As it grows rapidly in Latin America, Airbnb may pay taxes to local governments

By Olivia Zaleski

As Airbnb Inc. turns its attention to Latin America, the often-combative company is taking an unusual approach. It’s giving local governments what they want.

An Airbnb rental in Cuenca.

The home and apartment-rental company said it will collect and remit taxes in Mexico City, the first such arrangement in Latin America. Airbnb will provide three percent of revenue generated from bookings in Mexico City to the city’s government. Hotels there also pay a three percent lodging tax to local officials. Airbnb said it intends to replicate the tax model throughout the region.

Latin America is now Airbnb’s fastest-growing market, surpassing Japan. The company has 250,000 properties listed in the region, which encompasses Mexico, South America and parts of the Caribbean, including Cuba. Airbnb said bookings in Latin America have increased 148 percent in the past year.

The growth, however, comes in the face of fierce resistance. In such places as Panama City, Cuenca, and Mendoza, Argentina, local governments and hotel owners are demanding that Airbnb property owners be taxes and regulated like other hospitality businesses. In Cuenca and Mendoza, hotel associations have gathered personal information on owners who list through Airbnb and have offered to run “sting operations” to enforce local laws.

Airbnb, however, is taking a cordial tact with officials in some locations. While it has agreed to report taxes on behalf of its hosts in New York City, San Francisco and other cities, the company only did so after long, drawn-out battles with officials, sometimes in court. This month, Airbnb settled a lawsuit with San Francisco and agreed to register New York hosts in a state database. But the company continues to fight officials in Barcelona, Miami, Southern California and elsewhere on housing-related issues.

Chris Lehane, the head of policy for Airbnb, said the company plans to take a friendly approach throughout Latin America. It’s currently discussing agreements similar to the one in Mexico City with the governments of Buenos Aires and Sao Paulo. “This is just the beginning,” he said. “We’re prepared to be flexible and experiment.”

Airbnb has big plans for Latin America. It expects to double staff there by the end of the year and open offices in Argentina, Brazil and Mexico. Headcount will likely quadruple to 120 people within the next two years, Airbnb said. The plans echo those of Uber Technologies Inc., the only technology startup in the U.S. more richly valued than Airbnb. The ride-hailing company dedicated considerable resources to the region after losing more than $2 billion in China and selling its business there to a homegrown rival. Airbnb is currently trying to find a way to break into China.

Also like Uber, Airbnb faces competition everywhere it goes, including Latin America. Many Brazilians rely on local upstart Hotel Urbano, which is backed by at least $130 million from travel-booking giant Priceline Group Inc. and others, according to research firm CB Insights. Expedia Inc. owns AlugueTemporada, which operates a similar service but lists only 30,000 homes in Latin America.

To win over locals, Airbnb will need to navigate the complexities of the region’s payment infrastructure. About half of people in Latin America and the Caribbean have bank accounts, according to data from the World Bank. Far fewer have credit or debit cards, which are the standard payment methods for booking on Airbnb around the globe. Payment practices vary widely from country to country, said Faquiry Diaz Cala, chief executive officer of Tres Mares Group, a venture firm that invests in Latin American startups. “Airbnb will need to connect its rails to the local payment ecosystems to be successful,” he said.

In Brazil, Airbnb allows customers to pay for their stays in Boleto Bancário, a payment method offered at local banks, lottery stores or post offices. After booking a reservation on Airbnb, guests receive a code that they submit along with payment at a location that accepts boleto. The institution then pays Airbnb. The boleto became popular during Brazil’s recession. Airbnb is experimenting with ways to accommodate other payment systems unique to Latin American countries, Lehane said. “We have to figure out how our product can be consistent with how people are used to working.”

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Credit: Bloomberg, www.bloomberg.com