Indirect tax snapshot
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The Salvadoran tax system is based on direct and indirect taxes, but the principal indirect tax, is the Value Added Tax (VAT).
The tax rate is 13%, applicable on the tax base. The tax will be applied to the transfer, importation, internment, and consumption of goods and services, included the self-consumption. However, for the case of export the rate is 0%.
The VAT will be considered for transfers of goods or services registered in the country, however, the geographical areas excluded from VAT are the Free Zones, Asset Improvement Deposits and Free Stores.
In El Salvador, VAT is multiphase, since there is always the Debit-Credit figure in the value chain. The calculation and application of the VAT rate determines the tax that is caused by each operation performed in the corresponding tax period. The process of its development is based on the generation of a fiscal debit at the moment of making a transfer of goods and services which serves as a tax credit for the taxpayer who acquires the goods or services or when carrying out the export activity.
The payment of the tax is developed by the difference between the fiscal debits acquired through sales at the time of the transfer of goods and services and those paid (tax credits) when purchases or expenditures of goods and services or import processes are made the same tax period, when the tax debit is higher.
If the arithmetical difference in the tax credit exceeds the fiscal debit of that period, the remainder may be deducted in the following periods, up to its total deduction.
The taxpayer may not request a refund or reimbursement of the remaining tax credit under any circumstances, the balance in favor of VAT may be requested through compensation. But if the remnant is associated with export, the refund of the tax credit may be required.
Books and accounting registers/records
Both the Salvadoran Commerce Code and the Tax Code prescribe the principal accounting books to be maintained by companies. The books and records normally required are:
• general ledger
• financial statements book
• purchase book for VAT purposes
• sales book with final consumers and detail of exports
• sales book with VAT registered taxpayers
• other special records and files required for VAT control.
These books must be authorized by the external auditor or by the Salvadoran Registry of Commerce, and each page must be numbered and then stamped with the seal of the public accountant.
According to the Commerce Code, all records must be in Spanish, and all accounts recorded in Salvadoran Colones or US Dollars.
Persons subject to VAT are those individuals or entities that perform any of the activities that are within the scope of the VAT law.
Regarding individuals or entities, they are required to register for tax purposes if the activities in the past 12 months exceed the amount of US $5,714.29 and the total assets are less than US $2,285.71.
For importers the obligation to register subsists when they start their operations. In other cases, your registration is voluntary.
In El Salvador there are not a registry for non-established business.
Yes, thru the taxpayer that acquired this type of good from an non-resident.
The Salvadoran taxpayer for each transaction (acquisition) have to pay at the Tax Authority the VAT determined on the imposed base (price of electronically supplied/digital services). The amount paid with owner money of the taxpayer become tax credit for him.
No, is not necessary because there are not a registry for non-established business.
Taxpayers duly registered for VAT purposes in El Salvador must file monthly VAT returns (Form F-07), irrespective of whether they have performed taxable transactions or not, or even if there is no VAT payable in that particular month. VAT returns can be filed electronically through the Tax Authority’s website.
The VAT return is due by the 10th working day of the month following the tax period to which it relates.
The VAT must be paid on the same date as the return filing.
According to the Salvadoran Tax Code the following penalties would apply:
• for late registration: two monthly minimum salaries
• for no registration: three monthly minimum salaries
• for late payment: from 5% to 20% applicable over the tax paid late, depending on the delay period
• in case of no payment: 50% of the tax due.
The current monthly minimum salary in El Salvador is roughly US $365. This amount may change every fiscal year.
Interest on late payments
The current annual interest rate for late payments is the following:
• less than 60 days: 6.16%
• more than 60 days: 10.16%
This interest rates are subject to change every six months.
Withhold 1% or 2% of VAT System
In addition, companies having the status of ‘large taxpayers’ (Grandes Contribuyentes will act as withholding agents when acquiring goods or receiving services from other taxpayers not having this status. The withholding rate applicable in this case would be 1% of the transaction price.
Other regimes VAT advance payments at a rate of 2% of the transaction price, must be declared and paid by VAT registered taxpayers receiving payments through credit cards. For this purpose, the issuers/administrators of the credit cards will act as withholding agents.
The VAT withhold become tax credit for the taxpayers who support it (taxpayers that is not have “large taxpayer status”). There are the option to request the refund.
If there are sanctions and depend on the type of omission, presentation, and non-payment of the VAT return.
The taxpayers of the VAT Tax are obliged to issue and deliver documents related to the control of the tax according to the circumstances that correspond. Among which are the invoice of final consumer (issuance of documents to final consumer not valid for purposes of deduction of the tax credit, proof of tax credit valid document for deduction of tax credits, ticket document issued to final consumer by substitution of invoices of final consumer and simplified sales invoice).
An invoice and VAT ticket should show:
i. name, denomination or corporate name of the issuer, activity, address of the establishment, Tax Identification Number
ii. date of issue
iii. description of goods and services
iv. separation of Taxed, Exempt and Non-subject operations
v. VAT tax on taxable transactions
vi. total value
vii. imprint (correspond to the taxpayer that prints the authorized documents)
viii. in the case of tickets, they must contain the registration machine number with which it is authorised.
A voucher of Tax Credit must show:
i. name, denomination or business name of the issuing taxpayer, activity, address of the establishment, Tax Identification Number, Taxpayer Registration Number of the issuer and delivery of the document
ii. separation of Taxed, Exempt and Non-subject operations
iii. date of issue
iv. description of the goods or services, unit price of each good or service, amount and total amount
v. amount charged separately from VAT
vi. conditions of transactions: counted, credit or other vii imprint (correspond to the taxpayer that prints the authorised documents).
A simplified sales invoice:
i. name of the issuing taxpayer, money order or economic activity, address of the establishment or office, and of the branches, Tax Identification Number and Taxpayer Registration Number
ii. date of issue of the document
iii. total value of the operation, in which the respective tax of the taxed operations must be included
iv. imprint (correspond to taxpayer who prints the authorized documents).
Invoice formats must be printed by authorised printing houses or by electronic means if the tax authorities grant the taxpayer permission for this purpose.
No, at this time not.
However, the tax authorities are working with some taxpayer in the project of electronic invoice; the general implementation of electronic invoice may be will be available the next year.
In other consideration, the tax authorities are entitled to perform audits to ensure tax compliance and revenue collection. This is done by reviewing the taxpayers accounting records and tax returns.
The tax authorities may also request information from third parties. As a consequence of an audit, tax authorities are entitled to determine the tax liability of the unpaid tax and fix the amount of additional taxes to be paid, including tax interest and penalties.
For further information on indirect tax in El Salvador please contact:
Ricardo López Araniva