Withholding Taxes in Latin America: Always Changing and Typically Complex

Qualifiers are crucial when addressing withholding taxes on domestic business-to-business transactions in Latin America. These qualifiers – which include phrases like “usually,” “at the moment,” and “in other cases” – point to the inherent complexity of withholding tax applicability, rates, calculations and exemptions in Argentina, Brazil and Mexico.

According to a new Vertex white paper, this complexity arises from four primary sources:

1. Withholding taxes exist at the federal, provincial and municipal levels of government.
2. Withholding tax applicability, rates and calculations also vary, sometimes significantly depending on the country, the transaction and the level of government applying the tax.
3. These rules, rates and calculations are subject to frequent adjustments and legislative changes, especially during periods of economic stress during which governments are hungry for faster ways to collect revenue.
4. Some federal, provincial and even municipal tax authorities can impose substantial financial penalties – 100 percent of the tax due, in some cases – for compliance lapses.

This World Finance article, A taxing issue: how to navigate Latin America’s complex withholding tax regulations, is written by my colleague, Ana Paula Maciel, Principal Tax Research Analyst at Vertex and Ernesto Levy, Senior Leader, Global Indirect Tax at Intuit. The piece examines how withholding taxes are (usually) calculated in Latin America and then delves into withholding tax regimes and rules in Argentina, Brazil and Mexico.