September 28, 2023

Benjamin Franklin as soon as stated 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 the US (with comparatively low charges), Worth Added Tax (VAT) in Latin America accounts for a major quantity of the taxes that governments within the area acquire. 

It’s of the utmost significance that international companies and entrepreneurs do the mandatory analysis into a specific 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 it’s possible you’ll discover that your enterprise is strangled by excessive tax charges – with Worth Added Tax (VAT) in Latin America being one in every of 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 companies experience.

With a couple 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 % of whole tax revenues in 2019, in accordance with the Organisation for Financial Co-operation and Growth (OECD). Income from Worth Added Tax in Latin America – as a share of GDP – almost tripled on common between 1990 and 2019, from 2.2 % of GDP in 1990 to six % 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 may give you an concept 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 yr for which the newest 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 industrial exercise skyrocketed in Latin America. Retail e-commerce sales shot up 36.7 percent in 2020, representing larger progress than some other area on this planet on the time. 

A yr later, a wide-ranging examine was collectively launched by the OECD, the World Financial institution, the Inter-American Growth Financial institution (IDB) and a corporation representing regional tax authorities. Entitled the ‘VAT Digital Toolkit for Latin America and the Caribbean’, the examine really useful 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 accordance with estimates from the IDB, one of many establishments concerned within the improvement of this toolkit,” the IDB acknowledged in June 2021. 

“With regard to Worth Added Tax in Latin America, “the primary VAT challenges relate to the sturdy progress in on-line gross sales of companies and digital merchandise to non-public shoppers (reminiscent of ‘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, typically by international sellers, on which VAT just isn’t collected successfully underneath present 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 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% 
  • 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 expensive 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 buyer, it signifies that the price of many items and companies goes up too. 

Corporations 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 varied 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 positive factors 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 energetic FTZs in place, the place international companies take pleasure in 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 will help you

At Biz Latin Hub, we offer built-in market entry and back-office companies all through Latin America and the Caribbean, with places of work 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 assist multi-jurisdiction market entries and cross border operations.

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

Contact us at the moment to seek 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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