Digital tax developments in South America
How to tax the emerging generation of digital services platforms is becoming a headache for finance ministries in Latin America and around the world.
According to the OECD, Latin American economies are making real progress to address the tax challenges arising from the digitization of the economy. This international entity also expects that further digital tax developments in Latin America provides stability and certainty in the international tax system.
Managing your company while keeping a careful watch over new regulations is one of the challenges to overcome while doing business in Latin America. Here, we provide a brief summary of what has happened in a number of Latin American jurisdictions. One consistent thread running through these laws, and proposed laws, is that the scope of digital services covered is focused on international digital companies.
1) Digital tax developments in Argentina
The Argentine government levied taxes for digital services under law 27,430 and on a general basis. This regulation includes services carried out through the Internet network or any adaptation or applications, platforms or technology used by the Internet or other networks through which equivalent services are provided. By their nature, these services are basically automated and require minimal human intervention, regardless of the device used for its download, display or use.
The regulation of digital services in Argentina has been in place since 27 June 2018 and the entity the AFIP (Administración Federal de Ingresos Públicos) is in charge of regulating this matter.
If you are looking to incorporate a startup company in Argentina that offers digital services, you must understand and comply with your tax obligations for such activities. Tax percentages vary depending on the online service provided.
2) Chile: developments in digital taxation
Foreign digital service suppliers with sales in Chile have to apply, collect and remit 19% VAT on certain digital services since June 1, 2020. Affected foreign digital service companies now have VAT registration and collection obligations for their sales to Chile-based customers.
The SII (Servicio de Impuestos Internos) has enabled a 100% online system that allows taxpayers to register with the entity and comply with the tax obligation.
3) Digital tax in Colombia with the DIAN
Colombia is one of the leading countries in terms of digital tax developments in Latin America by establishing that providers of digital services must pay 19% VAT over the digital services provided. In July 2018 Colombia published a law confirming the liability for foreign suppliers to register, collect, and remit VAT at 19% for sales to individuals in Colombia. The law came into effect on January 1, 2019. This tax is mandatory for all digital service providers from abroad. If not implemented, the DIAN can order the different payment methods that exist in the country (credit and debit cards, prepaid cards, and collectors of cash, among others) to withhold correspondent VAT directly.
4) VAT in Ecuador
Ecuador’s Internal Revenue Service - Servicio de Rentas Internas (SRI) - revealed plans in October 2019 to tax digital services supplied by non-resident businesses to customers based in Ecuador. The plans were revealed in the government’s draft Economic Growth Law that was presented to Ecuador’s national assembly. The burden of the collection of the 12% VAT on these digital sales will be the responsibility of certain financial institutions that will act as withholding agents.
5) Mexico tax reform
The 2020 Mexico Tax Reform modifies the Income Tax Law and the Value Added Tax Law, impacting companies and users engaged in the Mexican digital market. Since June 1, 2020, Mexico imposes VAT at the standard rate of 16% on digital services provided to Mexico-based customers by non-resident businesses.
6) Brazilian digital tax regulations
On May 4, a Brazilian law to create a digital tax, the so-called “CIDE-digital,” was submitted to Brazil’s House of Representatives. Brazil’s digital tax would be a revenue tax, not an income tax. The revenue generated would be applied to the national fund for technological and scientific development.
The proposed law, n. 2358/2020, provides that the tax would be triggered upon the receipt of revenue from advertising to Brazilian users or making available a digital platform that permits users to interact with the objective of the sale of goods or services directly between such users if one user is located in Brazil. The tax will also apply to the sale of advertisements targeted on users located in Brazil collected from a digital platform or generated by such users.
Brazil’s digital tax would apply to entities domiciled in Brazil or abroad that earned or that are members of a multinational group that earned in the previous-year global revenues exceeding R$ 3 billion (approximately US$ 600 million). For the tax to apply, the taxpayer must also have gross revenue in Brazil that exceeds R$ 100 million (approximately US$ 20 million).