Scope and Rates
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.
The standard rate of VAT is currently 13 percent.
Exports of goods and services are zero-rated.
- 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.
- 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.
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.
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.
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.
Only in a few cases (for example international transport), in order to apply for VAT refund.
Taxpayers are required to submit VAT returns on a monthly basis.
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).
International Supplies of Goods and Services
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.
When goods are imported into El Salvador, import VAT and customs duties must be paid before the goods are released from customs’ control.
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.
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.
Yes, it’s optional for all.
Transfers of Business
Options to Tax
Head Office and Branch transactions
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.
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.
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.
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?
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?
There is a Free Zone Law and an International Services Law that provide for VAT exemptions on certain imports of goods.