Project of Amendment of Law 822, Tax Concertation Law

Posted by: Claraliz Oviedo | Senior Associate at Alvarado y Asociados

On January 28, 2018, the Project of Amendment of Law 822, Tax Concertation Law, was presented before the National Assembly of Nicaragua, whose objective, as indicated in the Statement of Purpose, is precisely to generate additional resources to compensate for the losses of collection of taxes experienced between the months of April and July of the year 2018.

The main tax provisions incorporated in the Project of Amendment are the following:

Income Tax

 

  • Income from Work

 

  1. Increase of the aliquot from 12.5% to 25% for diets received in meetings or sessions of members of boards of directors, executives or consultants and other similar.
  2. Increase of the aliquot from 15% to 25% for non-resident work income, unifying the rate with the retention of professional services provided by non-residents.
  3. Increase of the aliquot from 10% to 15% to the compensation of up to five months of salaries and wages contemplated in the Labor Code, labor laws or collective agreement.
  4. Authorized deductions on the contributions of salaried individuals in any of the Social Security schemes are derogated.

 

  1. Income from Economic Activity

 

  1. The Aliquot of the Minimum Definitive Payment (PMD) is modified:
    1. From 1% to 3% for Major Taxpayers.
    2. From 1% to 2% for the Main Taxpayers;
    3. 1% is maintained for other taxpayers with incomes of less than 60 million córdobas per year
  2. Adjustment of the Tax Credit of 1.5% to exports, which can only be credited in the Annual IR Declaration and for an higher than the PMD.
  3. Increase of the aliquot from 15% to 25% on other economic activities of non-residents.
  4. The Exempt Subjects that carry out remunerated economic activities (the term -lucrative- was eliminated) that imply competition in the market of goods and services, will not be exempt from the payment of the tax.
  5. Article 39- Costs and deductible expenses- is modified, regarding interest, commissions, discounts and similar, including now those of financial leasing.
  6. The right to depreciation is recognized to the lessee.
  7. The definitive withholding tax rate is increased from 17% to 30% to expenses paid or credited to persons or entities resident in a tax haven.

 

 

III. Income from Capital and Profits and Losses of Capital

 

  1. The integration with the Income from Economic Activity is eliminated.
  2. The reference chart for goods subject to registration (properties, vehicles, etc.) establishing three new strata of US$ 300 to US$ 400 thousand with 5%, from US$ 400 to US$ 500 thousand with 6% and greater than US$ 500 thousand with 7%, being the applicable chart the following:

 

 

Equivalent in córdobas of the value of the good in US$

Applicable percentage

from

to

0.01

50,000.00

1.00%

50,000.00

100,000.00

2.00%

100,000.00

200,000.00

3.00%

200,000.00

300,000.00

4.00%

300,000.00

400,000.00

5.00%

400,000.00

500,000.00

6.00%

500,000.00

More

7.00%

 

  1. The deduction in real estate income is reduced from 30% to 20%, as such, as such the final withholding tax is increased from 7% to 8%.
  2. The deduction on movable capital income is reduced from 50% to 30%, as such the final withholding tax is increased from 5% to 7%.
  3. The exemption to family remittances received by residents is derogated.
  4. Regarding the methods of application of the principle of free competition, it is indicated that the comparable uncontrolled price method will be of obligatory use in the case of import and export of agricultural, mining and energy products and raw materials, with a known price in international stock exchanges, or whose price is directly linked to products or raw materials that are traded in such stock exchanges.
  5. The application of the Trust and Investment Funds is generalized.

 

CASINOS

 

The general rate per gaming machine is modified by US$ 50 and the rate for gaming tables is adjusted to US $ 600.

 

METALLIC MINING (GOLD AND SILVER)

 

Law 387, Law of Exploration and Exploitation of Mines is reformed, the royalty for the extraction right increased from 3% to 5% and eliminating the deduction as an expense for purposes of calculating the income tax.

 

 

VALUE ADDED TAX (VAT)

  1. New wording is included: When subjects exempt from VAT habitually perform remunerated economic activities (the term –lucrative- is eliminated) that implies competition in the market for goods and services will not be exempt from paying this tax.
  2. The list of objective exemption contained in article 127 has been modified.
  3. In imports of gassed water, gassed water with addition of sugar or flavored, energy drinks, juices, soft drinks, the tax base will be the retail price.
  4. The declaration date and payment of the monthly declaration is modified, being now no later than the fifth calendar day subsequent to the taxable period.

 

EXCISE TAX

  1. Specific Tax on the Consumption of Cigarettes and Other Tobacco Products (IECT) is modified by increasing the fee per thousand as follows:
  • C$2,000 in 2019.
  • C$ 2,500 in 2020.
  • C$ 3,450 in 2021

The previous to achieve that the sum of taxes on such products reaches 70% of the retail price in 2021. Additionally please note that other product have been added such as: Cigars – Cigarros (puros), Cigarillos- Cigarritos (puritos), Fine Cut tobacco/smoking tobacco - Picadura de Tabaco, having an applicable fee per kilogram.

  1. Alcoholic beverages: Incorporation of a Specific Fee of C$ 50.00 per liter of absolute alcohol to alcoholic beverages, wines and beers.
  2. Sugary drinks: the ISC is increased from 9% to 15% for drinks, juices, soft drinks and energy drinks.
  3. ISC annexes: the ISC is increased between 5 and 10 percentage points for polluting, sumptuary and low nutritional value merchandise.

 

FOB INCENTIVE

A tax credit is established in an amount equivalent to one point five percent (1.5%) of the FOB value of exports, to encourage exporters of goods of Nicaraguan origin and producers or manufacturers of those exported goods.

EXEMPTION TO PRODUCTIVE SECTORS

To make use of the benefit, the beneficiaries must be registered before the competent authority, who will issue the authorization for the exoneration. The Ministry of Finance and Public Credit will approve the exemption for the value of the taxes, likewise, in coordination with the General Directorate of Customs Services, will determine the tariff classification of the goods, for purposes of the application of these exemptions.

  1. Micro and small industrial enterprise and artisanal fishing

It is exempted from VAT, through tax lists established by ministerial agreement, local purchases and imports of raw materials, intermediate goods, capital goods, spare parts, parts and accessories for machinery and equipment to micro and small industrial enterprises and artisanal fisheries.

  1. Agricultural sector

VAT is exonerated, through tax lists established by ministerial agreement, local purchases and imports of inputs, raw materials and intermediate goods for the primary production of exempt final goods.

  1. Agribusiness

VAT is exonerated, through tax lists established by ministerial agreement, local purchases and imports of inputs, raw materials and intermediate goods for the industrial transformation of final goods.

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