Monday 2 October 2023

New criteria for calculating VAT in outsourcing services could raise costs

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Businesses that outsource services must collect the VAT (Value Added Tax) from their clients on the total amount of the service and not only on the commission, as had been understood until now.

Having to charge VAT on the entire contract for outsourcing could make services more expensive, for example, to take care of the security of facilities, or to attend to customer inquiries, as is the case of “call centers”.

This was indicated by Costa Rica’s General Directorate of Taxation in responses to queries raised by taxpayers under article 119 of the Code of Tax Regulations and Procedures, which allows people to ask questions about specific facts.

Outsourcing of services arises when a company subcontracts to a third party to do certain work, for example, to take care of the security of its facilities, maintenance or to attend to customer inquiries, as is the case with call centers.

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The businesses that offer these services charge a commission and generally also have their own employees.

Francisco Villalobos, a partner at ICS Consultores, who had access to some of these responses, explained that last year some service outsourcing companies asked Tributación (Taxation) if the VAT base was only on the commission charged by the company for the service or about the total cost.

The official reply, in writing, in March 2020, was only the commission.

However, ite later modified this opinion.

“Now Taxation has changed its criteria and all those who had been told it was about the commission are being notified and they are saying: we changed our criteria: you have to calculate VAT on the total,” Villalobos said.

This means that the 13% tax is calculated on wages, social charges, and the service of the company; “The components are no longer distinguished as they were before,” explained this specialist.

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“The industry had understood, until now, that the amount that the client transferred to the company that paid his payroll, should be treated as a refund, but now, suppliers must charge VAT on a much higher amount, causing the financial impact of the tax calls into question the convenience of hiring this type of service,” he added.

By applying VAT on a higher basis, the amount to be paid for the tax would be higher and that could make the service more expensive; or the company that outsources services could modify its rates to alleviate the new cost. It all depends on market conditions.

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Q Costa Rica
Reports by QCR staff

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