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Nicaragua - Indirect Tax Guide

Nicaragua - Indirect Tax Guide

Explore the requirements and rules that apply to Indirect Taxes in Nicaragua.

Explore the requirements and rules that apply to Indirect Taxes in Nicaragua.

Yellow church building Nicaragua

General

Types of indirect taxes (VAT/GST and other indirect taxes). 

VAT

Are there other indirect taxes?

Excise tax (ISC).

Stamp taxes (ITF).

What supplies are subject to VAT?

VAT is the classic consumption tax levied on the sale of goods, services and imports. Activities subject to VAT must be performed in the country.

Sale of goods means any act involving the transfer of ownership or control of an asset, being the most popular trading mode.

Services are all operations that do not consist of transfer of ownership of personal property, including:

  • provision of all kinds of services, whether permanent, regular, continuous or periodical
  • leasing of goods and services in general
  • services provided by professionals and technicians.

Imports means importing or admission of tangible foreign assets into the country and the import of goods free of duty which are subsequently sold. This tax is due from the time the goods are made available to the importer in the customs area, and in case of sales of goods to be imported free of duty, upon realization of the sale.

VAT operates through a transfer and credit system. Transfer consists of output VAT charged by a company. Credit consists of input VAT paid to suppliers of goods and services. The difference between output VAT and input VAT is payable to the State or recoverable from the State, as the case may be. Recoverable VAT can be claimed as a refund in cash or offset against future VAT liabilities. Once the amount of VAT to be refunded in cash is approved, the tax authorities issue a request to the National Treasury, which should issue a check in favor of the company within 30 days from the approval.

What are the standard or other rates (i.e. reduced rate) for VAT/GST and other indirect taxes? 

VAT: 15 percent standard rate; 0 percent on exports of goods and services.

ISC: rates between 9 and 30 percent. A few items exceed 30 percent. Oil is subject to a fixed amount per gallon and by type of product.

ITF: fixed rates and ad valorem rates.

VAT/GST registration

Who is required to register for VAT/GST and other indirect taxes? 

VAT: Individuals or entities that perform sales of goods, rendering of services and imports through a permanent establishment.

ISC: Individuals or entities that produce or introduce goods and/or merchandise to the country.

ITF: Whoever receives the good or right under the document taxed.

Is voluntary registration for VAT/GST and other indirect taxes possible for an overseas company (e.g. if the annual turnover is below the relevant VAT/GST and other indirect taxes registration threshold)?

No, under Nicaraguan VAT legislation, it is not possible for a non-resident entity to voluntarily register in Nicaragua and act as an established entity.

There is not a specific registration only for VAT purposes. General registration of taxpayers includes registration for VAT.

Are there any simplifications that could avoid the need for an overseas company to register for VAT?

VAT registration is not possible without a permanent establishment in Nicaragua. If the company (permanent establishment) performs activities in the country, VAT registration is mandatory (except for Non Profit Organizations).

Does an overseas company need to appoint a fiscal representative?

No.

Which forms and supporting documentation does an overseas company need to submit for VAT/GST and other indirect tax registrations?

Not applicable.

Is grouping* for VAT/GST and other indirect taxes possible?

No.

VAT/GST compliance

How frequently are VAT/GST and other indirect tax returns submitted?

VAT/ISC: monthly.

ITF: at the moment of purchase of the stamps.

What are the exchange rate rules in your country?

In Nicaragua, the exchange rate is set by the Central Bank and it is based on the slip of 5 percent (devaluation) of the Nicaraguan Cordoba (NIO) compared with the US dollar.

International Supplies of Goods and Services

Exports – Goods

How are exports of goods treated?

Exports of goods are included in the scope of VAT, but they are zero rated. This means VAT is not levied on the output, but VAT paid on inputs may be recovered through tax refunds, which the taxpayer may request after shipping the goods.

Exports of services are not included in the scope of VAT.

Goods supplied and services performed abroad are not subject to tax.

Exports – Services

How are exports of services treated for VAT/GST purposes?

Exports of goods are included in the scope of VAT but are zero rated. This means VAT is not levied on the output, but VAT paid on inputs may be recovered through tax refunds, which the taxpayer may request after shipping the goods.

Exports of services are not included in the scope of VAT.

Goods supplied and services performed abroad are not subject to tax.

Imports – Goods

How are goods dealt with on importation?

When goods are imported into Nicaragua, import VAT and customs duties must be paid before they are released from customs’ control.

Imports – Services

How are services brought in from abroad treated for VAT purposes?

Services rendered by non-resident suppliers to Nicaraguan recipients are not subject to VAT in Nicaragua.

VAT/GST recovery

Can an overseas company recover VAT/GST and other indirect taxes if not registered for VAT/GST locally?

No.

Are there any exemptions with the right to recover or deduct input VAT?

Exports are the only transactions subject to the 0 percent VAT rate. Exporters have the right to credit or to get a refund of VAT paid on input purchased for use in the processing of the exported goods.

Are there any restrictions to the deduction of input VAT?

Yes, there are some exemptions not allowing a recovery of input VAT (e.g. healthcare-related services, loans granted by financial institutions and land leasing).

Exempt services: healthcare; insurance premiums against agricultural and transit risks; non-professional sporting events or those promoted by religious bodies; electricity for agricultural irrigation; education services; interest on loans by financial institutions; construction contracts for public housing; rental of unfurnished dwelling and land leasing; machinery and equipment.

Tax points

When is VAT/GST due on a supply of goods or services?

As of the issuance of invoice or at the time of importation.

Invoices

Is a business required to issue tax invoices?

Yes.

Is it possible/mandatory to issue invoices electronically?

It is possible but not mandatory.

Is it possible for the vendor to issue an invoice (i.e. self-billing)?

Yes, in certain cases (self-consumption).

Record-Keeping Requirements

How long must records and invoices be retained?

The books, accounting registry and invoices shall be stored as long as the tax is not prescribed. The statute of limitation is 4 years. However, the Trade Code’s statute sets the statute of limitations to 10 years for accounting information.

Can the invoices be stored abroad?

No

Audits

Do tax audits take place on a regular basis?

Yes, tax audits are performed at the discretion of the Department of Revenue.

Are audits done electronically in your country (e-audit)? If so, what system is in use?

No.

What penalties can arise from non-compliance?

Failure to comply with formal obligations of taxpayers involves monetary penalties to be applied for the number of times the taxpayer commits a breach within the period indicated on the prescription. Penalties range from 30 to 150 fine units and each unit is equivalent to 25 Nicaraguan Cordobas (NIO).

A penalty of 25 percent of the omitted tax plus penalties of between 500 and 1500 units can be applied if there is proof of tax evasion, if transfers of tax end up in a decrease of tax profits or for improperly obtained exemptions or tax benefits.

Other sanctions could include: business management intervention; confiscation of goods or vehicles and other items used to commit infringement; and closure of the premises where the infringement was committed (for a maximum of 6 days).

Persons submitting tax returns and/or tax payments late shall pay the credit rate of a 5 percent surcharge per month on the unpaid balance. Where a taxpayer does not submit an income tax, a surcharge of 2.5 percent per month (or partial month) on the unpaid balance will be charged. Accumulated charges cannot exceed 50 percent of the unpaid balance.

Special Indirect tax rules

Are there any special rules for the sale of a company by one taxpayer to another where VAT is not due on the sale?

No.

Are there unique specific indirect tax rules that you would not expect to find in ‘standard’ VAT jurisdictions?

No.

Does a reverse-charge mechanism apply for goods or services?

No.

Are there indirect tax incentives available (e.g. reduced rates, tax holidays)?

The Nicaraguan government established a special tax regime, which is a stimulating element for the development of investment and a consequent economic and social benefit for the country.

In general, the special tax regime is a tax exemption for a limited period of time (e.g. free trade zones, non-governmental organizations, energy industries and tourism industries).

Rulings

Are rulings and decisions issued by the tax authorities publicly available?

Yes, they can be found at Invitación a Licitación.

For further information please contact:

Alfredo Artiles
Senior Partner
KPMG in Nicaragua
T: +505 2274 4265
E: aartiles@kpmg.com

Willhem Salgado
Tax & Legal Manager
KPMG in Nicaragua
T: +505 2274 4265
E: wsalgado@kpmg.com

Footnote

*By ‘grouping’ we mean: either a consolidation mechanism between taxpayers belonging to the same group (payment and refund are compensated but taxpayers remain distinct) or a fiscal unity for VAT/GST purposes (several taxpayers are regarded as a single taxpayer).

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