Latin America digital services tax update

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This update highlights important news from Brazil about digital services taxes and summarizes the current status of the subject around the region.

Brazil: developments in digital taxation

On May 5, 2020, Bill No. 2,358/2020, introducing a digital services tax (DST), was presented to the House of Representatives.  The bill targets large foreign digital companies.  It seeks to create a DST in Brazil in the form of a Contribution for Intervention over the Economic Domain (“CIDE”) over the gross revenues of digital services and placement of advertising provided by large technology companies (called “CIDE-Digital”).

The bill seeks to tax revenues obtained by large technology companies with no presence in Brazil.

The bill’s approach to taxing digital services is similar to that taken by France and Spain.   CIDE-Digital is applicable to gross revenues from:

  1. The placement of advertising on digital platform to users located in Brazil

  2. Offer of a digital platform that allows users to have contact and interact among themselves, with the purpose of sale of goods or provision of services directly to such users, as long as one of them is located in Brazil

  3. Transmission of data of users located in Brazil, collected during the use of digital platform or generated by such users.

Taxpayers are the companies domiciled in Brazil or abroad that earn such gross revenues and belong to an economic group with revenues in the previous year as follows:

  • Global gross revenue over BRL3 billion and
  • Gross revenue in Brazil over BRL100 million (based on end users).

The applicable progressive rates are:

  1. 1 percent over gross revenue until BRL150 million

  2. 3 percent over gross revenue from BRL150 million to BRL300 million

  3. 5 percent over gross revenue over BRL300 million.

Payment will be made once a year, until the last business day of March, of the following year from the taxable events. The amount received as CIDE-Digital will be directed to the National Fund of Scientific and Technological Development (FNDCT).

Possible implications for foreign multinational groups doing business in Brazil

It is important to note that the above provisions are present in the original bill, which may yet be amended as deemed necessary by lawmakers. To become applicable, the bill must be approved by both legislative houses (Brazil’s House of Representatives and Federal Senate), and it must be sanctioned by the President. Even after that, the law may only be applicable starting in the calendar year that follows the year it is published in the Official Gazette, and then only after 90 days as of such publishing.

We are monitoring the development of the bill.

ICMS on Digital Goods – State of Rio de Janeiro

On April 20, 2020, the State of Rio de Janeiro passed Law No. 8,795/2020, making financial intermediaries and payment processors responsible to collect ICMS (state-level VAT) in certain situations involving “digital goods” (as defined). The law is not yet effective, because it requires regulations to be passed it will be applicable 30 days after the regulations are issued, and at least 90 days after the issuance of the law ie, on or around July 20, 2020.

The law incorporates the terms of Interstate Agreement ICMS No. 106/2017, which authorized the Brazilian states to impose ICMS on digital goods and elect financial intermediaries (ie, credit card companies and payment processors) as withholding agents. The State of Sao Paulo has already introduced similar legislation, but did not elect any financial intermediaries responsible to collect ICMS.

Therefore, according to the law, in transactions involving digital goods (ie, software, games, apps, and files, but which are not characterized as services), ICMS may be charged by the:

  1. Party making the offer, sales, or delivery of goods to consumers, through the electronic transfer of data, in accordance to an agreement with the seller

  2. Financial intermediary, including credit card managers, or other means of payments

  3. Acquirers of digital goods, if the previous hypotheses are not applicable, due to the fact that such companies are not registered in Rio de Janeiro;

  4. Credit card companies, or the financial intermediary responsible for the exchange transaction, in importation transactions.

Possible implications

A pending lawsuit filed by Brasscom (the Brazilian Association of Technology and Information) before the Brazilian Federal Supreme Court (ADI No. 5958) challenges the constitutionality of Interstate Agreement ICMS No. 106/2017, on the grounds that no ICMS should apply on digital goods as this is subject to Service Tax (ISS) in accordance with Supplementary Law No. 116/2003. The Supreme Court has not yet ruled on it. 

Despite questions about the legality of this legislation, this state law could impact payment processors contracted by foreign digital companies, which could become liable for the ICMS and pass this cost to either end users or foreign clients. 

Note that other states such as Acre, Amapá, Amazonas, Goiás, Maranhão, Paraíba, and Piauí, have already incorporated such provision from Interstate Agreement No. 106/2017, being able to charge from the payment processors or credit card companies, even though the enforceability of such provisions may not in practice be effective.

Takeaways and status of DSTs across Latin America

Brazil: Foreign companies selling digital goods and services in Brazil should consider evaluating the situation with their local payment intermediaries and evaluate possible implications.

Latin America generally: The graphic below provides an overview of the status of the subject at the time of this article.  Non-resident digital service providers in the region need to ensure their compliance with local provisions. Of particular importance:

  • Colombia and Uruguay, where registration collection and payment were due as of 2019
  • Mexico and Chile, where registration/collection requirements become due as of June 1, 2020
  • Ecuador and Paraguay, where registration/collection requirements become due as of July 1, 2020
  • Costa Rica, where registration/collection date is still to be determined once pending regulations are issued
  • Argentina, where three taxes apply (national level VAT at 21 percent, PAIS tax at 8 percent and soon, but at the provincial level, Turnover Tax). There are no current mandatory registration requirements because the three taxes are charged, collected and payed to local authorities by local intermediary payment services providers (as defined). Here, the pressure will be to ensure that such collection is being made in proper order by such payment intermediaries.

Global impacts DSTs across Latin America

To learn more about digital service taxes across Latin America, please contact any of the authors.


Alex Jorge
Co-Head of Tax
Campos Mello Advogados

Paulo Takafuji


Abelardo Acosta
Mexican Tax Desk


John Guarin
Latin American Tax Desk

*Alex Jorge is a partner and Paulo Takafuji is an associate in the tax department of independent Brazilian law firm Campos Mello Advogados.