Bolivia plan to extend VAT to foreign-supplied digital services

Bolivia’s government has revealed plans in a draft Bill to extend the country’s VAT system to digital services supplied by foreign platforms. We understand that the rules may well come into effect as soon as June or July of this year.

The rules, if enacted, would take effect from the first day of the month following the official regulation. The Bill’s enactment could potentially occur on May 1, 2021. If this happens then the official regulations will be published in mid-May or early June with a June or July go-live date.

In this official announcement, released on April 27, Bolivia’s Ministry of Economy and Public Finances estimate that the proposed extension may recoup 30 million Bolíviano (circa USD4.35million) per year in VAT revenue. A draft Bill is under review by Bolivia’s Legislative Assembly. The key aim is to level the playing field between domestic and foreign businesses providing similar services to customers in Bolivia. This aim is a common one in other similar extensions of VAT to foreign digital businesses.

In the announcement, Deputy Minister for Tax Policy Jhonny Morales said: “What we are doing is expanding the scope of VAT to these companies so that they can pay taxes in our territory to the national treasury, because they are selling a service that is consumed in Bolivia, that is the idea. The important thing is that we are giving a uniform treatment to all digital services ”,

Deputy Minister Morales, quoted on Bolivian TV, stated that: “the proposal does not create a new tax. What we are doing is reaching foreign digital services with VAT.”

In relation to the estimated revenue that could be raised Morales is quoted here saying he expected this figure to be surpassed as the digital economy develops rapidly. 

“There are many platforms that are immersed in this issue,” he said, “and many are gradually appearing. I refer you, for example, to the topic of TikTok. A year or a year and a half ago nobody thought about it, but now it has become a phenomenon, so [the situation] is very dynamic.”

It is proposed in the draft Bill that Bolivia’s current standard VAT rate of 13% will be applied to digital services provided by foreign digital businesses, including digital platforms. Netflix, Amazon and YouTube were specifically mentioned in the government announcement. 

Bolivia VAT: registration, collection and remittance   

In principle, the entity that will be responsible for collecting and remitting VAT will be the foreign businesses supplying digital services to customers in Bolivia. To do so, these foreign businesses will have to register with the National Tax Administration (“Servicio de Impuestos Nacionales”). 

It is also understood that if the affected foreign digital businesses are not registered, then the local payment intermediaries (e.g. domestic credit companies or domestic banks) will act as withholding agents for the VAT due on the digital sales.

Crucially, there is no registration sales threshold referenced in the existing Bill and we understand that a simplified registration system may still be included when the Bill is enacted. This means that affected foreign digital businesses have the obligation to register for VAT in Bolivia from their first sale after the rules are enacted.

Bolivia VAT: affected digital services

Affected digital services include (but is not exclusive to) the following:

• Intermediation in the purchase and sale of goods or services of any nature
• Supply, download, streaming or transfer by any other type of technology, videos, music, games, texts, magazines, book and other analogues
• Provision of computer software, storage, platforms or infrastructure
• Advertising by any digital medium. 

However, the scope of the Bill is quite broad - stating that any digital service or content is within the scope of the proposed VAT rule changes.

Other South American implementations

The practical collection and remittance of VAT that is proposed in Bolivia’s draft Bill differs from most other implementations of such VAT rules in South America.

In many South American tax jurisdictions (as mentioned in Bolivia’s announcement) that have introduced similar rules, e.g. Argentina, Ecuador, Paraguay, Uruguay, Colombia, the obligation for the collection and remittance of VAT lies with local payment intermediaries, e.g. domestic credit card companies and domestic banks involved in the transaction. The obligation is effectively a withholding tax.

Generally, the South American jurisdictions that have introduced similar rules extending their VAT systems to the supplies of digital services by foreign businesses also publish lists of the businesses. If a business is on a published list then the digital service(s) they provide will be subject to the withholding of VAT by the local payment intermediaries. 

The exception to this trend in South America is Chile. Affected foreign digital service companies have the VAT registration and collection obligation for sales to their Chile-based customers. This means that the foreign digital business must register for VAT directly in Chile. As per recommended OECD guidelines, there is a simplified registration system for foreign digital service suppliers to fulfil their Chile VAT obligations. 

Interestingly, the official Bolivia announcement of these proposals also mentioned Costa Rica as an example of a tax jurisdiction that recently extended its VAT system in a similar way. In Costa Rica, foreign digital businesses that appear on a government-published list can still opt to register there for VAT purposes if they so wish. They can do so via a simplified registration system, again in line with the OECD recommendations. Registration will not create a Permanent Establishment. Likewise, registration will not open up foreign digital service providers and intermediaries to any new Costa Rica taxes.

Acknowledgement: Thanks to Mauricio Viscarra, of Ferrere Abogados, for his help with this article. 

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