Worldwide VAT, GST and Sales Tax Guide
Managua GMT -6
EY
Edificio Plaza Centroamérica
3th Floor Managua Nicaragua
Indirect tax contacts
María Félix Estrada +505 2253 8430 maria.felix.estrada@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 18 February 2019)
Trading bloc membership Central American Integration System
Administered by Ministry of Finance (Ministerio de Hacienda y Crédito Público) via the tax administration (http://www.hacienda.gob.ni; 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.
in Nicaragua in respect of any activities which that person undertakes for the enterprise, if such person:
– Has, and habitually exercises, in Nicaragua an authority to conclude contracts and perform other activities in the name of the enterprise.
– Does not have such authority, but habitually maintains in Nicaragua a stock of goods or merchandise from which it regularly delivers goods or merchandise in the name of the enterprise.
• Taxable persons that operate as branches or agents of foreign companies engaged in maritime or air transportation of passengers, maritime or air cargo, or international ground transportation of passengers, are excluded from the PE definition. These taxable persons will be considered as “non-established taxable persons.”
Non-established businesses. A “non-established business” is a business that has no fixed establishment in Nicaragua. If the non-established business is not registered in the Nicaragua tax system, it cannot register for VAT.
Generally, if a non-established business habitually and commonly has economic activities in Nicaragua, it should register as a taxable entity in the Nicaragua tax system. To register for VAT, a foreign 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. In Nicaragua, branches should register the business before the Mercantile Registry as a first step, and then the process will continue in the tax administration.
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 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-to-consumer (B2C) supplies. This means, for example, if a nonresident provides electronically supplied services within Nicaragua to a resident customer, it is subject to VAT. However, note that there is no reverse-charge mechanism in Nicaragua. It is not possible for a nonresident provider 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.
Continuous supplies of services. There are no special time of supply rules in Nicaragua for supplies 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 (except the interest), 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 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 (when it is a nondeductible expense for income tax)
• Expenses not related with the main economic activity of the taxable person
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 (i.e., input tax) from VAT collected on the sales of goods or the rendering of services (i.e., output tax). VAT paid on transactions to generate nontaxable income for VAT purposes (i.e., 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 activities, 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 in Nicaragua is not recoverable.
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 that are not registered for VAT in Nicaragua is not recoverable. However, 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.
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. However, taxpayers can submit an authorization to the tax authorities to issue invoices through approved software.
Scope of electronic invoicing. For B2B, B2C and business-to-government (B2G) supplies, electronic invoicing is not allowed in Nicaragua.
However, taxpayers can submit an authorization to the tax authorities to issue invoices through approved software. Taxpayers can request an authorization for invoicing through such approved
Penalties for errors. In the case of supplementary fillings for any errors, a penalty of between 30 and 50 penalty units may be assessed. A penalty unit equals approximately USD1. Also, 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.
The late notification or failure to notify the tax authorities of changes to a taxable person’s VAT registration details may result in a penalty of a minimum of NIO750 (approx. USD20.47) to a maximum to NIO1,500 (approx. USD40.95). For further details, see the subsection Changes to VAT registration details above.
Penalties for fraud. Tax evasion that does not constitute fraud is deemed to occur if the taxable person 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 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 considered a crime and sanctioned with a penalty of six months to three years in prison and a fine of twice the amount defrauded, pursuant to section 303 of Penal Code.
Personal liability for company officers. Company officers can be held personally liable for errors and omissions in VAT declarations and reporting in Nicaragua. In accordance with Section 19 of Nicaragua Taxation Code (NTC), the responsible persons for any tax debt are the persons that for the nature of its functions work or by law disposition should comply or make comply such obligations as the representatives, authorized agents or managers. Responsibility is limited to the value of assets administered or under their responsibility. If the administrator or person in charge has a hierarchical superior, who could warn in writing of the responsibility of complying in a timely manner with a tax obligation, and the second ignores such warning, the administrator or manager will be relieved of responsibilities for that case.
Statute of limitations. The statute of limitations in Nicaragua is four years. The time limit that the tax authorities can go back to review returns and identify errors and impose penalties is generally four years. However, this can be extended to six years, where the tax authorities prove that the taxable person has tried to hide information, goods and income.
There is no time limit for taxable persons to voluntarily correct errors in previous VAT returns. However, if the taxable person voluntary corrects a tax filing (including electronic VAT filing), the statute of limitation is interrupted and a new statute of limitation is established and counted from the following calendar day.