The viability of any business requires market knowledge and tax planning. This is especially true when operating in unknown markets, something quite common on the international stage. For that reason, it is important to always understand how taxation impacts business development in the target market, thus minimizing risks and enhancing results.
Today in Latin America one of the most common themes among the local economies is the tax reform. For example, Argentina approved in 2017 a reform aimed at reducing the tax burden and attracting foreign investments. On the other hand, the Colombian Congress approved a new tax law at the end of the last year, while in Mexico the tax reform came into force this year with great influence of the OECD guidelines. Also, Chile approved its reform at the beginning of this year.
However, Brazil has currently taken the spotlight in the region. On July 21th, Economy Minister Paulo Guedes sent the first part of the tax reform proposal to the Congress. It is important to notice that two Constitution Amendment Projects (PEC) were already under discussion. Some of the topics on the agenda are the creation of a dual Value Added Tax (VAT), the taxation of dividends, the reduction of corporate taxation and electronic commerce taxation.
When observing the different tax projects under development in the region, it is possible to notice some common objectives, like: the reduction of the tax legislation complexity and its update; the creation of a greater tax efficiency; the establishment of a fairer tax system for society; and the reduction of the tax burden. In particular, the last point is one of the essential factors, although not decisive, in attracting foreign investments.
For that reason, and for a better knowledge of the tax scenario in Latin America, we bring the top ten economies with the lowest tax burden in the region. Check it out:
Average tax burden in Latin America and the Caribbean (% of GDP): 23.1%
Average tax burden in OECD (% of GDP): 34.3%
10. Honduras
Tax burden (% of GDP): 22.3%
Corporate taxation (% of the total tax revenue): 19.33%
Tax on goods and services (% of the total revenue): 52.23%
9. Chile / El Salvador
Tax burden in Chile / El Salvador (% of GDP): 21.1%
Corporate taxation - Chile (% of the total tax revenue): 22.13%
Tax on goods and services - Chile (% of the total revenue): 53.27%
Corporate taxation - El Salvador (% of the total tax revenue): 15.36%
Tax on goods and services - El Salvador (% of the total revenue): 50.23%
8. Ecuador
Tax burden (% of GDP): 20.6%
Corporate taxation (% of the total tax revenue): 8.50%
Tax on goods and services (% of the total revenue): 49.87%
7. Colombia
Tax burden (% of GDP): 19.4%
Corporate taxation (% of the total tax revenue): 22.50%
Tax on goods and services (% of the total revenue): 42.77%
6. Peru
Tax burden (% of GDP): 16.4%
Corporate taxation (% of the total tax revenue): 23.68%
Tax on goods and services (% of the total revenue): 48.09%
5. Mexico
Tax burden (% of GDP): 16.1%
Corporate taxation (% of the total tax revenue): 22.60%
Tax on goods and services (% of the total revenue): 37.83%
4. Panama
Tax burden (% of GDP): 14.6%
Corporate taxation (% of the total tax revenue): 10.06%
Tax on goods and services (% of the total revenue): 29.02%
3. Paraguay
Tax burden (% of GDP): 14%
Corporate taxation (% of the total tax revenue): 14.33%
Tax on goods and services (% of the total revenue): 55.89%
2. Dominican Republic
Tax burden (% of GDP): 13.2%
Corporate taxation (% of the total tax revenue): 15.79%
Tax on goods and services (% of the total revenue): 64.35%
1. Guatemala
Tax burden (% of GDP): 12.1%
Corporate taxation (% of the total tax revenue): 19.27%
Tax on goods and services (% of the total revenue): 52.66%
Source: OECD (2020)
Image: Scott Graham / Unsplash
