Ecuador VAT on foreign-supplied digital services

Ecuador's VAT plan to tax digital services supplied by non-residents came into effect on September 16, collection is by financial intermediaries.

Sep 16, 2020

Ecuador's new VAT plan to tax digital services supplied by non-residents came into effect on September 16. The collection of VAT as is common in Latin American jurisdictions is via a financial intermediary (or more specifically local credit card issuers). The plan is estimated to raise $100.3m per annum.

Ecuador


Date of introduction:
September 16, 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. The new VAT came into effect on September 16, 2020. The unusual introduction date was due to a legal requirement for the law to go live within a specific number of working days after its publications.

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 SRI has issued two lists. The first one lists the affected domestic credit card issuers. The second list – available as a PDF download here – includes the names of over 200 affected digital service suppliers. The second list while mirroring the approach in Argentina and in Costa Rica (where the introduction of such rules has been delayed until October 1) is significantly more detailed. 

The burden of the collection of the 12% VAT due on these digital sales is the responsibility of certain domestic credit card issuers act as withholding agents. However, the foreign suppliers on the above list also have the option to voluntarily register themselves to collect and remit the VAT due on their sales to customers in Ecuador.

Ecuador’s Government expects to raise $100.3 million per annum.

Paraguay

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

Paraguay has revealed that it is postponing plans to introduce 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 the 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.

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. 


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