


Our VAT obligations

We must comply with the following compliance and reporting requirements in Mexico.

We have to charge 16% VAT on top of our commission

We're required to charge 16% VAT on top of our commission and remit it to the SAT. As a result, the total amount shown on your invoices includes our commission and the VAT, both of which are payable to us. If you’re VAT-registered, you can claim a VAT refund from the SAT by reporting it as input VAT.

We have to withhold VAT and income tax

If you use Payments by Booking.com, we’re required to withhold the VAT and income tax from certain partners who provide accommodation services on our platform. The withholding is considered either a final or partial payment, depending on whether you opted in to the Definitive Payments Scheme.

We have to report to the SAT

We’re required to be transparent with the SAT about any taxable activities you carry out on our platform. To enable us to do this, enter your VAT details on the Extranet.


Your obligations for providing accommodation services

Besides paying VAT and income tax on income from accommodation itself, you also have to pay VAT and income tax on any additional services you charge guests for in Mexico. This includes breakfast, parking, early check-in, late check-out, and extra beds. You can find more info about your tax obligations below.

You need to pay 16% VAT

You need to pay 16% VAT for providing accommodation services using a digital platform. If you're located on the northern or southern border and have special authorization for a reduced VAT rate, you only need to pay 8% VAT.

You should file a VAT return every month, no later than the 17th day after receiving payment from your guests.

You need to pay lodging tax

You're required to pay lodging tax or impuesto sobre hospedaje (ISH) for renting out a property, room, or unit. This is usually between 2% or 5%, depending on the state and the type of accommodation you have.

You need to pay income tax

Mexico's income tax laws require you to account for tax on a monthly basis no later than the 17th day after the month you receive payment from your guests. You’ll then need to file your income tax each year, by April 30 at the latest.

Click here for information from the SAT about declaring your taxes, or read about the local rules for earning income through digital platforms on the Prodecon website.


The Definitive Payment Scheme

If you join the Definitive Payment Scheme, we’ll withhold your VAT and income tax and pay them to the SAT for you. This means you'll no longer need to file VAT returns. We’ll also send you a monthly tax payment overview showing the withheld VAT and income tax. You’ll need to keep this document for at least five years. Withholding is only possible if you use Payments by Booking.com.

Keep in mind that the payments we make to the SAT are considered final, so you'll no longer be able to make income tax deductions or credit any VAT related to providing accommodation services.

Joining the Definitive Payment Scheme

You can join the Definitive Payment Scheme when registering with the SAT. To be eligible, your income in the previous calendar year needs to have been less than MXN 300,000 per year. If you've just started your business, this is based on your projected income.

Once you've opted into the scheme, you'll need to comply with all of the scheme's requirements for five years. If you stop complying, all your VAT and tax payments from that point will be considered partial payments.


Withholding VAT and income tax for accommodation services

When we withhold your VAT and income tax, the withheld amount is considered credit against the taxes you need to pay each year on the income you receive through digital platforms. This section explains everything you need to know about withholding and how we perform it under various circumstances.

When do we withhold taxes on your behalf?

We can withhold your VAT and income tax if you meet all three conditions listed below:

  1. You use Payments by Booking.com. We can only withhold taxes if you collect payments for reservations through us. If a guest directly pays you for a part of the reservation, we'll only withhold taxes for the amount paid through us.
  2. You're the owner or manager of the property, and you're using it for income and therefore paying taxes on reservations.
  3. You haven’t provided us with a business RFC number. This is different from an individual (persona física) RFC number.

To learn more about RFC numbers, see section 7.

How withholding works

After withholding your VAT and income tax and remitting it to the SAT, we'll issue you a monthly tax payment overview, which gives you a breakdown of your payments. Currently, we can't automatically deduct VAT and income tax from your reservation payments made through Payments by Booking.com. Therefore, we'll charge these on top of our commission.

If you receive payouts via bank transfer, we'll deduct the total amount shown in your tax payment overview from the amount you're due to receive for your reservations. If this doesn't happen, you’ll need to pay us the outstanding amount. If you receive payouts using virtual credit cards (VCCs), we won’t deduct the amount shown in your tax payment overview, so you’ll need to pay us the outstanding amount.

In the future, we plan to automatically deduct VAT and income tax from all reservation payouts made through Payments by Booking.com. This means we'll deduct taxes directly from the transactions between you and your guests.

What documents will you receive from us?

You’ll receive a monthly tax payment overview from us, showing your payments. Here’s an example of it:

Invoice EN

When is withholding considered final payment?

To ensure that the withholding is considered final payment, we recommend opting into the Definitive Payment Scheme. Not joining the scheme will mean that any withholding we perform is only considered a partial payment of your taxes.

When is withholding not considered final payment?

If you don't opt into the Definitive Payment Scheme, you'll need to account for your own taxes. That means any VAT or income tax we withhold for you won't be considered a final payment. Instead, you'll need to deduct the partial payments we make to the SAT from what you still owe them, and you’ll need to pay them the outstanding amount. You should do this before the 17th day of the month you receive payment from us.

Below are examples of the calculation of income tax and VAT:

VAT Income Tax

Sometimes it can be advantageous to opt out of the Definitive Payment Scheme for VAT and income tax purposes – for example, if your expenses are particularly high.

Withholding rates

There are different withholding rates for VAT and income tax in Mexico. For example, if your property is at the north or south border, you may be subject to a lower withholding rate. The rate at which we'll withhold your taxes depends on the type of RFC number you’ve provided us. The table below shows the withholding rates for partners with an Individual RFC, those with a Business RFC, and those who haven't provided us with an RFC number at all.

RFC Number

To see how these rates are calculated, click here. To find out more about RFC numbers, see here.


Reduced VAT and income tax rates in border regions

In some cases, a lower VAT rate of 8% applies to taxpayers in Mexico's northern and southern border regions. You must have authorization from the SAT to qualify for this lower VAT rate. We can't withhold your VAT at 8%. Instead, after applying for special permission from the SAT you’ll need to file a separate tax return then claim back from the SAT the difference between the rate we've applied and the rate you're entitled to.

If you don't collect payments using Payments by Booking.com or we’re not withholding taxes (e.g. because you’ve provided us with your business RFC), you can collect VAT at 8% directly from guests.

How we calculate your withholding taxes

The rate at which we withhold your VAT and income tax depends on the info we have about your tax status. However, all calculations start with the Guest Transactional Value (GTV). This is the total amount a guest has paid you for providing accommodation services. Any tax they've paid you is factored into the GTV.

Here's how we define the withholding of your VAT and income tax – also known as the taxable basis:

  • Taxable basis for withheld VAT: The total amount you've earned for providing accommodation services, including additional taxes such as a city tax.
  • Taxable basis for income tax: The total amount you've earned for providing accommodation services. This excludes additional taxes like a city tax or VAT, which is applied at a theoretical rate of 16%.
Partners with an individual RFC

The calculation below shows how we withhold your VAT and income tax if you've provided us with an individual RFC.

Individual RFC
 

Explanation of the calculation:

In this example, the GTV is MXN 1,160, with a theoretical VAT rate of 16% included. The actual VAT that needs to be withheld is 8%, which is half of 16%. The net amount without any VAT is MXN 1,000. We use the net amount to calculate the income tax by deducting MXN 50 city tax from MXN 1,000 and applying 4% income tax to the remaining MXN 950.

Partners with no RFC

The table below shows how we withhold your VAT and income tax if you have not provided us your VAT or tax details. In short, the GTV is your entire revenue, including tax.

NO RFC
 

Explanation of the calculation:

In this example, the GTV is MXN 1,160, including a theoretical 16% VAT rate and MXN 50 city tax. The price excluding VAT is MXN 1,000. To calculate the income tax, we've deducted MXN 50 city tax and applied 20% income tax to the remaining MXN 950.

Adjusting incorrect taxation after the deadline has passed

You may be faced with situations where a guest cancels a reservation and you miss the deadline to provide us with your updated income information. This affects the amount of VAT and income tax we'll withhold for you, as you would have paid more than required. In these cases, any documents we provide you won't take the cancellation into account. To correct this, you'll need to request a refund directly from the SAT.

The same applies when there are changes to the number of days stayed or the price paid, or if you don't let us know in time about issues involving invalid credit cards.

The procedure for correcting your withheld VAT and income tax depends on the type of payment scheme that applies to you. The table below explains each procedure.

Payment scheme

Providing us with your VAT and income tax information

Providing your VAT and income tax details on the Extranet helps us comply with our reporting obligations and determine whether we need to withhold VAT and income tax for you.

We can only send you an invoice with your RFC number if you provide us with these details. You’ll need this invoice if you want to claim back any taxes from the SAT.

Adding your info on the Extranet

Follow these steps to provide us with your VAT and income tax info:

  1. Log in to the Extranet
  2. Click Finance and select VAT details
  3. Indicate what type of RFC you have—either a Business RFC, an Individual RFC, or no RFC—and enter your tax identification number (TIN)
  4. If you don't have a business RFC, indicate whether you're a tax-paying property owner, manager, or parent company, then add your CURP code if applicable
  5. Enter your address for tax purposes (fiscal domicile)
  6. Click Save to finalize

You can also click here to provide this information.

If you have more than one property in Mexico, you'll need to fill out this info for each property separately.

What happens if you don't add your VAT and tax details on the Extranet

We'll withhold 16% VAT and 20% income tax from your Payment by Booking.com payouts, regardless of the actual rates that may apply to you. We'll charge this on top of our commission fees.

We also won't be able to send your tax payment overview with your RFC number. This can make it more difficult to claim back VAT or income tax from the SAT.


Everything you need to know about RFC numbers

RFC stands for Registro Federal de Contribuyentes, which is the Mexican tax administration registry. This is a unique tax identification number that individuals and businesses must have when earning income in Mexico.

You can find RFC numbers on official documents such as the photo pages of passports, social security cards for individuals, or corporate documents for companies. You can also check your existing RFC number using the SAT's registry. If you don’t have an RFC number, you can apply for it on the SAT's website.

Find out how to do this here.

Types of RFC numbers

There are two types of RFCs, one for individuals (persona física) and another for businesses (persona moral). An RFC number for a business is 12 characters long, while an RFC number for an individual is 13 characters long. Both contain alphanumeric characters.

Here are examples of both types of RFC numbers:

  • Example of an individual (persona física) RFC: GOAP780710RH7
  • Example of a business (persona moral) RFC: IAT030120E60 or OH&880519DW9

Keep in mind that individuals with RFC numbers that allow for business activities are not considered persona moral.


Everything you need to know about CURP codes

CURP stands for Clave Única de Registro de Población – or Unique Population Registry Code. This is a unique identification code for citizens and residents of Mexico.

The CURP code is an 18-character alphanumeric string that’s essential for filing taxes and recording your business dealings. Here’s an example of how a CURP code is structured (in Spanish):

CURP Code

People born in the year 2000 or later will have a verification digit (dígito verificador) that’s usually a letter from A to Z, to help avoid duplications.

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