VAT on Cross-border digital services
VAT on cross-border digital services was introduced as part of the latest tax reform in Costa Rica in 2018. But, it wasn’t until October 2020 that the regulations came into effect.
The regulations include two different mechanism to collect the tax:
- Non-domiciled suppliers or intermediaries of digital services may voluntarily register for the VAT; and
- With respect to digital services provided by specific service providers included on a list prepared by the Tax Authorities, credit or debit card issuers are responsible for withholding, reporting, and paying the tax for every purchase made by local consumers regarding the listed services.
Supply of the following services are currently listed by the Tax Authority:
- APPLE +
- APPLE MUSIC
The tax authority will update this list periodically.
Under this mechanism, both registered service providers and the card issuers have formal obligations to report the tax, file tax returns, remit the payments, and keep specific records of the sale transactions.
The VAT rate on such services is 13% (of the total price of the service) and it is only applicable if the service was consumed or used locally.
The tax authorities have clarified that non-domiciled entities that voluntarily register as taxpayers for this specific tax will not be subject to other tax obligations in Costa Rica, nor will the non-domiciled entities be treated as having a permanent establishment in Costa Rica by virtue of providing such services to Costa Rican residents.
Local consumers of taxed digital services may claim input tax credits. To prove their right to the input tax credit they can use the receipt issued to them for the services or their bank statements.
It should be noted that there has been disccussion about the difficulties both service providers and card issuers may have in determining whether the service was consumed locally or not. If the service was consumed abroad and the tax was withheld by mistake, individuals can request a reimbursement of the withheld amount.