Many tax reform regulations, laws and bills came into effect in 2018 in countries all across the Americas region, with even more changes coming in 2019.
The tax environment is dynamic and challenging with new laws that can make compliance quite the headache for businesses around the world. Staying on top of the amends to tax laws in the region can give your company an advantage.
Brazil already has a complex tax environment with many regulatory changes but now Brazil's new president, Jair Bolsonaro, has a bold tax plan that is not concrete yet. There are possibilities of a unification of individual income tax rates at 20%. The tax plan could include income tax exemptions as well as changes to the VAT. There are many questions surrounding the possible new tax reform and businesses must remain vigilant to understand the implications it could have.
The US had the biggest overhaul of its tax system in decades and businesses are still feeling the effects. Corporate tax rates have been lowered from 35% to 21% and simplified, in regard to a removal of some of the historic deductions that corporations used to apply. A territorial tax system was introduced, that will allow companies to avoid additional US taxes on future foreign source earnings. With incentives like reduced tax rates, US companies are able to sell more goods and services abroad with higher earnings. Personal income tax has changed as well. While there are still seven income tax brackets, the ranges and rates have been adjusted. With these changes, there are great benefits for businesses operating in the US but also challenges that must be understood.
Colombia ranked 6th out of 94 countries as surveyed in TMF Group's annual Financial Complexity Index 2018, making it one of the most complex countries in the world when it comes to tax regulations and compliance. The latest reforms hope to fix some of the complexities. Tax Law (Law 1943/2018) will have a progressive reduction of the presumptive income tax during the next two years. There will also be a reduction of the corporate income tax rate to 30% in 2022. For natural individuals, the ranges of withholding tax and income tax have been modified from 0% to 39% with only three factors (instead of five) assessed, dividends, pensions and general. The VAT rate remains same at 19% but the list of goods and excluded services has been changed. Colombia has also added electronic invoicing with obligations starting now for higher taxpayers and will gradually become a requirement for all taxpayers by the end of 2019.
Chile is in the process of approving a new tax reform bill that aims to modernize and simplify the current system of corporate taxation by returning to a single and integrated system, in which the owners reduce their corporate taxes paid from their personal taxes. This initiative also contains pro-growth measures, with incentives for the acquisition of fixed assets, changes in the VAT Law and also increased tax collection with the implementation of taxes on digital services.
The new Mexican government has already proposed that there will be no significant changes in tax rates of federal taxes and no new taxes generated in 2019, however, a fiscal stimulus has been published for the northern border cities of Mexico. This includes a reduction of the VAT rate from 16% to 8% and a corporate income tax rate for all income obtained in the northern region. It aims to stimulate and increase investment in the area, as well as contribute to the creation of new jobs. There are proposals for tax simplification to encourage the payment of taxes throughout the country. The new government maintains its position to fight corruption at all levels of government, mainly focusing on auditing high-level politicians and businessmen.
The tax laws changes in Curaçao were enacted on 1 January 2019 and will mostly affect special regime entities that were operating internationally. These changes were mostly driven by the Organization for Economic Cooperation and Development (OECD) recommendations for tax compliance on a global scale. E-zone and royalties companies will be affected by the tax changes, but especially Curaçao tax exempt companies that will have to show real economic activity, or substance, on the island going forward. There are other new requirements, such as country-by–country reporting and ultimate beneficial owner disclosures that must be part of filing taxes in Curaçao.
A new, more efficient tax system has been enacted in the Dominican Republic. There are requirements that companies must submit monthly in the VAT declaration as well as adjusting the format of invoices to help mitigate deduction fraud. The Dominican Republic will also be implementing electronic invoicing starting in 2019 to help alleviate concerns surrounding tax avoidance and evasion.
In an effort to increase public finances, Costa Rica will put their tax reform law into effect in July 2019. There will be many changes including moving from a general sales tax to a Value Added Tax, a new income tax law that includes capital revenues, changes to public administration salaries and the enactment of fiscal responsibility laws to limit government expenditures as a way to increase economic growth.
With tax reform and laws changing all over the Americas region, it can be a challenge to make sure that your business is compliant in all jurisdictions. That's where a local partner comes in. A knowledgeable expert located in a specific country will not only know the laws but be able to provide all the tax and accounting services needed for your business, leaving you time to focus on your day-to day operations. Talk to us.
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