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VAT for Online Digital Services

Watching movies through Netflix just got more expensive, at least for people who are domiciled in Costa Rica and/or use a Costa Rican card to pay for these type of services. 

Starting on August 1, the collection of 13% value added tax (VAT) for cross-border digital services will begin, in compliance with the provisions of the Value Added Tax Law.

This same provision will apply to the acquisition of intangible goods made by end consumers or VAT taxpayers to a supplier domiciled outside of Costa Rica, to be used or consumed in the country.

Cross-border digital services are understood to be those provided by a provider not domiciled in the country through the internet or any other digital platform, which are used within Costa Rica.

To collect this tax, the legislator established two methods:

  1. Direct collection by the digital service provider.
    In the event that the digital service provider chooses to collect the tax directly, they must register as a taxpayer with the Tax Administration, following the procedure established in resolution DGT-R-13-2020, issued by the General Tax Directorate on June 11, 2020.
  2. collection by debit or credit card issuers.
    The collection of the tax by the issuers of debit or credit cards will be applied to the transactions carried out by the cardholder with the digital service providers identified in the list communicated by the General Directorate of Taxation. This list will be available on the page www.hacienda.go.cr and will be updated at least every six months, in order to include new suppliers or exclude those who have voluntarily registered as taxpayers.

The resolution also establishes the tax obligations that must be fulfilled by the digital service providers registered with the Tax Administration and the issuers of debit or credit cards; also the detail of the forms to be used for the calculation and payment of the tax, as well as for the provision of information of tax significance.

Consumers of digital services and / or intangible assets that are VAT taxpayers may use, as backup for their purchases, the invoices issued by providers or intermediaries domiciled abroad, the bank account statement of the card with which the service or intangible asset, or any equivalent document that you receive, in English or Spanish, in which it appears, separately, the amount of the transaction made and the tax.

“The resolution regarding the collection and collection of VAT on digital cross-border services seeks to establish in detail the guidelines to be followed and the formal and material duties that providers of this type of service, as well as the issuers of debit or credit to which the Law of Value Added Tax established as responsible for the collection of this tax. This resolution establishes a specific date from which VAT will be applied on cross-border digital services, which was established following the OECD recommendations to address the challenges of taxing the digital economy, ”said Priscilla Zamora Rojas, director General Taxation.

People who use a foreign credit or debit card to pay for these services will not be affected by this policy. I do not foresee Facebook or Apple registering with the revenue service in Costa Rica for the purposes of collecting these taxes, which is the reason why the burden is placed on the card issuers in Costa Rica to collect the tax. Thus, people who use online services (such as the ones listed below) and use a foreign card (a card issued in the US, Canada, Europe, etc) will not be affected by this.

However, small businesses registered in Costa Rica which use these services will be affected. If you have a small business and would like to claim your Facebook or Google ads as an expense, then you must pay the tax. It would be practical if you use a local card to pay for these services as the issuer will collect the tax. As noted above, you can use the bank statement or the payment receipt as proof of the payment of the tax for accounting purposes and to be able to report it as an expense. 

This is an initial list of the companies that will be affected by the implementation of the VAT. 

 

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