Understanding Latin America’s VAT Rules for Digital Service Providers

Although Italy is considered the first country to implement fiscalization as part of its VAT reporting strategy, some data indicate that it originated in Latin America. In addition, Chile is considered the first country to have implemented e-invoicing into its national legislation. Therefore, Latin American countries played a vital role in establishing monitoring and reporting VAT mechanisms.

However, the rapid expansion of digital services, e-commerce, and other business models in the digital economy has created new challenges, which Latin American countries are addressing by making necessary changes. Since the regulatory framework varies from one country to another, non-resident digital suppliers face many obstacles and issues. 

This article overviews VAT frameworks in several Latin American countries, examines compliance challenges, and offers strategies for handling these complexities.

VAT Framework For Non-Resident Digital Suppliers 

The regulation of digital services in Latin America started in the mid-2010s. Before the first regulations were introduced and implemented, non-resident digital service providers operated without having to charge, collect, and remit taxes in the region, which led to the loss of government revenues.

In addition to damages to government budgets, local digital services providers found themselves at a disadvantage to foreign digital suppliers. As a solution to this problem, regional governments introduced a set of rules and regulations designed and drafted to regulate digital services and VAT rules for non-resident digital suppliers.

Brazil

As the most digitized, most populated, and biggest country in Latin America, Brazil does not have rules requiring non-resident digital suppliers to pay taxes on digital services that they provide to Brazilian consumers. Although from 2017, municipalities and 2018 states may impose local and state services taxes known as ISS and ICMS on certain digital services, this was not imposed on foreign providers. 

The state ICMS taxes were later declared ineffective by Brazil's Supreme Court in 2021. The court further stated that only ISS should apply to transactions relating to digital services.

Therefore, the Brazilian government has not adopted or imposed any rules or requirements for foreign digital services suppliers. However, this is going to change. In 2024, the Brazilian government proposed a comprehensive tax reform that would reduce the taxes applicable to VAT-taxable transactions and implement a Dual VAT regime. 

Under the proposed tax reform, non-resident digital suppliers will have to collect and remit VAT on B2B and B2C supplies of services such as advertising, streaming of games, music, apps, films, e-books, e-journals, software, and internet services.

Mexico

Mexico conducted a tax reform in 2020, under which non-resident digital suppliers must register for and collect VAT at a 16% rate on all B2B and B2C supplies. Under the 2020 legislation, services such as downloading or accessing multimedia content like images, movies, music, games, and news, intermediation platforms connecting buyers and sellers, online clubs or dating websites, and remote teaching or testing services are considered digital services.

Additionally, digital intermediation platforms, such as online marketplaces, facilitating sales between sellers and Mexican consumers must withhold income tax and VAT on underlying sales.

2021 amendments to these rules further strengthened compliance measures and simplified specific requirements for foreign taxable persons. Non-resident digital service suppliers register under the simplified registration scheme within thirty days from the first provision of digital services. On the other side, those who do not comply with these rules may face their services being temporarily blocked by internet service providers at the request of the Mexican Tax Authority.

In 2024, the Mexican Tax Authority introduced two new requirements for foreign digital service providers that plan to register for VAT. In their incorporation documents or bylaws, they must strictly state that they aim to provide services through a technological platform where goods are sold or leased. Additionally, their legal representative must sign an affidavit detailing the goods or services sold, the transaction website, and the central business administration address.

Peru

Peru is one of the countries that, for a long time, has not regulated this area. In August of 2024, the President of Peru signed a legislative decree that established mechanisms for imposing an obligation on non-resident digital suppliers to collect and remit 18% VAT on B2B and B2C supplies of digital services and importation of intangibles via the Internet.

Although initially planned to come into force on October 1, 2024, the implementation was postponed until December 1, 2024. Following new rules, foreign digital service providers operating in Peru must file VAT returns through a declaration and payment platform called SUNAT Virtual.

In addition, in September 2024, the Peruvian government announced that a 1% excise tax applies on remote games and sports betting provided through online platforms developed by non-resident taxable persons when players are from Peru.

Chile

Chile started regulating this matter in 2020, requiring non-resident digital suppliers to register for, collect, and remit 19% VAT on their B2C supplies. Since then, the legislation has been amended several times, and from 2023, VAT applies to all digital services unless explicitly exempted.

In 2024, the Chilean government made several changes to legislation, thus introducing new reporting and VAT collection obligations for non-resident service providers. Foreign digital suppliers must register for VAT under the simplified VAT regime by using SII’s VAT Digital Platform.

Argentina

In 2018, Argentina obliged financial intermediaries, including credit and debit card providers, to add and withhold 21% VAT when Argentinian consumers buy digital services from non-resident providers. 

However, in April 2023, digital platforms became responsible for acting as VAT-withholding agents for selling products and providing services performed by local suppliers.

Under Argentinian legislation, services considered digital are those provided to or used by Argentinian consumers or effectively producing effects in Argentina. These services include hosting services, the supply of digitized products like digital books, designs, components, models, data storage, SaaS, and other cloud-based services.

Regional Trends and Future Developments

Regional governments are taking significant steps towards modernizing and simplifying tax and VAT regimes, which includes taxing digital services and capturing revenue from the growing digital economy. Some of the most notable trends include reliance on intermediaries to collect VAT.

In addition, the regional government wants to simplify registration through specially developed online portals to help non-resident digital suppliers comply with registration and other VAT requirements.

Regarding future developments, Brazil still needs to adopt the necessary laws and regulations to implement nationwide tax reform that will significantly affect non-resident service providers. Other countries, such as Argentina, are expected to continue reforming their national tax regimes, further changing the rules applicable to foreign digital service providers.

Compliance Challenges and Strategies

Complex tax regimes and frequent regulatory changes are some of the biggest challenges for non-resident service providers in Latin America. Language barriers may also be noteworthy challenges since not many regional countries have their rules and regulations translated into English, and knowledge of local languages is required.

To address these challenges, digital suppliers may look for partners or consultants who have local knowledge and use tax compliance software that has implemented local VAT rules for registration, calculation, and reporting.

One critical step in any foreign digital supplier's VAT compliance strategy is monitoring regulatory updates and changes regularly. Businesses should consider establishing in-house processes to track and adapt to new VAT requirements.

Conclusion

VAT rules and regulations for non-resident digital suppliers vary from one Latin American country to another, and each legislation presents unique challenges and requirements. However, by understanding each jurisdiction's uniqueness and national requirements and taking proactive steps toward creating a compliance strategy, foreign digital suppliers can successfully adjust to any novelties and evolving market, which is essential for sustainable growth in the region.

Source: KMPG, VATabout - Brazil: New Indirect Taxes on Digital Service Providers from 2026, VATabout - Peru VAT Rules for Non-Resident Digital Services: Filing & Compliance, VATabout - Chile’s Draft VAT Guidance for Remote Sellers and Digital Services Providers, VATabout - Mexico VAT Withholding: New Rules for Digital Platforms in 2024, VATabout - Chile - VAT Rules for Suppliers of Digital Services, VATabout - Mexico's VAT Compliance for Online Vendors and E-commerce Platforms