No Digital Platform (including Netflix) can Charge More Than 13% VAT, Reiterates Authorities

The audiovisual content platform Netflix informed all its subscribers, by mistake, that it would charge a 19% fee for the VAT

No digital content platform may charge more than 13% for Value Added Tax (VAT) to its clients in Costa Rica, the general director of Taxation, Carlos Vargas, reiterated this past Thursday.

The official made the clarification after the audiovisual content platform Netflix communicated, by mistake, that it would charge a rate of 19% to all its subscribers in Costa Rica as of October.

Vargas commented that the Ministry of Finance would be establishing communications with Netflix to settle any misunderstandings and stressed that the 13% rate is impossible to modify by any manager.

“As long as it is referring only to the collection of VAT, any other rate is not correct. The rate to be charged is the one established by law, which is 13%. I don’t know what Netflix is referring to with that 19% or if maybe it is a material error, in which instead of typing the three they typed a nine”. “What I can tell you is that, as of October 1 of this year, what would be being charged is 13% on all this type of services,” he stressed. Director Vargas pointed out that the Treasury will also make a public clarification and that they will act in accordance with the law in any similar case.

The Netflix Company has already clarified to several of its clients that it will not charge 19%, as it communicated; rather, it was a material error and a correction will be communicated in a timely manner.

VAT and Digital Services

The VAT tax on cross-border digital services will begin to be collected from this month of October. Initially, it was going to start in August; however, technical problems in terms of collection prevented it.

The Minister of Finance, Elian Villegas, had said that it is still early to determine how much money the tax will leave to the state coffers, but that it is part of the measures included in the Law to Strengthen Public Finances, approved in December 2018, from which a “significant” performance is expected.

The entry into force of the amount is a respite in the midst of the complex situation of state finances, which expect a drop of ¢ 1,156 billion in tax collection due to the Coronavirus Pandemic.

In total, the Treasury established a list of 108 cross-border digital services that will begin to pay VAT from October. The tax will be charged on all those “digital services” when “they are provided in the territory of the Republic.”

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