Worth Added Tax (VAT) in Latin America

Benjamin Franklin as soon as mentioned that nothing is definite in life besides loss of life 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 america (with comparatively low charges), Worth 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 international companies and entrepreneurs do the mandatory 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 you could discover that what you are promoting is strangled by excessive tax charges – with Worth Added Tax (VAT) in Latin America being one in all them. Whereas you may get significant info from the web, there isn’t a substitute for native, on-the-ground professionals with authorized, accounting, administrative, and again workplace providers experience.

With just a few 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 whole tax revenues in 2019, in response to 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.

Infographic by Biz Latin Hub on the Gross average national income per Capita in Latin America for an article about VAT in Latin America
The typical revenue per capita within the area can provide you an thought of VAT in Latin America

Prime 10 international locations with the best VAT in Latin America 

The next is a listing 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%
  • Guatemala – 38.8%
  • Peru – 38.5%
  • El Salvador – 37.5%
  • Paraguay – 35.7%
  • Dominican Republic – 34.7%
  • Honduras – 31.8%
  • Ecuador – 30.3%
  • Colombia – 29.6%
  • Belize – 29.3%
  • Regional common – 27.7%

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 progress than some 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 company representing regional tax authorities. Entitled the ‘VAT Digital Toolkit for Latin America and the Caribbean’, the examine advisable 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 may increase tax collection by $3 billion by applying the value-added tax to e-commerce, in response to estimates from the IDB, one of many establishments concerned within the improvement of this toolkit,” the IDB said in June 2021. 

“With regard to Worth Added Tax in Latin America, “the primary VAT challenges relate to the robust progress in on-line gross sales of providers and digital merchandise to non-public customers (similar to ‘apps’, music and film streaming, gaming, ride-hailing, and so on.) and to the exponential progress in on-line gross sales of low-value imported items, usually by international sellers, on which VAT isn’t collected successfully underneath current guidelines,” the group added.

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

Worth Added Tax levied on digital commerce in Latin America

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

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

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

Firms trying 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 international direct funding by offering companies giant and small with tax exemptions on company taxes, capital beneficial properties tax, import duties and VAT, amongst others. 

VAT in Latin America is affected by digital trade spending in the region. Infographic by Biz Latin Hub
VAT in Latin America is affected by digital commerce spending within the area

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

What follows is a listing of Latin American international locations which have lively FTZs in place, the place international 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 might help you

At Biz Latin Hub, we offer built-in market entry and back-office providers all through Latin America and the Caribbean, with workplaces in Bogota and Cartagena, in addition to over a dozen different main cities within the area. We even have trusted companions in lots of different markets.

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

In addition to information about Worth Added Tax in Latin America, our portfolio of providers consists of hiring & PEO accounting & taxation, firm formation, and company authorized providers.

Contact us immediately to seek out out extra about how we are able to help you to find expertise, or in any other case do enterprise in Latin America and the Caribbean.

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