The Impact that Digital Service Taxes Have Had on Latin America

Digital services taxation is a trend and hot topic throughout the Latin American region. In parallel to the OECD–led negotiations, which unfortunately have not reached consensus regarding Pillar 1, many Latin American jurisdictions have proactively adopted unilateral digital taxation measures.

Latin American countries have shifted their stance on taxing digital services by creating pragmatic strategies to safeguard domestic tax bases in response to the accelerating growth of the digital economy in the region. No less than 10 years ago, an important portion of digital services offered by nonresident entities were outside the scope of taxation rules in major Latin American jurisdictions. Digital services taxation was either not possible under statutory rules, or, when taxed, were limited to B2B cross border transactions that required the involvement of a withholding agent. Now, most of the region has enacted or is in the process of adopting tax laws and regulations capturing these activities. In particular, B2C transactions, which were initially not the focus of tax authorities, despite being an essential portion of digital services transactions, are now considered to be under the realm of digital taxation. And authorities have managed to create clever mechanisms to tax and collect payment.

Evolution of Digital Direct and Indirect Taxation in Latin America

Mexico, Argentina, Chile, Peru, and Colombia have established frameworks—mostly related to indirect taxes—with comprehensive rules aimed at taxing digital services provided by nonresident entities. Brazil, the largest economy in the region, is working on getting rules implemented.

Mexico. In Mexico, nonresident platforms must register, collect, and transfer a 16% VAT on services rendered to Mexican consumers (see Servicio de Administración Tributaria, Plataformas tecnológicas de servicios digitales, ¿Cuáles son los servicios digitales sujetos de impuesto al valor agregado (IVA)? (Which digital services are subject to value-added tax (VAT)?) (2020)).

Argentina. Argentina levies a 21% VAT (23% in certain jurisdictions) on digital services offered by foreign companies when services are economically used in Argentina (see Brubank. (s.f.), ¿Qué es el impuesto IVA Servicios Digitales? (What is the VAT on Digital Services?) (June 2025)).

Chile. Chile requires foreign digital service providers to register, file returns, and pay a 19% VAT on services supplied by nonresident providers to individuals and entities (see Cómo declarar y pagar el IVA a los servicios digitales (How to declare and pay VAT on digital services) (Aug. 19, 2024)). Chilean law also grants powers to the authorities to require financial institutions (issuers of credit and debit cards) to collect the tax. The Chilean tax authorities issue periodic resolutions expressly listing the foreign providers that are subject to this collection mechanism.

Peru. Similarly, Peru established an 18% VAT on B2C transactions that must be collected by the foreign service providers. Like Colombia (discussed below) and Chile, these providers must register, collect, and pay the tax. Peruvian law also offers the possibility to collect the tax through financial institutions, but such a mechanism has not yet been implemented.

Colombia. Colombia’s approach is particularly comprehensive, combining indirect and direct taxation, based on VAT and Significant Economic Presence (“SEP”) frameworks, respectively. In the VAT framework, foreign digital service providers without a permanent establishment in Colombia are required to register before the Colombian Tax Authority (DIAN) for VAT purposes and file returns regarding services rendered to Colombian users.

In the SEP framework, Colombia’s SEP regime (drawing on models from India and Israel) subjects foreign digital service providers to income tax if they exceed specific thresholds in revenue and local user interactions. Income meeting these criteria is treated as Colombian-sourced and taxed under the SEP framework. Entities subject to Colombia’s SEP regime may choose between two collection mechanisms: (i) direct filing, which requires registration with DIAN and payment of a 3% income tax on gross revenue from Colombian users, along with six bimonthly advance payments of 2% that are creditable against the final tax liability; or (ii) being subject to a 10% withholding tax applied to payments received from Colombian customers that would constitute the full income tax liability.

Brazil. Effective in 2027 and subject to regulations still to be enacted, Brazil will (1) require foreign digital service providers and marketplaces to register with Brazilian tax authorities; and (2) impose about a 28% VAT on services—making it one of the highest rates in the region.

Increased Compliance and Reporting Duties

Alongside the implementation of digital taxes, Latin American countries have introduced strict compliance and reporting obligations to support enforcement and tax collection.

For instance, jurisdictions such as Mexico, Peru, Chile, and Colombia—each of which has implemented extraterritorial VAT regimes or digital services taxes—require non-resident digital service providers to self-register, report, and remit taxes directly to local authorities. Specific frameworks include:

Colombia: DIAN Resolution 51 of 2018 and Article 20-3 of the Colombian Tax Code
Peru: Legislative Decree 1623 (August 4, 2024)
Mexico: Article 18-D of the Value Added Tax Law
Chile: Law No. 21,210 (published in the Official Gazette on February 24, 2020).

Additionally, as of May 2025, Chile requires both resident and nonresident digital platforms to submit detailed annual transactional data to its national tax authority (see EBANX Insights, Updates on New Tax Compliance Bill for non-resident digital platforms in Chile (Feb. 19, 2025). Similarly, starting in 2025, Colombia requires resident digital platform operators that are incorporated or have a place of effective management in the country to report information in accordance with the OECD Model Reporting Rules for Digital Platforms (June 22, 2021) and the Digital Platform Information Multilateral Competent Authority Agreement (DPI-MCAA). Covered activities include property rentals, transportation services, personal services, and the sale of goods (see Colombian Tax Authority DIAN Resolution 199 of 2024 (Feb. 2025)).

Argentina, however, diverges from the regional trend by not requiring direct reporting or registration from nonresident digital platforms. Instead, Argentina employs domestic financial intermediaries—such as banks and credit card issuers—to enforce VAT collection through withholding on each transaction (see General Resolution No. 4240/2018 of Argentina). This approach simplifies compliance for foreign service providers while shifting greater responsibility to local financial institutions.

Current Latin American Tax Policies Focus on Enforceability

Across the region, tax authorities are adopting increasingly aggressive enforcement strategies.

In Colombia, DIAN has intensified its focus on both information gathering and enforcement. First, it focuses on information requests, not just in relation to digital service providers’ business information but also information on users. Second, it is conducting spontaneous audits and site visits. DIAN also imposes reputational penalties, such as listing taxpayers in the “State Debtors Bulletin” or exposing them through social media. Colombia is also targeting both compliant and non-compliant foreign entities through expedited audits threatening them with criminal penalties.

Mexico has gone further, implementing a “kill switch” provision that allows authorities to block access to noncompliant foreign platforms—an aggressive but effective measure that has driven global digital firms to comply or assume the risk of being excluded from the market (see Law of VAT, article 18-H Bis). Although the “kill switch” has not been applied in practice yet, it does have a deterrent effect on non-compliance.

These developments underscore a decisive pivot in Latin America’s approach to digital taxation. Rather than waiting for global consensus, countries are proactively shaping their own frameworks—driven by urgent fiscal needs and a pragmatic view of digital market realities. For international digital service providers, this marks a turning point: compliance is no longer optional but a prerequisite for market access.

Looking Ahead: Global Tensions

While the long-term compatibility of these unilateral approaches with emerging global tax standards remains uncertain, the current trajectory is unmistakable. As digital economic activity continues to outpace coordinated international responses, Latin American countries are proactively implementing robust and enforceable digital taxation frameworks on their own.

A key development on the horizon is the evolving status of Pillar Two. Notably, the proposed §899 of the US Internal Revenue Code was withdrawn from the US tax reform package following an understanding reached by the G7 regarding the (non) application of Pillar Two to US-parented multinational enterprises.

This combination of regional unilateral measures and the recent G7 agreement casts doubt on the overall effectiveness and future relevance of the OECD’s Pillar Two initiative.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Ciro Meza is a lawyer from Pontificia Universidad Javeriana with a specialization in Tax Law from Universidad del Rosario and a Master’s in International and Comparative Law from Tulane University (New Orleans, USA). He has nearly 25 years of experience advising business, including the tech and digital industry on tax planning, consulting, and litigation. From 2006 to 2010, he was Tax Manager at Deloitte Colombia and previously worked at two law firms specializing in tax and international trade. Ciro joined Baker McKenzie in 2010 and has led the tax practice in Bogotá as a partner since 2014.

Laura Durán is a lawyer from Universidad de los Andes, with a specialization in Administrative Law from Universidad del Rosario and an LLM in International Taxation from King’s College London. She has over 12 years of experience in national and international tax matters, focusing on tax consulting and planning. Currently, she is a Senior Associate in the tax practice at Baker McKenzie.