In an increasingly digital business environment, it is common for Costa Rican companies to purchase services from suppliers located outside the country. Software licenses, artificial intelligence platforms, digital advertising, cloud services, specialized consulting, and collaboration tools are part of the daily operations of many organizations.
However, these transactions involve more than just a payment to the foreign supplier. Depending on the nature of the service, they may give rise to tax obligations related to the tax on remittances abroad (withholding on payments to nonresidents), value-added tax (VAT), the issuance of electronic invoices (comprobantes electrónicos), and the deductibility of the expense for income tax purposes.
Knowing these obligations is essential to avoid contingent tax liabilities and ensure proper compliance with Costa Rican tax regulations.
What is considered a service purchased from abroad?
A service purchased from abroad is understood to be one provided by an individual or legal entity not domiciled in Costa Rica that is used, or produces economic effects, within the national territory.
Some common examples include:
- Microsoft 365
- Google Workspace
- Amazon Web Services (AWS)
- Microsoft Azure
- Adobe Creative Cloud
- Canva Pro
- ChatGPT Plus o ChatGPT Team
- Zoom
- International consulting services
- Software development
- Advertising on Google Ads
- Advertising on Meta Ads (Facebook and Instagram)
Even though the supplier is located outside the country, the transaction may have tax consequences in Costa Rica.
1. Tax on remittances abroad
One of the aspects that tends to create the most uncertainty is the possible application of the tax on remittances abroad.
In general terms, when a Costa Rican company makes payments to a non-domiciled supplier, it must analyze whether those payments constitute Costa Rican-source income. If that is the case, the company could be required to act as a withholding agent and withhold the tax before making the payment to the foreign supplier.
The obligation to withhold does not depend solely on the country where the supplier is located, but primarily on the nature of the service purchased and the treatment established by the Income Tax Law (Law No. 7092) for each type of transaction.
For this reason, it is not correct to assume that all payments abroad are exempt from withholding, or that all of them must be subject to withholding. Each case requires an individual analysis.
2. VAT on services purchased from abroad
In addition to the tax on remittances abroad, many services purchased from foreign suppliers may be subject to value-added tax (VAT).
In these cases, Costa Rican legislation provides specific mechanisms to ensure the tax is collected, depending on the nature of the service and the supplier.
Where applicable, the company receiving the service must comply with the VAT-related obligations, including reporting it correctly and recording it properly in its accounting records.
Likewise, when the requirements established by the VAT Law (Law No. 6826) are met, the tax paid could give rise to a right to a tax credit (crédito fiscal).
3. Issuing electronic invoices
Another aspect that is often overlooked is the documentation supporting these transactions.
Depending on the type of transaction and the applicable regulations, the company could be required to issue the corresponding electronic invoice to support the purchase of the service provided by a non-domiciled supplier.
Having adequate documentation facilitates tax compliance and is an important element in the event of an audit by the Tax Administration.
4. Is the expense deductible for income tax purposes?
The fact that a payment has been made abroad does not guarantee that the expense is tax deductible.
For an expenditure to be accepted as a deductible expense, several requirements generally must be met, including the following:
- The expense must be related to the generation of taxable income.
- There must be sufficient documentation supporting the transaction.
- The corresponding tax obligations must have been met, where applicable.
- The transaction must be properly recorded in the accounting records.
If these requirements are not met, the Tax Administration could disallow the deduction of the expense during an audit.
Practical cases
Case 1: ChatGPT Team subscription
A company purchases ChatGPT Team licenses to improve its staff's productivity.
Before recording the expense, it must analyze whether the transaction gives rise to VAT-related obligations, whether there is any withholding obligation for remittances abroad, and what supporting documentation it must keep.
Case 2: Advertising campaigns on Google Ads
A company invests monthly in digital advertising to attract new customers.
In addition to recording the expense in the accounts, it is essential to analyze the applicable tax treatment to determine whether there are additional obligations related to taxes or electronic invoices.
Case 3: International consulting
A Costa Rican company hires a consultant located abroad to carry out a strategic project.
Before making the payment, it must be reviewed whether the service is considered Costa Rican-source income and whether any withholding applies under current legislation.
Common mistakes
Among the most common mistakes we see in practice are:
- Believing that, because the supplier is foreign, there are no tax obligations in Costa Rica.
- Not analysing the possible application of the tax on remittances abroad.
- Overlooking VAT-related obligations.
- Not properly supporting the transaction with the corresponding documentation.
- Recording the expense without verifying whether it meets the requirements to be deductible.
These mistakes can lead to tax adjustments, penalties, and interest during an audit.
Recommendations
Before purchasing services from foreign suppliers, we recommend:
- Analysing the nature of the service purchased.
- Verifying the obligations related to the tax on remittances abroad.
- Confirming the applicable VAT treatment.
- Keeping all supporting documentation.
- Recording the transaction correctly in the accounting records.
- Consulting a tax advisor when there are doubts about the tax treatment.
A prior analysis can prevent significant contingent liabilities and give the company greater legal certainty.
Conclusion
Purchasing services from abroad is an excellent opportunity to access technology, innovation, and specialized talent. However, it also entails tax responsibilities that must not be overlooked.
Each transaction must be analyzed individually to determine the correct treatment with respect to the tax on remittances abroad, VAT, electronic invoices, and the deductibility of the expense.
At ASCONFIN, we provide specialized advisory services in domestic and international taxation, helping companies, independent professionals, and SMEs comply properly with Costa Rican regulations and minimize tax risks.
If your company purchases services from abroad and you want to make sure you are meeting all your tax obligations, our team will be glad to advise you.