The Central American country of Costa Rica implemented Value Added Tax on non-resident providers and intermediaries of digital or electronic services from 1 October 2020. The includes an option to VAT register to collect VAT, or face Withholding VAT when payments are made through credit cards. VAT applies on both B2C and B2B transactions, with not option to reverse charge on the latter. There is no VAT registration threshold or requirement to appoint a Fiscal Representative.
The current VAT rate in Costa Rica is 13%. VAT Calc’s global VAT and GST on digital services blog keeps a live update on how countries are imposing indirect taxes on non-resident providers and electronic marketplaces.
Withholding VAT on digital services
Since October 2020, resident payment providers (credit card, bank transfers, e-wallets, online payments etc) in Costa Rica are obliged to withhold VAT on payments made to unregistered foreign digital service providers. The payment provider effectively becomes a withholding agent for VAT. The General Directorate of Taxation regularly publishes a list of foreign digital providers that are subject to withholding VAT. There are currently 70, and growing. If VAT is incorrectly deducted by a payment provider for a VAT-registered provider, they may reclaim it back.
What digital services are liable to Costa Rica VAT?
Income from the following electronic services is liable to VAT:
- Streaming music and video
- Rights to the use of software via the internet
- E-books and online journals or newspapers
- SaaS and cloud-based software, data storage or processing
- Advertising and online listing of goods or services
- Auction websites
- Internet domain name acquisition and support
- Ride sharing platforms
- Accommodation letting, house sharing (June 2020) with platform acting as withholding agent
VAT registration and returns
A voluntary VAT registration is possible via a simplified online VAT registration process. Once VAT registered, electronic returns are filed on a monthly basis. Returns should be filed by the 15th of the month following. There is no obligation to appoint a tax or VAT agent. Accounting records related to supplies of digital services subject to VAT in Costa Rica would need to be kept electronically for five years, in either English or Spanish. These records could be requested at any time by the Costa Rica tax authorities.
Non-resident are exempted from the now mandatory e-invoice regime of Costa Rica.
Marketplaces and intermediaries
Cross-border digital services provided via an intermediary, or platforms, become the responsibility of the intermediary for VAT collections and reporting.
Central and South America VAT on digital services
|Comments (click for details)||Rate||Date||Threshold||Comments|
|Bahamas||10%||Jan 2015||BSD 100,000|
|Barbados||17.5%||Dec 2019||BBD 200,000|
|Costa Rica||13%||Oct 2020||Nil||Withholding VAT option|
|Dominican Republic||18%||2023?||Nil||Currently withholding VAT|
|El Salvador||13%||2022||-||Replace Withholding VAT|
|Paraguay||10%||Jan-21||Nil||Withholding VAT; 4.5% DST|
|Puerto Rico||10.5%||Jan 2020||$100,000; or 200 transactions||Marketplaces|
|Uruguay||22%||Jan 2018||Nil||VAT and Withholding Tax|