Costa Rica VAT rules amended for cross-border digital sales

Costa Rica VAT rules changed on July 1 when the supply of cross-border digital services came under the scope of VAT.

Jul 2, 2019

On July 1 Costa Rica became the latest tax jurisdiction to amend VAT rules relating to the cross-border supply of digital services.

The confirmed obligation for the VAT (according to Decree 41.779  - only available in Spanish - as published in the Official Gazette, recently introduced by Law No. 9.635) is on domestic credit card issuers.

In a move that mirrors the approach in Argentina a list will be published to show what foreign digital service suppliers are within the scope of these updated VAT rules in Costa Rica. No list is published yet. Affected credit card issuers will have one month to comply from the date of the publication of such a list.

Narrow window for potential July 1 compliance

All this meant that foreign digital service providers did not have to register in Costa Rica’s from July 1. This development would have been welcomed by many foreign digital service suppliers that were not ready to comply. The date of July 1, however, was still quite complex. This was due to the narrow timescale and the body of work required to complete the necessary internal system change for those that did choose to comply with the Costa Rica VAT rules on cross-border digital services.

Optional Costa Rica VAT registration

It must be noted that foreign digital service suppliers still have an option to register and comply directly with Costa Rica’s VAT rules.

The draft resolution sets out how such providers may register if they choose to do so. If they choose to do so they must comply from July 1.

As registration is optional it is unlikely that the Costa Rican Tax Administration will grant an extension to this July 1 deadline date for affected foreign digital services providers.

A sample of some of the obligations for affected foreign digital service providers include:

  • Registration with the Costa Rica Tax Administration
  • Determination of the customer’s location
  • Retention of accounting records for potential audit purposes
  • De-registration for failure to pay two or more VAT returns
  • Potential designation of a contact person to act on their behalf in Costa Rica

Foreign suppliers will certainly wait for the publication of the list of companies within the scope of Costa Rica VAT rules before taking any necessary action.

We will, of course, keep you updated on developments in Costa Rica and elsewhere.

Taxamo content is created for guidance only, please consult your local tax advisor.

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