Scope and Rates
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.
The 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 mean import 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.
The standard rate of VAT is 15 percent.
Exports are zero rated, and therefore, exporters can recover input VAT paid when buying inputs required in the process of production of the exported goods.
Exempt sale of goods:
- books, pamphlets, magazines, school and scientific supplies, journals and other periodical publications, supplies and raw material used in their production
- drugs, vaccines and serums for human consumption, prostheses, machinery, equipment and parts, supplies and raw materials for manufacturing it.
- medical, surgical, optometric, dental and diagnostic equipment
- paper, machinery and equipment for the media.
- rice, beans, sugar, cooking oil, ground coffee, tortilla, salt, soybean
- vegetables and fresh fruits
- corn, sorghum, flour, simple and traditional sweet bread, yeast, pinolillo and pinol
- eggs, national artisanal cheese, milk and preparations for infant feeding
- domestic production of toilet paper, soap, detergent, toothpaste and toothbrushes, bottled gas up to 25 pounds
- live animals, fresh meat and vegetables unprocessed and unpackaged
- domestic production of clothing and shoes
- raw materials and intermediate goods physically incorporated in the products of the basic food basket
- national circulation coins, lottery tickets, shares and other securities, other than certain certificates of deposit
- crude or partially refined oil
- molasses and cattle feed, poultry and aquaculture animals
- products and vitamins for veterinary use and plant health
- insecticides, fungicides, fertilizers, seeds and products for agricultural or forestry use
- transfer of ownership of property
- used properties
- goods of companies operating under the regime of duty free.
- human health services, including life insurance
- insurance related to agricultural and transit risk
- shows with amateur athletes sponsored by religious entities.
- power supply used for agriculture
- internal transport by air, land and water ways
- education services.
- energy supplies for domestic consumption to 300 kw / h.
- supply of drinking water, except ice and bottled water.
- interest on loans granted by financial institutions.
- contracts for construction of affordable housing.
- lease of unfurnished houses.
- lease of land, machinery or equipment used in agriculture, forestry and aquaculture.
- services to agriculture.
- the imports of goods whose sale is not subject to local VAT (except used goods)
- Exemptions granted by the Constitution, constitutional laws, labor code and other special laws
- donations made to the State
- baggage and household goods
- imports of formula.
- capital goods, tires and spare parts for transportation cooperatives
- raw materials, intermediate and capital goods, spare parts and accessories for machinery and equipment for the agricultural sector; for micro, small and medium industrial and fishing.
- Selective Consumption Taxes (ISC)
- Stamp taxes (ITF).
All businesses that make taxable supplies in Nicaragua through a permanent establishment are required to register and account for local VAT.
There are penalties for failure to file tax returns based on the general terms fixed by the tax administration.
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.
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 NPO´S).
Taxpayers are required to submit VAT returns on a monthly basis.
Businesses must used central bank’s exchange rate applicable on the date of the invoice will be pay.
There are certain items that businesses cannot recover VAT on. For example, exempt supplies:where VAT relates to both taxable and exempt supplies, you need to make an apportionment (pro rata rule). The VAT is considering as part of cost and expenses.
International Supplies of Goods and Services
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.
When goods are imported into Nicaragua, import VAT and customs duties must be paid before they are released from customs’ control.
Services rendered by non-resident suppliers to Nicaraguan recippients are not subject to VAT in Nicaragua.
Layout of invoices is strictly regulated.
A taxpayer is required to issue an invoice for each taxable transaction performed. If this requirement is not complied with, the purchaser is not entitled to the VAT credit otherwise arising from the purchase.
Invoices and similar documents corresponding to transactions made by a registered taxpayer with another registered taxpayer must show separately the relevant VAT. Transactions made by a registered taxpayer with a final consumer or a small taxpayer must not show separately the corresponding VAT.
Tax invoice should contain the following data:
- date of issue
- a sequential invoice number
- taxpayer identification number (RUC) and customer taxpayer identification number
- supplier’s name and address
- customer’s name
- the quantity and nature of the goods/services supplied
- unit price (exclusive of any VAT)
- rate of any discounts (if not included in the unit price and if applicable)
- the VAT rate applicable
- the total amount price (including VAT).
Yes, it is an option for all taxpayers.
Yes, in certain cases (self-consumption).
Yes. There is an obligation to pay taxes in cordobas (NIO). Consequently it is essential that accounting records are maintained in cordobas. However a company can opt for billing in dollars but shall state on the invoices the equivalent in cordobas for subtotals, VAT amount and total amount.
Transfers of Business
Options to Tax
Individuals and companies engaged in small business activities and whose gross turnover does not exceed a certain threshold may be subject to a simplified regime (Cuota fija) that combines income tax and VAT.
Head Office and Branch transactions
There are no special rules for VAT, since both are considered as different taxpayers for VAT purposes.
In the absence or an invoice or similar document or were the price is less than the market value, this market price is taken as the taxable base.
There are certain penalties for failing to fulfill formal obligations.
The responsible taxpayer incurring the arrears must pay a 5 percent surcharge for each month or fraction of month in arrears, on the unpaid balance. In any case the accrued surcharges may not exceed an amount equal to 50 percent of the unpaid balance.
In agreement with article 51 of the Tax Code, the surcharge for arrears cannot exceed the principal amount owed.
How often do tax audits take place?
Tax audits are performed at the discretion of the tax administration.
Are there audits done electronically in your country (e-audit)? If so, what system is in use?
Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?
Are rulings and decisions issued by the tax authorities publicly available in your country?
Yes, to be found at: www.tta.gob.ni.
Yes. The Nicaraguan government has established a special tax regime, which is a stimulating element for the development of investment and consequent economic and social benefit for the country. In general, the special tax regime is a tax exemption applied for a limited period of time (e.g. free trade zones, NPO´s, energy industry, tourism industry).