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Latin America: The VAT Factor


Posted on January 23, 2007

By Eli Gorin

A few months back I began posting to my newly created blog called meetingsBabble (available for your viewing pleasure at www.meetingsbabble.com... but of course only after you read all of the wonderful items that MiGurus and MiMegasite have to offer).  I have unfortunately neglected my blog for quote a few weeks do to an overwhelming amount of work but I will be getting back to it shortly.  In one of my earlier posts, I wrote a topic called "Get the VAT Outta Here".  In yesterday's post I made a brief mention in regards to VAT exemptions in various countries throughout Latin America.  Today I am going to give a brief overview of what is out there in terms of possibilities for saving you even more money.  I will not be giving an economics lecture on VAT taxes and their impacts on any given country's economic stability as a result of market fluctuations and increased/decreased currency flow through mid-market level exchanges brought on by sudden shifts of demand due to a decrease in supply.  As you can tell just from that one sentence alone, I am not an economics guru.  HOWEVER, I will tell you this though... VAT ("Value Added Tax" for those not already in the know...) is referred to as IVA in most parts of Latin America... and that's the most statistical lesson you will get from me today.

Mexico has one of the best known policies for VAT exemption in the region.  The "Tasa Cero" initiative (or "Zero VAT") has made Mexico a very popular destination for groups and meetings travel.  And all this time I thought it was the great beaches, friendly atmospheres and amazing food.  I guess I had no clue at all.  The initiative allows qualifying groups (meaning meetings and conventions and other such groups... incentives are not yet considered applicable for this exemption) to save 10% on their meetings right off the bat.  Once qualified by your sales manager, you will not be required to pay the VAT on your groups for various items, including hotel, F&B, transport to/from your hotel, and other items consumed towards the master account.  More details are listed here.

Other countries, including Uruguay, Colombia, and Chile offer similar exemptions to foreigners.  Each country has its own version of VAT exemption, but what I have noticed is that the value is truly there.  I am in the midst of quoting a group in Uruguay with a strict budget.  One of the reasons we have chosen Uruguay is because we are able to save 14% on our room charges and nearly 23% on our F&B charges.  By packaging room rates together with food and beverage, the 23% VAT on F&B drops to the 14% rate percentage which is discounted completely... so there you go... zero VAT.  Doing some simple math, let's take these savings for a spin:  Imagine you get a room rate of $150/night single occupancy and about $50 per person in meals per day.  By not paying any VAT, you are paying $200 per person per day.  Should you not be exempt from the VAT, you would end up paying $232.50/per person per day.  Figure 100 people in your group for 3 days/nights, that's nearly $10,000 in savings. 

Now there are always exceptions to the rule.  First and foremost, the VAT exemption is stricly limited to foreigners, so if you have attendees coming in from the host country, then you will be required to pay VAT on their stay and consumption.  This is checked by the hotel having to verify travel documents (such as passports and tourist/visa cards).  Countries may restrict what is and is not included in the VAT exemption as well (i.e. coffee breaks, room rental, etc.).  But the fact of the matter is, you get wonderful savings off the bat.  No need to fill out forms and hope to get your money back.  There is no reclaiming involved.  It is important to note that you should always check which countries do and do not have these exemptions.  I am currently compiling a list of what exemptions you can find where and will try and have that available to those who need it.  But even in the countries that have no exemptions, as mentioned yesterday... the value for your money is a tremendous "bang for the buck."

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