IVU Taxes & Short Term Rental Houses
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So far, from what we have learned is that a vacation rental house is exempt from paying the IVU taxes, PROVIDED it is registered with the Tourism Company and paying the room tax of 7% of income generated each month from the rental house. The penalties for not are steep, and without that certificate, the Hacienda is coming after you for their 10.5% plus penalties, and the municipality wants their 1% too.
Mrkpytn wrote:If someone from Puerto Rico rented on airbnb it would be processed through my US account and be exempt from PR taxes. This is how it has worked for me so far.
I am no expert, but there is no way way this is true. An occupancy tax is basically a sales tax on hospitality, just as if you had a banana stand in PR and lived in the states, you would still pay sales tax on banana sales. That being said, and referencing my previous comment, until this is incorporated into airbnb, it's likely a 50/50 thing. So hopefully they build it into the system so the playing field is even.
Wait, are you saying there is specifically not a sales tax on fruitandvegs? Or just that nobody that has an actual stand pays them? I was just using that as an example.
We registered our vacation home with the Tourism Company in March of 2015 and started paying 7% taxes each month on the earnings generated from the rental. We registered because we had heard and also read that the penalty for not registering is $25,000 plus fines and penalties. It wasn't worth the risk of getting caught doing something illegal or under the table. It would not be difficult for the IRS to subpoena VRBO, AirBnb, etc., for the payouts they made to us, or see the income in our bank account(s). We reported our earnings on our income tax return and paid the Tourism Company each month. We didn't know anything about the Hacienda Dept.
In February 2017 (two years AFTER registering with the Tourism Company), we went to a CPA here on the island. The CPA told us we had to report our earnings to the Hacienda (basically the Dept. of Treasury), and that we were supposed to be charging renters 10.5% IVU tax and 1% municipality. The penalties for not reporting the earnings for the past two years totalled over $8,500, and was increasing each day the monthly payments were not made. We also ran the risk of having our rental house shut down and our front gate padlocked if we were caught not reporting it. We were astounded that the island expects us to pay 18.5% of the income gathered from renting our vacation house.
We did some research, asked other hosts, and eventually, fortunately, learned that IF YOU ARE REGISTERED WITH THE TOURISM COMPANY WITH A NAICS CODE OF 721199 (North America Industrial Classification System, Code 721199 "Other Traveler Accommodation"), YOU ARE EXEMPT FROM PAYING IVU TAXES to the Hacienda Department. A vacation rental house does not provide foods, goods, or services, but just lodging -- which is exactly what we do.
When we showed our CPA the 2015 registration and a certificate from the Tourism Company and our initial registration application from 2015, that had us classified under "Other Traveler Accommodations, Code 721199", our IVU taxes, late fees, and penalties through the Hacienda Department were waived (thank Goodness!). Our only requirement to the Hacienda Department is to: (1) be registered with them, and (2) report our earnings monthly to them. We continue to pay the Tourism Company the 7%.
All hotels and B&Bs on the island are required to charge the additional 11.5% (IVU to Hacienda and municipality), and 7% to the Tourism Company, explaining why their rates and fees are higher than us little vacation houses! And it all has to do with the NAICS classification code and whether you provide food or beverages to guests.
We're learning as we navigate the murky waters of government and business here, and we are hopeful that this information is useful to anybody operating a short term rental, or considering it in the future.
If you simply rent out a cottage while you are not in residence, this seems to be "Other Traveler Accomodation". But what if you rent out a room? The NAICS description for a Bed and Breakfast references two distinguishing characteristics. The first is a "highly personalized service" and the second is the provision of a "full breakfast in the room rate". So it appears that if you rent out a room and only provide a continental breakfast, you are not a B&B, and need not pay the IVU. Or, if I am reading NAICS correctly, you can provide a full breakfast, but only with lousy service ;-)
Here's the link to the NAICS for B&Bs:
http://siccode.com/en/naicscodes/721191 … kfast-inns
My idea is to have spare bedrooms and baths in my primary residence, all with private entrances. I'd also like to provide, as a courtesy, some coffee and breakfast pastries for the guests. I figure so long as it remains a "continental breakfast" and doesn't rise to the level of "highly personalized service", that I'm not a B&B either. A fine distinction, but I clearly want to be on the one side, and not the other (or else my rates go up 20%).
melendezki wrote:Funny Rey! From what I heard about your cooking, you may have to charge them to eat! Hee hee.
Hey!
I only burned my kitchen once!
LOL
Just saw this article on Caribbean Business website, looks like things with Airbnb might be changing so that Airbnb will directly pull the 7% instead of hosts needing to report and pay?
"SAN JUAN – Aiming to boost tourism on the island, Puerto Rico has signed a deal with Airbnb under which the company will collect a room tax from the island’s hosts and turn the revenue over to the Puerto Rico Tourism Co. (PRTC).
Under the agreement, Airbnb will charge a 7 percent tax it will send to the PRTC. Gov. Ricardo Rosselló said Thursday that collections will begin in August, adding that the deal will ensure the collection of more than $2 million in taxes.
The San Francisco-based company has more than 4,300 hosts and 7,100 listings in Puerto Rico."
Average for Airbnb (just the room) goes from about 50 to 200, price is set by owner.
A 3 bedroom house typically goes for 140 -250 a night for any number of guests up to 8 on average. So for families it is fairly inexpensive.
Beats 375 a night per suite and a family needing 2 to 3 suites at a hotel.
I understand that Airbnb will collect room tax and give it to Hacienda. I guess that will cause a (small) raise in Airbnb prices
More than 250,000 Airbnb guests were reported in Puerto Rico in the past year, an increase of 83 percent from the previous year. That activity generated more than $28 million, with the typical host earning $5,700 a year."
https://www.washingtonpost.com/business … 9f3f8f54fa
ReyP wrote:Do you get to deduct cost such as maintenance, insurance, improvements, electric and water cost from the rental income when doing PR taxes?
Those strike me as legitimate business expenses, though depending on the circumstances, some of them might have to be pro rated. I'd advise incorporating, probably as a LLC, and running the vacation rentals as a business. You then report the business profit or loss on your personal income filing. I do this on the mainland, with a duplex rental that I own.
As with all of these matters, best to consult a licensed professional, in this case a CPA for guidance.
WarnerW wrote:ReyP wrote:Do you get to deduct cost such as maintenance, insurance, improvements, electric and water cost from the rental income when doing PR taxes?
Those strike me as legitimate business expenses, though depending on the circumstances, some of them might have to be pro rated. I'd advise incorporating, probably as a LLC, and running the vacation rentals as a business. You then report the business profit or loss on your personal income filing. I do this on the mainland, with a duplex rental that I own.
As with all of these matters, best to consult a licensed professional, in this case a CPA for guidance.
yes to all of those in the US, I was wondering if the same applied to the taxes collected by Hacienda in PR for the income on the short term rental.
However, when it came to reporting business income for personal PR income taxes, then the deductions would reduce your taxable income. At least, that's how it seems to me.
melendezki wrote:I will share with you our experience in the hopes that you do not need to go through the stress and anxiety we did, trying to finagle our way around the island government to conduct a legitimate business of a vacation rental house.
We registered our vacation home with the Tourism Company in March of 2015 and started paying 7% taxes each month on the earnings generated from the rental. We registered because we had heard and also read that the penalty for not registering is $25,000 plus fines and penalties. It wasn't worth the risk of getting caught doing something illegal or under the table. It would not be difficult for the IRS to subpoena VRBO, AirBnb, etc., for the payouts they made to us, or see the income in our bank account(s). We reported our earnings on our income tax return and paid the Tourism Company each month. We didn't know anything about the Hacienda Dept.
In February 2017 (two years AFTER registering with the Tourism Company), we went to a CPA here on the island. The CPA told us we had to report our earnings to the Hacienda (basically the Dept. of Treasury), and that we were supposed to be charging renters 10.5% IVU tax and 1% municipality. The penalties for not reporting the earnings for the past two years totalled over $8,500, and was increasing each day the monthly payments were not made. We also ran the risk of having our rental house shut down and our front gate padlocked if we were caught not reporting it. We were astounded that the island expects us to pay 18.5% of the income gathered from renting our vacation house.
We did some research, asked other hosts, and eventually, fortunately, learned that IF YOU ARE REGISTERED WITH THE TOURISM COMPANY WITH A NAICS CODE OF 721199 (North America Industrial Classification System, Code 721199 "Other Traveler Accommodation"), YOU ARE EXEMPT FROM PAYING IVU TAXES to the Hacienda Department. A vacation rental house does not provide foods, goods, or services, but just lodging -- which is exactly what we do.
When we showed our CPA the 2015 registration and a certificate from the Tourism Company and our initial registration application from 2015, that had us classified under "Other Traveler Accommodations, Code 721199", our IVU taxes, late fees, and penalties through the Hacienda Department were waived (thank Goodness!). Our only requirement to the Hacienda Department is to: (1) be registered with them, and (2) report our earnings monthly to them. We continue to pay the Tourism Company the 7%.
All hotels and B&Bs on the island are required to charge the additional 11.5% (IVU to Hacienda and municipality), and 7% to the Tourism Company, explaining why their rates and fees are higher than us little vacation houses! And it all has to do with the NAICS classification code and whether you provide food or beverages to guests.
We're learning as we navigate the murky waters of government and business here, and we are hopeful that this information is useful to anybody operating a short term rental, or considering it in the future.
This information you have provided is a HUGE help. Thank you so much for clarifying and sharing your experience.
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