Costa Rica VAT rules amended for cross-border digital sales

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

Jun 7, 2019

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

Late last week (May 31) a draft resolution for consultation that establishes the obligations and compliance for foreign providers was released.

The deadline for responses to this draft resolution is June 14. The draft resolution can be accessed at the Costa Rica Tax Administration website here. The resolution states the VAT obligations of suppliers and intermediaries of digital cross-border services.

Optional Costa Rica VAT registration

Registration by foreign digital services providers is optional, not mandatory. 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
  • Deregistration for failure to pay two or more VAT returns
  • Potential designation of a contact person to act on their behalf in Costa Rica

Narrow window for potential July 1 compliance

If a foreign digital service provider chooses not to register then Costa Rica’s VAT law establishes a withholding responsibility via local credit/debit card issuers.

This development, however, will come as a surprise to many who were planning based on no option to register. It also makes the July 1 introduction date more complex. This is due to the timescale for necessary system change for those that choose to comply with the Costa Rica VAT rules on digital services is quite narrow.

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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