Tuesday 4 October 2022

Costa Rica Consumers Will Have To Pay The VAT On Cross-border Services

Starting July 1, consumers in Costa Rica will have to start paying the 13% Value Added Tax on online purchases such as Netflix, Uber, Airbnb, YouTube Premium, Spotify, and many others

Paying the bills

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04 October 2022 - At The Banks - BCCR

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Sounds like something very technological. The words ‘cross-border services’ (servicios transfronterizos in Spanish) in the coming weeks will begin to impact the pockets of consumers in Costa Rica.

‘Servicios transfronterizos’ is the category by tax authorities that includes services such as Uber, Spotify, YouTube Premium, Airbnb, Netflix and many others, together with other virtual systems widely used across the planet, subject to the Value Added Tax (VAT) – Impuesto al Valor Agregado (IVA) in Spanish – that goes into effect on July 1.

The 13% sales tax on these services is called for in the plan fiscal (tax plan) – Law 9635 – which stipulates that digital, telecommunications, radio and television services that are provided in the country regardless of the medium or technological platform from which such service is provided, will be subject to the tax.

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See also Internet Purchases Would Pay Double Tax, If Proposed Tax Reform Approved

The VAT on the import of services is contained in Article 30 of the Law (digital cross-border transactions, when a foreigner makes available to the local consumer access to content through a digital platform).

The Directorate General of Direct Taxation of the Ministry of Finance (Dirección General de Tributación Directa del Ministerio de Hacienda) confirmed, by way of a letter sent on May 17 to a group of taxi drivers, that the 13% VAT will be charged to Uber users in the country and “will be the financial institutions that issue the Costa Rican cards who will act as agents of tax collection”. That is, when a transaction of this type is made, the issuing bank must withhold the tax and remit to the tax authorities.

The law makes no distinction of the location of the origin of the service provider.

“They (by order of tax authorities) what they do is charge the card (credit or debit card) that is used to subscribe and make a monthly, quarterly or biannual charge depending on the selected payment conditions. The idea is that whenever the content providers charge our card, the issuer will be instructed to withhold the 13%, which is the VAT rate of the service that is being paid,” explained Mario Hidalgo tax and legal manager Grant Thornton Costa Rica consultants.

There are gaps

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According to experts in the matter, the mechanics to specify the collection could have gaps that must be resolved by the issuers of the cards (banks or financial institutions).

The banks or financial institutions say they do not have the tools or technologies to differentiate the purchases made by the user with the card.

Then there is the question of how the VAT will be charged, for example, to a Uber user who pays in cash, which the ride app allows.

The law does allow a “transition” where the application of the VAT is suspended until a special resolution is issued to the specific case.

The case of Uber

Taxi drivers in protest against Uber in the country
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Gilbert Ureña, representative of the Foro Nacional de Taxistas (taxi union), indicated that VAT regulates services and platforms, but believes that if the Ministry of Finance charges the 13% on Uber’s services, it (Finance) would commit an anomaly because it Uber is an illegal service in the country.

“If the Treasury charges VAT to illegal services such as Uber, 48 hours later, the lawsuit will be filed against the Finance Minister (Rocío Aguilar) and the Director of Direct Taxation (Carlos Vargas) before the Prosecutor’s Office for allowing the collection of taxes in an illegal service”, said the leader of the taxi union.

Last month, during a hearing before the Legislative Assembly – representatives of Uber confirmed that starting in July the VAT would be collected on each trip as stipulated in the Law. However, days later, the Minstry of Finance said it will not collect the tax from Uber.

 

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Paying the bills
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