How Costa Rica and Other Countries Collect Taxes on Netflix Amazon and E-Commerce.

While Panama is debating in the National Assembly bill 30-26, which seeks to apply the 7% Transfer Tax on Movable Goods and Services (ITBMS) to purchases and services contracted on platforms such as Amazon, Temu, Netflix and Airbnb and to international e-commerce, several Latin American countries already have mechanisms to tax these operations.  The Panamanian government estimates that the measure could generate more than $100 million a year and has indicated that the collection would be based primarily on transactions made with credit cards. 

The discussion is taking place in a rapidly expanding regional market: Payments and Commerce Market Intelligence (PCMI), a firm specializing in market research on payments and e-commerce in Latin America and other emerging markets, estimates that Latin American e-commerce will reach $769 billion in 2025 , 21% more than in 2024, and will exceed $1 trillion in 2027. This represents a dizzying increase compared to the $507 billion recorded in 2023. Their measurement includes retail, travel, transportation, delivery, streaming, video games, and other digital services.  The World Trade Organization estimates that over $5 trillion worth of services are sold online.

Costa Rica is One of the Models that Panama is Studying.

Francisco Villalobos, a lawyer specializing in taxes, former Director General of Taxation of Costa Rica and partner at ICS Consultores, explained to La Prensa that the country went from a sales tax to a broader VAT that incorporated digital services because these activities already represented “an important economic phenomenon that should not be left out of taxation.”  Costa Rica’s VAT is 13% and the collection of taxes on cross-border digital services formally began on October 1, 2020, according to the Ministry of Finance.  The system allows the foreign platform to register and collect the tax directly, or, if it does not, for the bank or card issuer to act as a collection agent.

Francisco Villalobos, a tax attorney, former Director General of Taxation for Costa Rica, and partner at ICS Consultores. 

Villalobos explained that Netflix exemplifies the second mechanism: when the consumer pays the monthly fee by card, the issuer collects the VAT and subsequently delivers it to the State.  “There are two paths: one path where the platform can register as a VAT taxpayer and then collect the VAT and then pay it to the tax authorities, or one where it does not register and basically the payer [credit card issuers] acts as a collection agent,” he said.  According to his experience, the tax would not have caused an appreciable drop in consumption in Costa Rica.  “When a Netflix customer pays the monthly fee with their card, the card company charges the VAT and then pays it to the State,” explained the Costa Rican tax expert. 

Although he acknowledges that VAT reduces the purchasing power of the end consumer, he considers it unlikely that a 13% increase will lead to a widespread cancellation of services such as Netflix or Uber.  Other countries followed similar schemes, although with different rates. Colombia charges 19% VAT on services provided from abroad when the user is located in the country; the foreign provider can comply through a simplified procedure with the DIAN (Colombian Tax and Customs Authority), and there is also an alternative withholding mechanism.  Chile applies 19% and since October 2025 extended the system to remote sales of goods up to $500; Argentina taxes digital services from abroad at 21%, Mexico at 16%, Ecuador at 15%, Paraguay at 10%, Peru at 18% and Uruguay at 22%.

In Panama, the available estimates on the size of e-commerce vary depending on what is included in the measurement and in some cases do not differentiate between local and international online businesses.  ECDB, a German platform specializing in e-commerce data and intelligence, estimates around $1.315 billion in 2025, with a universe concentrated mainly in B2C e-commerce, that is, sales from companies to end consumers.  For its part, Mordor Intelligence, an international market research firm based in India, estimates about $2.64 billion in 2025 and $2.85 billion in 2026, because it uses a broader definition that includes B2C and B2B operations, the latter being business-to-business. Additionally, ECDB estimates growth of between 5% and 10% for Panama in 2026, while Mordor projects a more moderate expansion in the coming years.

The need to adapt taxes to digital consumption is not new. In 2021, the Economic Commission for Latin America and the Caribbean (ECLAC), in the study ” Digital Economy and Taxation: The Argentine Case within the Framework of International Experience ,” pointed out that adequate VAT collection in cross-border transactions with consumers is achieved by requiring non-resident suppliers to register and pay the tax in the country where consumption occurs , through a simplified scheme.

The document warned that digital companies could participate in markets without a physical presence, leading to lost tax revenue and unequal treatment compared to local businesses, and therefore urged them to pay taxes. It also noted that Argentina, Chile, Colombia, Costa Rica, Ecuador, Mexico, Paraguay, and Uruguay had already implemented indirect taxes on digital services.  The Inter-American Development Bank had already warned of something similar in November 2019. In the study Challenges for Income Tax Collection in the Digital Economy, the IDB pointed out that digital companies could achieve “scale without mass,” that is, generate income in a country without a physical presence, and that multilateral solutions were preferable, although it anticipated that many governments would resort in the meantime to taxes on digital sales and services.

The trend of online shopping. Image by athree23 on Pixabay

The study warned that these levies would likely have more limited revenue than an international reform on profits, but could reduce tax inequalities and serve as a transition to a more comprehensive system. More recently, an article by IDB tax experts Erivaldo Alfredo Gomes and Ubaldo Jesus Gonzalez De Frutos sets out three reasons for applying the so-called digital VAT, that is, the consumption tax on electronic purchases:

1. Tax equity: experts indicated that applying it prevents competitive advantages between local and foreign suppliers and preserves the neutrality of the tax.

2. The revenue potential: The tax on digital platforms is a significant source of income and its application to the digital sphere allows for the collection of currently untaxed resources. 

3. Fiscal sovereignty: They argue that the tax allows countries to recover part of the value generated in their markets by digital companies that operate without a physical presence and, consequently, do not pay direct taxes according to current rules.

For Panama, the current debate reflects precisely that logic: to incorporate into the ITBMS operations that grew outside the traditional collection scheme and to equate their treatment with that of businesses physically established in the country.