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Details

  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 7/1/2013

El Salvador: VAT essentials 

 Essential information regarding VAT as it applies in El Salvador.


Scope and Rates

What supplies are liable to VAT?


The Salvadoran value-added tax (VAT) is a tax-based on the value-added method. The VAT applies on the price or remuneration agreed for the transfer of goods or provision of services, or the import customs value.


VAT is due on:


  • The sale by VAT taxpayers of movable goods located in El Salvador
  • services specified in the law, provided they are performed in El Salvador
  • the final importation of chattels and
  • the use or exploitation in El Salvador of services which are supplied by non-residents (i.e. import of services).

For VAT purposes, the concept of taxable “sale” includes:


  • sales and other transfers for consideration of movable goods located in El Salvador (payment in kind, allocation of property on the liquidation of a company, auctions, cession of goods).
  • the removal of movable goods by the owner for his personal use or consumption
  • reimbursements of expenses since which are regarded as similar to a provision of services.

Under the VAT system, tax is levied at each stage on a non cumulative basis. The accumulation of tax is avoided through the deduction of VAT invoiced to the entity. The entity pays VAT on the total amount invoiced in each monthly tax period, but it is entitled to recover the input VAT that was invoiced to the entity during the same period. If, in any tax period, the credit for input VAT is higher than the amount of VAT due on output, the entity is not entitled to a refund (unless the refund is related to exports); rather, the excess is credited against future VAT liabilities.


What is the standard rate of VAT?


The standard rate of VAT is currently 13 percent.


Are there any reduced rates, zero rates, or exemptions?


Exports of goods and services are zero-rated.


Exempt goods


  • imports and sales of books
  • retail distribution of newspapers and periodicals
  • machinery imported by VAT Taxpayers, intended for use as fixed assets and which contribute to the generation of taxable income
  • import of buses, microbuses and vehicles intended to public passenger transport.

Exempt services


  • health or medical care provided by government institutions
  • public passenger transport
  • the letting of dwelling
  • education and teaching provided by universities, private schools and public schools authorized by the Ministry of Education
  • deposit transactions referring to the interest payments when the institutions are authorized by the Reserve Central Bank of El Salvador.

What are the other local indirect taxes beside VAT?


Customs duties.

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Registration


Who is required to register for Salvadoran VAT?


The individuals or companies required to register are those who have supplied movable goods or services for amounts greater than US$ 5,714.28 and have total assets exceeding US $ 2,285.71 in the past year.


Are there penalties for not registering or late registration?


No.


Is voluntary VAT registration possible for an overseas company?


No. Under Salvadorian VAT legislation it is not possible for a non-resident entity to voluntarily register in El Salvador and act as an established entity.


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 El Salvador. If the company (permanent establishment) performs activities in the country, VAT registration is mandatory.


Does an overseas company need to appoint a fiscal representative?


Only in a few cases (for example international transport), in order to apply for VAT refund.

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VAT Grouping


Is VAT grouping possible?


No.


Can an overseas company be included in a VAT group?


Not applicable.

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Returns


How frequently are VAT returns submitted?


Taxpayers are required to submit VAT returns on a monthly basis.


Are there any other returns that need to be submitted?


No.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)

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VAT Recovery


Can a business recover VAT if it is not registered?


No.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


No.


Are there any items that businesses cannot recover VAT on?


There are certain items that businesses cannot recover VAT on. For example, costs related to exempt supplies. Where VAT relates to both taxable and exempt supplies, businesses need make an apportionment (pro rata rule).

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International Supplies of Goods and Services


How are exports of goods and services treated?


Exports of goods and services are included in the scope of VAT however they are taxable at a zero rate. This means that 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.


Goods supplied and services provided abroad are not taxable.


How are goods dealt with on importation?


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


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


Services provided and loans granted from abroad which are utilized in El Salvador (import of services) by Salvadorian VAT payers are taxable in El Salvador.


In such cases, the local taxpayer must self-assess the VAT payment in the month immediately after the taxable event is completed, and will compute the VAT credit in the following month. This will be a pass-through cost for the local company so long as it is registered for local VAT purposes.

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Invoices


Is a business required to issue tax invoices?


Yes.


What do businesses have to show on a tax invoice?


The layout of invoices is strictly regulated.


A taxpayer is required to issue an invoice for each taxable and non taxable transaction performed. 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 must not show separately the corresponding VAT.


Tax invoice should contain the following data:


  • date of issue
  • a sequential invoice number
  • taxpayer identification number (NRC) and customer taxpayer identification number (NIT)
  • 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)
  • issued authorization code or Electronic authorization code.

Can businesses issue invoices electronically?


Yes, it’s optional for all.


Is it possible to operate self-billing?


No.


Can a business issue VAT invoices denominated in a foreign currency?

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Transfers of Business


Is there a relief from VAT for the sale of a business as a going concern?


No.

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Options to Tax


Are there any options to tax transactions?


No.

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Head Office and Branch transactions


How are transactions between head office and branch treated?


There are no special rules for VAT applicable to such transactions. Both the branch and head office are considered as different taxpayers for VAT purposes.

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Bad Debt


Are businesses able to claim relief for bad debts?


No.

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Anti-Avoidance


Is there a general anti-avoidance provision under VAT law?


There are no specific anti-avoidance provisions in the VAT Law. However the following provisions are included in the Tax Code (In Spanish a law named “Código Tributario”):


  • unintentional tax evasion: this concept covers the incorrect filing of VAT returns, which is subject to a penalty amounting to 25 percent on the tax not paid
  • intentional tax evasion: this concept covers the submission of returns containing false data, destruction of tax documents, among others, which will be judicially sanctioned.

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Penalty Regime


What is the penalty and interest regime like?


There are certain penalties for failing to fulfill formal obligations. The minimum fine or penalty equals the amount of the minimum salary. Compensatory interest can be levied at current market’s rate.

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Tax authorities


Tax audits


How often do tax audits take place?


The Ministry of Finance is the authority which performs tax audits. However the taxpayer with assets greater than US$1,142,857.14 and sales greater than US$571,428.57 shall appoint annually an independent auditor in order to express an opinion related to the applicable provisions tax compliance and to file its report to the Ministry of Finance for each fiscal year.


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


No.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


No.


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


No.

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Miscellaneous


In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


No


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


There is a Free Zone Law and an International Services Law that provide for VAT exemptions on certain imports of goods.

 

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