EY
Centro Corporativo Invercasa Tower 3, 5th Floor Managua Nicaragua
Indirect tax contacts
Jose A Olivas +505 2253-8433 jose.olivas@ni.ey.com
Rafael Sayagués +506 2208-9880 (resident in San José, Costa Rica) +1 (212) 773-4761 rafael.sayagues@cr.ey.com
Guillermo Leandro +506 2208-9887 (resident in San José, Costa Rica) guillermo.leandro@cr.ey.com
A. At a glance
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 Central American Integration System Administered by Ministry of Finance (Ministerio de Hacienda y Crédito Público) (http://www.dgi.gob.ni)
VAT rates
Standard 15%
Other Zero-rated (0%) and exempt
VAT number format Taxable person identification number (RUC) – 14 digits
VAT return periods Monthly (general), biweekly (large taxable persons)
Thresholds
Registration None
Recovery of VAT by non-established businesses No
B. 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
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.
C. Who is liable
No separate VAT registry exists in Nicaragua. All businesses must register as taxable persons and obtain a taxable person identification number (RUC). The RUC is also used for VAT purposes. A taxable person for VAT purposes is any entity or individual that engages in taxable operations in Nicaragua.
Exemption from registration. The VAT law in Nicaragua does not contain any provision for exemp tion from registration.
Voluntary registration and small businesses. The VAT law in Nicaragua does not contain any provision for voluntary VAT registration.
In accordance with VAT law in Nicaragua, there is no special VAT registration. This is only done through the general regimen registration that is open for all tax obligations for taxable persons.
Group registration. Group VAT registration is not allowed in Nicaragua.
Non-established businesses. A “non-established business” is a business that has no fixed estab lishment in Nicaragua. If the non-established business is not registered in the Nicaragua tax system, it cannot register for VAT.
In principle, if a non-established business habitually and commonly has economic activities in Nicaragua, it should register as a taxable person in the Nicaragua tax system. To register for VAT, a non-established business must provide the VAT authorities with a copy of its articles of incor poration, legalized by a Nicaraguan consulate, together with an official translation in Spanish.
Tax representatives. It is not mandatory to appoint a tax representative in Nicaragua; however, it is permitted. A tax representative can be appointed through a tax power of attorney. A permanent power of attorney can be registered with the tax administration.
Reverse charge. Nicaraguan tax legislation does not permit use of the reverse charge. There is no registration threshold in Nicaragua and, as such, non-established businesses that make supplies to domestic business customers in Nicaragua must register for VAT.
For imported services, there is no VAT due on such supplies. This means that if Nicaraguan businesses buy services from a non-established business, the recipient doesn’t self-account for VAT, and the supplier doesn’t have to register and charge VAT either. As such, no VAT is accounted on the supply.
Domestic reverse charge. There are no domestic reverse charges in Nicaragua.
Digital economy. There are no specific rules regarding the taxation of the digital economy for VAT purposes. However, general taxable events should always be observed regardless of whether or not they are transacted by digital means. A VAT liability will arise when the digital transaction involves one of the following:
• Transfer and supply of goods
• Supply of services within Nicaragua
• Use or enjoyment of goods
• Importation of goods
• Exports of goods and services
Furthermore, there is no different treatment for business-to-business (B2B) and business-toconsumer (B2C) supplies. This means, for example, if a nonresident provides electronically sup plied services within Nicaragua to a resident customer, it is subject to VAT. However, please note that there is no reverse-charge mechanism in Nicaragua. It is not possible for a nonresident pro vider to register specifically for VAT in Nicaragua, but it must register in general with the Nicaraguan tax system to account for the VAT due.
There are no other specific e-commerce rules for imported goods in Nicaragua.
Online marketplaces and platforms. Services provided from outside Nicaragua (i.e., abroad) through online marketplaces and platforms to be consumed/used in Nicaragua are not subject to VAT.
Services provided from a local Nicaragua supplier (taxable person) through online marketplaces and platforms to be consumed/used in Nicaragua are subject to VAT. VAT applied on services rendered by a non-established business to a local taxable person should be incorporated as part of the acquisition cost.
Sales of goods from outside Nicaragua (i.e., abroad) through online marketplaces and platforms to be consumed/used in Nicaragua are not subject to VAT. However, the importations of such goods must comply with the importations VAT rules.
Sales of goods from a local Nicaragua supplier (taxable person) through online marketplaces and platforms to be consumed/used in Nicaragua are subject to VAT.
Registration procedures. Taxable persons must register before the tax administration at the time they start selling goods or rendering services subject to VAT in Nicaragua.
For this purpose, taxable persons must file a completed VAT registration form with the following information:
• Incorporation documents of the company
• The registration of the company in the public register and copies of the identification number of the shareholders
• Information of the taxable persons domicile and a support document of the address (for exam ple, a copy leasing contract)
• Information of the legal representative of the taxable person in the country (include information of general power of attorney granted, ID number, domicile and telephone information). In prac tice, the Nicaragua tax administration does not allow the registration of a legal representative that does not have a Nicaraguan ID number or Nicaraguan residence ID number
• Information of the principal economic activity that the company will develop in the country
The VAT registration takes approximately one week and must be completed on paper by the legal representative or person who holds a special power of attorney. The information should be deliv ered to the tax administration office that is located nearest to the domicile of the taxable person.
Deregistration. To deregister as VAT taxable person, the following documents must be filed before the tax administration:
• Letter requesting VAT deregistration
• Accounting books
• Last invoice and the other invoices that taxable person will not use
• VAT declaration of final inventory
• Annual declaration of income tax
• Tax identification (RUC)
Changes to VAT registration details. A taxable person has the liability to maintain its VAT registration information in the Nicaragua tax administration system. Changes that must be notified include address, phone number, board of directors, legal representation and shareholders. Such updates should be carried out at least every two years.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.
The VAT rates are:
• Standard rate: 15%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services, unless a specific measure provides for as the zero-rate or an exemption.
Examples of goods and services taxable at 0%
• Exports
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
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
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Nicaragua.
E. 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.
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, or when the price is fully or partially paid.
The time of supply for the rendering of services is when the purchaser becomes legally liable for payment.
Deposits and prepayments. In Nicaragua, the payment, in part or in full, of the price of goods and services is considered a tax point. Therefore, prepayments and deposits would trigger the pay ment of VAT when they are considered an advanced payment of the price.
Continuous supplies of services. There are no special time of supply rules in Nicaragua for sup plies of continuous supplies of services. As such, the general time of supply rules apply (as outlined above), and the taxable event is the issuance of the invoice.
Goods sent on approval for sale or return. There are no special time of supply rules in Nicaragua for supplies of goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above), and VAT would be due when the goods are sold.
Reverse-charge services. There are no special time of supply rules in Nicaragua for supplies of reverse-charge services. As such, the general time of supply rules apply (as outlined above).
Leased assets. In Nicaragua, the leasing of assets is subject to VAT as a service, even if it doesn’t result in a transfer in ownership of the underlying assets. There are no special time of supply rules in Nicaragua for the supply of leased assets. As such, the general time of supply rules for services apply (as outlined above).
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.
F. Recovery of VAT by taxable persons
A taxable person may recover input tax, which is VAT paid on the purchase of goods and services used to generate other goods and services. This 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 taxable person is not subject to income tax
• The payment must be adequately documented
The time limit for a taxable person to reclaim input tax in Nicaragua is four years.
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
• Any item acquired that is not directly linked to the taxable person’s economic activity is not creditable for VAT purposes
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
Partial exemption. Generally, taxable persons may recover VAT paid for the purchase of goods and services used to generate other goods and services subject to VAT (i.e., taxable supplies). This is known in Nicaragua as VAT liquidation, which is determined by subtracting VAT credits paid on transactions needed to generate taxable income for VAT purposes (input tax) from VAT collected on the sales of goods or the rendering of services (output tax). VAT paid on transactions to generate nontaxable income for VAT purposes (exempt goods, bienes exentos) are not allowed as VAT credits.
VAT incurred by a taxable person 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). Taxable persons must identify the VAT incurred in exempt and taxable supplies to recover the tax related
to taxable goods or services. If such distinction is not possible, taxable persons may apply a percentage based on taxable turnover vs. total turnover.
Approval from the tax authorities is not required to use the partial exemption standard method in Nicaragua. Special methods are not allowed in Nicaragua.
Capital goods. Capital goods are not defined in the local legislation; however, they are generally understood as the goods necessary for the generation of income. There are no special input tax recovery rules for capital goods. The normal input tax recovery rules, as outlined above, apply. As such, when a taxable person purchases a capital good that is used exclusively for taxable activities, the input tax incurred gives rise to the right of tax credit in the same month of acquisition.
When a taxable person purchases a capital good that is used for both taxable and exempt activi ties, the input tax incurred must be apportioned based on the percentage of taxable activities over the total activities made by the taxable person, as per the Partial exemption subsection above.
Refunds. If the amount of input tax recoverable in a month exceeds the amount of output tax payable, the taxable person may carry forward VAT credits to offset output tax in subsequent VAT periods. Exporters and taxable persons that provide exempted activities may use their excess credits to offset other taxes (such as income tax) and then may request a refund.
Pre-registration costs. Input tax incurred on pre-registration costs is not recoverable in Nicaragua.
Bad debts. Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad debts) cannot be recovered in Nicaragua.
Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Nicaragua.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses in Nicaragua is not recoverable. However, dip lomatic 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.
H. Invoicing
VAT invoices. A taxable person must generally provide a VAT invoice for all taxable activities. An invoice is generally necessary to support a claim for an input tax credit.
Credit notes. 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.
Electronic invoicing. Electronic invoicing is not allowed in Nicaragua.
Simplified VAT invoices. Simplified VAT invoicing is not allowed in Nicaragua. As such, full VAT invoices are required.
However, there are special tickets issued by retailers (i.e., supermarkets) to final consumers. But these are not authorized to be used as support for input tax recovery. If the taxable person requires the invoice to support input tax recovery, they should request a full VAT invoice instead.
Self-billing. Self-billing is not allowed in Nicaragua.
Proof of exports. Proof of exports in Nicaragua are the invoice and declaration of exportation. A Nicaraguan exporter must issue an export invoice on a free-on-board (FOB) basis. Once the goods pass the flange in the local port, they should be considered as exported. An “export invoice” is the same general invoice but used for exportation purposes. Therefore, there is no difference between a general invoice and an invoice for exportation purposes.
Foreign currency invoices. All invoices must be made in the domestic currency, which is the Nicaraguan córdoba (NIO).
Supplies to nontaxable persons. There are no special invoicing rules for supplies to nontaxable persons in Nicaragua. As such, full VAT invoices are required.
Records. Records that must be held for VAT purposes in Nicaragua include VAT invoices (issued and received), importation documentation, legal books and support documentation for the VAT returns.
In Nicaragua, VAT books and records must be held within the country. This is to allow review by the tax administration, if so requested.
Record retention period. As a general rule, the statute of limitations is four years. Therefore, the record retention period should be at least four years. However, there are some cases, as for example the acquisitions of certain goods, that the retention period should be longer, for exam ple, for depreciation purposes, for machinery. The records should be kept for the period of depreciation (i.e., 10 years for machinery), even though the statute of limitations corresponds to 4 years.
Electronic archiving. Electronic archiving is allowed in Nicaraguan. As such, physical records must be kept for archiving purposes in Nicaragua.
I. Returns and payment
Periodic returns. VAT returns can be submitted on a monthly or biweekly basis. Monthly and biweekly returns must be submitted by the 5th day of the month following the end of the return period.
Biweekly returns are for major taxable persons (grandes contribuyentes), which are defined as legal entities or individuals with income equal to or greater than NIO60 million but lower than NIO160 million.
Periodic payments. Return liabilities must be paid in NIO. VAT returns that are filed on a monthly basis must be paid by the by the 15th calendar day (including weekends and holidays) of the month following the period being reported. For biweekly returns, the payment must be made by the fifth calendar day (including weekends and holidays) of the month following the tax period being reported.
The payments must be submitted using Form 110 and using the Tributary Electronic Window (in Spanish, Ventanilla Electrónica Tributaria). The VET issues a Tax Information Ticket (in Spanish, Boleta de Información Tributaria [BIT]) with the information of the filed VAT return filed. It can then be paid through electronic transactions with authorized banks by the tax admin istration.
Electronic filing. Electronic filing is mandatory in Nicaragua for all taxable persons. The VAT return (Form 124) should be filed through the Tributary Electronic Window (in Spanish, Ventanilla Electrónica Tributaria) attaching a spreadsheet table describing the invoices issued, sales prices and VAT credit (output tax). The Tributary Electronic Window issues automatically a Tax Information Ticket (in Spanish, Boleta de Información Tributaria [BIT]) indicating the amount of tax to be paid. The BIT should be paid immediately (on the same day as it is issued) to avoid fines and other charges.
Payments on account. Major taxable persons must 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.
Special schemes. No special schemes apply in Nicaragua.
Annual returns. Annual returns are not required in Nicaragua.
Supplementary filings. In Nicaragua, for the electronic filing of the VAT return, a supporting spread sheet table must be filed with the VAT return, describing the invoices issued, sales prices and output tax.
In addition, it is possible to make a supplementary filing/rectify a VAT return in case of excess payments to the tax authorities. An amended VAT return should be filed through the Tributary Electronic Window (in Spanish, Ventanilla Electrónica Tributaria) attaching a spreadsheet table describing the invoices issued, sales prices and output tax (credit). The tax administration may request more information from the taxable person regarding this amendment. A new BIT/infor mation indicating the amount to be paid or considered as credit should be issued by the Tributary Electronic Window.
Correcting errors in previous returns. A taxable person must correct any errors or omissions from prior periodic filings through a supplementary filing. This also includes rectifying a VAT return in case of excess payments to the tax authorities. An amended VAT return should be filed through the Tributary Electronic Window by attaching a spreadsheet table detailing the invoices issued, sale prices and output tax (credit). The tax administration may request more information from the taxable person regarding the amendment. A new BIT indicating the amount to be paid or consid ered as credit should be issued by the Tributary Electronic Window.
Digital tax administration. There are no transactional reporting requirements in Nicaragua.