Airbnb hosts in Ecuador and other similar platforms are now required to pay VAT and Income Tax for 2021 and 2022.
The Internal Revenue Service (SRI) has identified around 1,500 people who received income from renting properties on short-term rental platforms but have never bothered to obtain a Single Taxpayer Registry (RUC).
Meaning that these individuals were not paying taxes for their temporary accommodation activity.
But as part of its strategy to reduce tax evasion and increase tax collection by at least $1.2 billion in 2023, SRI launched a plan in February to regularize those hosts who have not been paying taxes for income earned thru their short-term rental properties.
The first step of the SRI’s regularization plan was to create a new economic activity called “accommodation services provided by hosts,” and then to require people engaged in this activity to get their RUC under this name.
To remove any excuse about the bureaucracy of obtaining a RUC, the SRI has set up the process so that it can be done electronically, starting with entering the SRI online, entering an identification number and password, and accepting the terms and conditions.
Hosts must also provide general information about themselves, their contact information, and their annual income. They must choose their main economic activity and verify the information before receiving RUC registration confirmation.
Once hosts take out the RUC, they must declare and pay 12% Value Added Tax (VAT) and the percentage that corresponds to them for Income Tax.
Short grace period
The SRI has been notifying hosts since February, giving them a period of only 10 days to obtain their RUC, declare, and pay the VAT and Income Tax for the years 2021 and 2022. Hosts who fail to comply will face fines and penalties.
However, some hosts are rejecting the measure, saying it is a retroactive charge. They claim that the State already receives income from rentals on these platforms, as clients pay 12% VAT to digital platforms, including Airbnb and Booking.com.
The Association of Temporary Tourist Services Host Ecuador estimates that there are at least 7,000 people in Ecuador who are dedicated to renting through these platforms. But they add that less than 50 people have been regularized due to the doubts they still have regarding the SRI decision, according to the association’s president Gabriel Guzmán.
The SRI explains that the obligations of these new taxpayers will depend on the income they earn. If the host receives an annual income of up to $20,000, then it will be considered a popular business within the Simplified Regime for Entrepreneurs and Popular Businesses (Rimpe). In this case, the hosts are not required to issue electronic invoices, only sales notes. Popular businesses had to pay a single income tax rate of $60 until March 2023.
However, the rate will no longer be in force in 2024, as it will be replaced by a progressive tax, following a ruling by the Constitutional Court.
If hosts have an annual income of between $20,001 and $300,000, they will be in the category of Rimpe Entrepreneurs, which requires them to issue electronic invoices and pay a progressive Income Tax. Those with incomes greater than $300,000 will be within the general regime.
The SRI has the power to require taxpayers to pay taxes from previous years, including temporary rental services that have always been taxable activities.
Taxpayers must also pay interest for late payment at a rate of 11% per year on the tax that they had to pay but did not pay. In addition, they will face a fine equivalent to 20% of the value of the tax they had to pay.