Ecuador VAT on foreign-supplied digital services effective from September

Ecuador's VAT plan to tax digital services supplied by non-residents comes into effect in September 2020, collection will be by financial intermediaries.

Jul 30, 2020

Ecuador's new VAT plan to tax digital services supplied by non-residents will become effective in September, collection will be financial intermediary. The plan is estimated to raise $100.3m per annum.

Ecuador


Planned date of introduction:
September 2020
Tax rate:  12% VAT

Ecuador's VAT law was originally published on December 31, 2019. The country's President issued the relevant VAT regulations on July 28, 2020, with publication due in the following days. The new VAT will come into effect in September 2020.

Ecuador’s Internal Revenue Service - Servicio de Rentas Internas (SRI) - first revealed its plans back in October 2019 to tax digital services supplied by non-resident businesses to customers based in Ecuador. The plans were revealed in the government’s draft Economic Growth Law that was presented to Ecuador’s national assembly in October 2019.

The burden of the collection of the 12% VAT due on these digital sales will be the responsibility of certain financial institutions that will act as withholding agents. Ecuador’s Government expects to raise $100.3 million per annum if these draft rules are passed into law.

Paraguay

Planned date of introduction: January 1, 2021
Tax rate:  10% VAT

Paraguay has revealed that it is postponing plans to introduce a VAT on cross-border supplies of digital services until January 1, 2021. A proposed new non-residents' income tax – effectively a Digital Services Tax (or DST) – is also being postponed.

The moves were revealed in Decree No. 3667/2020 issued by Paraguay's Executive Branch on June 5. As is common in South American approaches to taxing non-resident digital businesses, the burden of the collection of the 10% Paraguay VAT on these digital sales is intended to be the responsibility of certain financial institutions. 

The tax reform is outlined in the publication of Paraguay’s Law 6380/19 of Modernization and Simplification of the National Tax System (Ley de Modernización y Simplificación del Sistema Tributario Nacional).

Digital services are defined in this law as: “Those services that are made available to the user through the internet or any adaptation or application of the protocols, platforms or technology used by the internet or any other network through which they are provided. [The] services are characterized by being essentially automated and not viable in the absence of information technology.”

The location of the customer will be determined based on pieces of evidence commonly used in similar regulations around the world. The customer’s location in Paraguay will be determined using:

  • The IP address of the device used by the customer, or
  • The country code of the SIM card, or
  • The customer’s billing address, or
  • The bank account used to remit payment; or
  • The billing address of the customer available to the bank, or
  • The financial institution issuing the credit or debit card with which the payment is made.

In common with other South American rules, the burden of the settlement and collection of the VAT due (Paraguay’s standard VAT rate is 10%) will be on the local bank, the issuer of the payment card used in the purchase.

MORE: Digital tax developments in South America and Mexico

We will, of course, keep you up-to-date with developments in South America and beyond.

MORE: Digital tax developments in South America and Mexico 

Acknowledgement: Thanks to Erika Bañuelos and Paola Gachet, of Ferrere Abogados, for their help with this article. 


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