Costa Rican Ministry of Finance had confirmed plans to introduce VAT at 13 percent on cross-border digital services rendered by foreign businesses to Costa Rican consumers from August 1. The move was designed to bring the country into line with the BEPS Action 1 recommendations of the OECD on tackling the tax issues of the digitalized economy.
Either digital services providers or payment processing firms are responsible for collecting and remitting VAT on services rendered to Costa Rican consumers. The delay, announced on July 31, is so that financial entities can finalize the necessary computer system changes, the Finance Ministry explained.
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There’s been a lot of activity with regard to VAT and GST internationally recently, not least in Costa Rica, which introduced VAT on July 1, and recently confirmed that public institutions will be subject to value-added tax from 2020.
Costa Rica has introduced a new value-added tax regime, in place of the sales tax, featuring a 13 percent headline rate, and three reduced rates, of four, two, and one percent.
Further bedding in the new system, the Costa Rican tax authority also late this month released new online forms for declaring value-added tax, capital income, and capital gains.
On June 29, 2019, Costa Rica released a step-by-guide guide on how to fill out form D-104, which must be filed by value-added tax registered persons for the first time between August 1 and August 16.
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Costa Rica, after more than a decade, is still trying to pass a major fiscal reform package designed to put the Government’s finances on a more assured footing. Granted, there are some controversial elements to the original proposals, including a switch from a territorial to a worldwide basis of taxation, and investors won’t like that. And overall, the package is meant to increase tax revenue as a share of the economy. But for taxpayers, and particularly for foreign investors, policy paralysis is just as bad as a situation where the rules are apt to change frequently, because it also breeds uncertainty and a lack of confidence in the government and the legislature. Perhaps indicative of this displeasure, the lack of a political consensus on the fiscal reforms earned Costa Rica a rebuke from Moody’s Investors Service earlier this month.
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