Worth Added Tax (VAT) in Latin America

Benjamin Franklin as soon as stated that nothing is definite in life besides demise and taxes. The phrase might have been first uttered by one of many authors of the US Structure, however nowhere is it extra true than in Latin America. And in contrast to the US (with comparatively low charges), Value Added Tax (VAT) in Latin America accounts for a big quantity of the taxes that governments within the area gather. 

It’s of the utmost significance that overseas companies and entrepreneurs do the required analysis into a selected Latin American nation earlier than organising store there. Incorporating and/or establishing a satellite tv for pc workplace in a jurisdiction with out the due diligence, and chances are you’ll discover that your online business is strangled by excessive tax charges – with Worth Added Tax (VAT) in Latin America being certainly one of them. Whereas you will get significant info from the web, there isn’t any substitute for native, on-the-ground professionals with authorized, accounting, administrative, and again workplace companies experience.

With a number of exceptions, Worth Added Tax in Latin America has been steadily on the rise for the previous 30 years. VAT is the largest source of tax revenue on average in Latin America and the Caribbean (LAC), at 27.7 p.c of complete tax revenues in 2019, in keeping with the Organisation for Financial Co-operation and Improvement (OECD). Income from Worth Added Tax in Latin America – as a proportion of GDP – practically tripled on common between 1990 and 2019, from 2.2 p.c of GDP in 1990 to six p.c in 2019.

Prime 10 international locations with the very best VAT in Latin America 

The next is an inventory of countries with the highest percentages of Value Added Tax in Latin America, as of 2019 (the 12 months for which the most recent figures can be found):

• Chile – 39.9{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Guatemala – 38.8{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Peru – 38.5{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• El Salvador – 37.5{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Paraguay – 35.7{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Dominican Republic – 34.7{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Honduras – 31.8{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Ecuador – 30.3{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Colombia – 29.6{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Belize – 29.3{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Regional common – 27.7{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}

In the course of the Covid-19 pandemic and the lockdowns that adopted, on-line buying, e-commerce, and different digital business exercise skyrocketed in Latin America. Retail e-commerce sales shot up 36.7 percent in 2020, representing larger development than every other area on the earth on the time. 

A 12 months later, a wide-ranging examine was collectively launched by the OECD, the World Financial institution, the Inter-American Improvement Financial institution (IDB) and a corporation representing regional tax authorities. Entitled the ‘VAT Digital Toolkit for Latin America and the Caribbean’, the examine really helpful that LAC governments reform their tax legal guidelines to use VAT to all e-retail purchases/e-commerce gross sales. 

“Latin America and the Caribbean might increase tax collection by $3 billion by applying the value-added tax to e-commerce, in keeping with estimates from the IDB, one of many establishments concerned within the growth of this toolkit,” the IDB said in June 2021. 

“With regard to Worth Added Tax in Latin America, “the principle VAT challenges relate to the robust development in on-line gross sales of companies and digital merchandise to non-public customers (comparable to ‘apps’, music and film streaming, gaming, ride-hailing, and many others.) and to the exponential development in on-line gross sales of low-value imported items, usually by overseas sellers, on which VAT is just not collected successfully underneath current guidelines,” the group added.

Many countries within the area heeded the Toolkit’s suggestions, and consequently, Latin America now leads the world in taxing digital companies.

Worth Added Tax levied on digital commerce in Latin America

What follows are the odds of VAT in Latin America levied on digital goods and services by nation:

• Uruguay – 22{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c} 
• Argentina – 21{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c} 
• Chile – 19{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Colombia – 19{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Peru – 18{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Honduras – 15{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Mexico – 16{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Bolivia – 13{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c} 
• Costa Rica – 13{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c} 
• El Salvador – 13{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Ecuador – 12{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Guatemala – 12{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Panama – 10{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}
• Paraguay – 10{d42366266ed32498db6a7ea5e10fda25d8e7846f38ab05d2cf7697307037871c}

Whereas a extra sturdy VAT regime in Latin America is sweet for governments’ tax revenues, it’s a pricey nuisance for companies within the area – particularly for small- and medium-sized enterprises (SMEs). Any sort of tax hike means the price of doing enterprise goes up, and as that value is often handed onto the buyer, it signifies that the price of many items and companies goes up too. 

Corporations seeking to keep away from paying business- and consumer-unfriendly Worth Added Tax in Latin America (in addition to different taxes) ought to look into the assorted Free-Commerce Zones (FTZs) that dot the area. They’re designed to draw overseas direct funding by offering companies massive and small with tax exemptions on company taxes, capital beneficial properties tax, import duties and VAT, amongst others. 

VAT in Latin America: Prime 10 international locations providing FTZ tax exemptions 

What follows is an inventory of Latin American international locations which have lively FTZs in place, the place overseas companies get pleasure from many tax exemptions (together with Worth Added Tax in Latin America):

• Brazil
• Chile
• Colombia
• Costa Rica
• Dominican Republic
• Ecuador
• El Salvador
• Guatemala
• Honduras
• Mexico

Biz Latin Hub may also help you

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Our unrivalled attain means we’re ideally positioned to help multi-jurisdiction market entries and cross border operations.

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Contact us at this time to search out out extra about how we will help you to find expertise, or in any other case do enterprise in Latin America and the Caribbean.

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