Author:
Miriam Sánchez González
Services provided electronically and consumer of the service in Colombia: Where is the VAT on the service taxed?
Services provided electronically and consumer of the service in Colombia: Where is the VAT on the service taxed?
As a general rule, services rendered electronically are taxed in the country where these services are consumed.
According to the above, if, for example, a Spanish company provides services electronically and its customers (consumers of this service) are located in any South American country, following the aforementioned rule, the Spanish company will issue its invoice without Spanish VAT (non-taxable transaction) as the consumer of the service is outside the Territory of Application of Spanish VAT (the Territory of Application of the Tax is understood to be the Spanish mainland plus the Balearic Islands).
Let us suppose, therefore, that the Spanish company issues its invoice without Spanish VAT to a private individual, consumer of a service provided electronically, who lives in Colombia. It is clear that the Colombian consumer is not going to pay VAT to the Colombian Tax Agency, but what then? If the Spanish company issues without VAT and the individual consumer of the service is not going to pay VAT either, is the indirect tax collected for these services provided electronically? The answer is clearly yes, the Indirect Tax is collected.
Where is VAT collected on electronically supplied services?
The answer is easy, in the country where the service is consumed.
Continuing with the previous example and under the aforementioned scheme, a Spanish company that provides service electronically issues its invoice without Spanish VAT, being the final consumer located in Colombia, who also, of course, being a private individual, is not going to pay VAT in Colombia. What happens in these cases with the Indirect Tax?
Well, following the example of Colombia, on July 1, 2018, the Colombian authorities approved a bill that imposes a value added tax (VAT) on non-resident electronic service providers (our Spanish company providing the service) that sell digital services to Colombian residents.
By virtue of the above, it seems clear that our Spanish company will have to pay VAT in Colombia and for this purpose it must register as a VAT taxpayer in Colombia and register with the DIAN (Colombian Tax Agency). To determine, therefore, that the place of rendering of the electronic service is Colombia, it is only necessary to check if the domicile of the consumer of the services is Colombia. As a note, the general VAT rate in Colombia is 19%.
Notwithstanding the above, Colombia has established a mechanism to facilitate the collection of VAT from these electronic service providers located abroad, which consists of a VAT withholding system. How does this indirect tax withholding system work? If the foreign company providing digital services to Colombian consumers, agrees to adjust to the VAT withholding scheme, the DIAN (Colombian Tax Agency) notifies the banking and credit card establishments, so that these organizations extract the VAT on each payment, exempting the service provider (our Spanish company) from obtaining and paying the VAT in Colombia.
As an important fact, we would like to point out that this system that obliges electronic service providers to register in the countries where the service is consumed is in place in practically all of South America, in some of which there is a minimum threshold that requires registration, and in others it is facilitated by the system of withholding on payment.
Check the countries where your services are consumed and do not fail to comply with any tax obligation in these territories.
Do you need help? At Cigarrán Abogados we can help you (+34) 91.355.85.15
