The Evolution of Digital Taxation in LATAM

Digital services VAT in LATAM has moved from a regulatory gap to an actively enforced tax framework affecting SaaS, gaming, and streaming providers worldwide. This article outlines how key Latin American countries tax digital services today, highlights current compliance requirements, and explains what foreign developers should expect in practice.

Digital technology is firmly established across Latin America. Mobile internet penetration is high, and online gaming, SaaS, and streaming services are now standard consumer products. Demand expanded faster than regulation, however. Until the mid-2010s, many foreign digital providers operated without indirect tax obligations, while local companies were required to charge VAT. This created structural inequality: domestic businesses competed under a full tax burden, while international providers effectively operated tax-free.

That situation has changed. Faced with significant revenue losses and competitive distortions, Latin American governments began reforming their approach to taxing digital services. These reforms followed international guidance. In 2021, the OECD and the World Bank published the VAT Digital Toolkit for Latin America and the Caribbean, recommending a destination-based model in which services are taxed where they are consumed, regardless of the supplier’s location. This aligns regional practice with regimes already applied in the EU and Australia.

Digital taxation is now fully operational across the region. The rules apply to both domestic and non-resident suppliers of SaaS, games, and other digital services. Tax authorities increasingly require foreign providers to register locally, submit periodic reports, and remit VAT. Non-compliance can result in fines, withholding, or service blocking. Operating without regard to local tax rules is no longer viable.

Digital Services VAT in LATAM by Country

Mexico

• Since June 2020, a 16% VAT applies to both B2B and B2C digital services.
• Non-resident suppliers must register within 30 days of starting operations. Failure to comply may lead to platform or service blocking.
• From 2024, additional corporate documentation and notarized filings are required.

Chile

• Since 2020, a 19% VAT applies to B2C digital services.
• From 2023–2024, suppliers must register through the SII portal, file monthly returns, and make regular VAT payments.

Peru

• A decree issued in August 2024 introduced 18% VAT on digital services supplied by non-residents, effective 1 December 2024.
• A separate 1% excise tax on online gambling applies from September 2024.

Argentina

• Since June 2018, a 21% VAT applies to digital services, collected primarily through financial intermediaries such as credit card companies.
• Since 2023, platforms and intermediaries act as VAT withholding agents.

Colombia

• Since July 2018, a 19% VAT applies to foreign digital services, generally under a reverse-charge or withholding model.
• From early 2025, a Simplified Economic Presence (SEP) regime will apply if both thresholds are exceeded: 300,000 users and USD 313,000 in annual revenue.
• Qualifying suppliers must choose between a 10% withholding regime or a 3% gross income tax.

Digital Services VAT in LATAM: Brazil’s CBS and IBS Reform

Brazil is implementing one of the most extensive indirect tax reforms in the region. The current system - PIS, Cofins, ICMS, and ISS - is being replaced by a dual VAT structure:

• CBS (Contribuição sobre Bens e Serviços) at the federal level
• IBS (Imposto sobre Bens e Serviços) at the state and municipal level

Taxation will be based on the destination of consumption rather than the origin of the supplier.

Implementation Timeline

During the transition, companies will operate under both legacy and new regimes. Early preparation is critical.

Implications for Digital Companies

• Effective rate: The combined rate appears high but replaces multiple overlapping taxes.
• Real-time e-invoicing: Tax calculation, validation, and reporting occur immediately.
• Systems readiness: ERP and billing systems must support e-invoicing, validations, and automated tax allocation.
• Legal clarity: Digital services are explicitly covered, removing previous ambiguities.

Cross-Border Considerations for Digital Services VAT in LATAM

• Tax is assessed where the service is consumed, increasing predictability for foreign suppliers.
• Brazil will also introduce social mechanisms, such as VAT cashback for low-income households.

Operational Challenges

• Internal teams must be trained and processes tested well before mandatory adoption.
• Compliance requires real-time validation, currency conversion, and data transmission.
• Some companies will enter pilot programs as early as 2026, with broader impact from 2027–2028 onward.

Regional Trends

• Most countries apply destination-based VAT, often combined with reverse-charge or withholding mechanisms.
• Platforms and aggregators are increasingly responsible for collecting and remitting VAT on behalf of sellers, particularly in Argentina, Peru, Mexico, and Brazil.

The Shift Toward Digital Tax Administration for Digital Services VAT in LATAM

Latin America is at the forefront of digital tax enforcement:

• Widespread use of mandatory e-invoicing.
• Pre-filled tax returns and API-based reporting.
• Use of big data and automation to detect non-compliance.

While these tools improve transparency and efficiency, they require vendors to adapt their systems to country-specific technical standards.

Practical Guidance for Game and SaaS Developers

Key Actions for Digital Services VAT in LATAM Compliance

• Identify jurisdictions where users are located.
• Determine registration obligations: direct, via platform, or through a local representative.
• Calculate VAT based on customer location, using reliable geo-location methods.
• Implement local reporting and e-invoicing requirements.
• Clearly separate platform sales (where tax may be handled by the platform) from direct sales, which require independent compliance.

Tools and Support for Managing Digital Services VAT in LATAM

• ERP and tax software with Latin American coverage.
• Local legal and tax advisors.
• Direct integration with tax authority systems where required (for example, SII, SUNAT, or Brazilian e-invoicing frameworks).

Key Risks

• Service blocking, fines, and retroactive tax assessments.
• Rapid legislative changes, particularly in Peru and Brazil.
• Multi-currency reporting and settlement complexity.

Implementation Checklist

1. Map user locations and revenue sources
2. Obtain local tax advice
3. Select an operating model: direct, platform-based, or Merchant of Record
4. Test registration processes
5. Configure invoicing, reporting, and currency handling
6. Monitor legal changes and perform annual compliance reviews

Conclusion

VAT on digital services in Latin America is no longer hypothetical. Rates typically range from 16% to nearly 28%, enforcement is increasingly automated, and penalties for non-compliance are real. For digital businesses operating in the region, tax compliance is now a core operational requirement. With appropriate planning, systems, and local support, companies can remain compliant while continuing to scale in high-growth markets such as Mexico, Chile, Colombia, and Peru.