VAT, GST and Sales Tax in Nicaragua

Summary

Name of the tax Value-added tax (VAT)
Local name Impuesto al valor agregado (IVA)
Date introduced 21 December 1984 (revised 6 May 2003)
Trading bloc membership None that would provide differentiated VAT treatment
Administered by Ministry of Finance (Ministerio de Hacienda y Crédito Público) (http://www.dgi.gob.ni)
VAT rates
Standard 15%
Other Zero-rated and exempt
VAT number format Taxpayer identification number (RUC)
VAT return periods Monthly (two weeks for large taxpayers)
Thresholds
Registration None
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to the following transactions:

  • Transfer and supply of goods
  • Supply of services within Nicaragua
  • Use or enjoyment of goods
  • Importation of goods
  • Exports of goods and services

Effective 1 January 2013, taxable events include the sale, impor­tation and nationalization of goods, the export of goods and ser­vices, the rendering of services and the use and enjoyment of goods.

Who is liable

No separate VAT registry exists in Nicaragua. All businesses must register as taxpayers. The taxpayer identification number (RUC) is also used for VAT purposes. A taxpayer for VAT purposes is any entity or individual that engages in taxable operations in Nicaragua.

Group registration. Grouping of separate legal entities for VAT pur poses is not allowed under the Nicaraguan VAT law. Legal enti­ties that are closely connected must register for VAT individually.

Non-established businesses and tax representatives. A “non-established business” is a business that has no fixed establish­ment in Nicaragua. In principle, a non-established business must register for VAT if it supplies goods or services in Nicaragua. To register for VAT, a non-established business must provide the VAT authorities with a copy of its articles of incorporation, legal­ized by a Nicaraguan consulate, together with an official transla­tion in Spanish.

Registration procedures. Taxpayers must register before the tax administration at the time they start selling goods or rendering services subject to VAT. For this purpose taxpayers should file a registration form, incorporation documents of the company, the registration of the company in the public register and copies of the identification number of the shareholders. The registration as a taxpayer takes approximately one week. The legal representa­tive or person who holds a special power of attorney is entitled to do the registration.

Late-registration penalties. In case of late registration, a penalty of between 30 and 50 penalty units may be assessed. A penalty unit equals approximately 99 cents in US dollars.

Reverse charge. Not applicable.

Digital economy. There are no specific rules regarding the taxa­tion of the digital economy for VAT purposes. However, the general taxable events indicated in Section B should always be observed regardless of whether or not they are transacted by digital means.

Deregistration. In order to deregister as VAT taxpayer, the follow­ing documents must be filed before the tax administration:

  • Letter requesting VAT deregistration
  • Accounting books
  • Last invoice and the other invoices that taxpayer will not use
  • VAT declaration of final inventory
  • Annual declaration of income tax
  • Tax identification (RUC)

VAT rates

The standard rate of VAT is 15%. It applies to the transfer and supply of all goods or services, unless a specific measure applies, such as zero rating for exportations or an exemption. Exempted activities do not give rise to a right of input tax (See Section F).

Examples of exempt supplies of goods and services

  • Live animals and fresh fish
  • Domestically produced fruits and vegetables that are unpro­cessed
  • Basic foodstuffs, such as corn tortillas, rice, beans, certain dairy products, eggs and meat
  • Used goods (unless imported)
  • Crude oil
  • Real estate transactions
  • Life and health insurance
  • Domestic transport
  • Education
  • Certain financial services
  • Construction of social housing (as defined by law) and leasing of unfurnished accommodation
  • Equipment used for agriculture
  • Irrigation for agriculture and forestry
  • Electricity used for irrigation
  • Importation of goods, machinery and equipment for use by the media
  • Books, newspapers and magazines
  • Medicines and vaccines
  • Local production of sanitary protection products and toilet paper
  • Matches, kerosene, butane and electricity
  • Veterinary products
  • Insecticides, fungicides, fertilizers and seeds

Exports are zero-rated for VAT purposes.

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when the taxable event is considered to have taken place and when VAT becomes due, is called the “tax point.” Under the tax law (Ley de Concertación Tributaria), for VAT purposes, the taxable event varies depending on the type of supplies. The appli­cable rules are summarized below.

Goods. The time of supply for the sale of goods is when the invoice or corresponding legal document is issued, when the goods are delivered to the new owner or when the new owner has the ability to dispose of the goods as the owner.

Services. The time of supply for the rendering of services is when the purchaser becomes legally liable for payment.

Imported goods. The time of supply for the importation of goods is when the goods are made available to the importer at the fiscal warehouse.

Recovery of VAT by taxable persons

A taxpayer may recover input tax, which is VAT paid on the pur­chase of goods and services used to generate other goods and services subject to VAT. Input tax is generally credited against output tax, which is VAT charged or collected on the sale of goods or the rendering of services. To deduct or credit input tax, all of the following conditions must be satisfied:

  • The goods or services must be part of the economic process of transferring goods or providing services. This measure also applies to zero-rated operations.
  • The payment must meet the deductibility requirements for income tax purposes even if the taxpayer is not subject to income tax.
  • The payment must be adequately documented.

Nondeductible input tax. VAT is not creditable in the following cases:

  • When VAT is paid on purchases related to the exempt transfer of goods
  • Services that are exempt from VAT
  • Self-consumption

Examples of items for which input tax is nondeductible

  • VAT paid to produce goods or services that are exempt from VAT
  • Self-consumption

Examples of items for which input tax is deductible (if related to a taxable business use)

  • VAT paid to produce goods or services subject to VAT

Refunds. If the amount of input VAT recoverable in a month exceeds the amount of output VAT payable, the taxpayer may carry forward VAT credits to offset output tax in subsequent VAT periods. Exporters and taxpayers that provide exempted activities may use their excess credits to offset other taxes (such as income tax) and then may request a refund.

Partial exemption. Not applicable. VAT incurred by a taxpayer related to the making of exempt goods or the provision of exempt services does not generate VAT credit (i.e., it should be registered as an expense). Taxpayers must identify the VAT incurred in exempt and taxable supplies in order to recover the tax related to taxable goods or services. If such distinction is not possible, taxpayers may apply a percentage based on taxable turnover vs. total turnover.

Preregistration costs. Not applicable.

Recovery of VAT by non-established businesses

Nicaragua does not refund VAT incurred by foreign or non-established businesses unless they are registered as Nicaraguan VAT taxpayers.

Diplomats and international organizations. Diplomatic consular delegations and international organizations and agencies are exempt from VAT. Consequently, these organizations are also entitled to a reimbursement for VAT paid in Nicaragua if recipro­cal treatment is granted to delegates from Nicaragua.

Invoicing

VAT invoices and credit and debit notes. A taxpayer must gener­ally provide a VAT invoice for all taxable activities. An invoice is generally necessary to support a claim for an input tax credit.

A credit note may be used to reduce the VAT charged and reclaimed on a supply if the value is reduced for any reason (for example, a discount or bonus is granted, the price is changed, or the goods are returned). A credit note must generally include the same information as a tax invoice.

VAT is not chargeable on supplies of exported goods.

Foreign-currency invoices. Transactions must be registered in Nicaraguan córdobas (NIO).

Proof of exports. Invoice and declaration of exportation.

VAT returns and payment

VAT returns. VAT returns must be submitted on a monthly basis. Monthly returns must be submitted by the 15th day of the month following the end of the return period. However, large taxpayers must also make an advance payment of VAT within the first 15 days after the end of the VAT return period. They must make the full payment of VAT within five days after the advance pay­ment.

Return liabilities must be paid in Nicaraguan córdobas.

Penalties

Interest is charged on the tax due at a rate of 5% per month for the late submission of a VAT return. In addition, a penalty fine applies, computed as a minimum of 70 units of fine, with a cap of 90 units of fine (each unit equals NIO25).

Other penalties may also apply, including a 25% penalty and surcharges ranging from 5% to 50%, both computed on the amount of unpaid VAT.

Tax evasion. Tax evasion that does not constitute fraud is deemed to occur if the taxpayer files an inaccurate return that results in the underpayment of VAT. The penalty for tax evasion is 100% of the VAT amount due.

Tax fraud. Tax fraud is deemed to exist when information has been altered in a manner that causes the tax authorities to incor­rectly compute the amount of VAT due. Tax fraud is punishable by a term of imprisonment from six months to eight years.