On February 28, 2019, upon publication in the Official Journal, the Gazette, the Law of Amendments and Additions to law No. 822, Tax Agreement Law (Law No. 987), which modifies significant elements of the majority of the taxes contained in the Tax Agreement Law (hereinafter the “LCT”) entered into force.
Subsequently, on March 15, 2019, Presidential Decree No. 08-2019 of Amendments and Additions to Decree No. 01-2013, Regulations to Law No. 822 Tax Agreement Law (hereinafter referred to as “RLCT”) which complements the amendments made to the LCT was published and entered into force.
Below, are the main changes to the Income Tax and the direct impact of the amendments upon the agricultural and farming sector.
Income Tax (IR)
a) Income from Work:
- The contributions of workers to savings or pension funds other than social security can no longer be deducted to reduce the base on which the tax is calculated.
|Type of Withholding||Prior Rate||Current Rate|
|Additional indemnities paid in excess of 500,000 córdobas (Arto 24, # 1 LCT)||10%||15%|
|Remuneration received by members of boards of directors, administration councils, or similar for attending meetings or sessions (Art. 24, # 2 LCT)||12.5%||25%|
|Work income paid to non-residents||15%||20%|
- Deadline for declaration and payment of withholdings: Previously, such deadlines were no later than the fifth business day of the following month, but now are no later than the fifth calendar day of the following month (Article 19, RLCT).
b) Income from Economic Activities:
- Creation of new rates of 2% for taxpayers with annual income between 60 million and 160 million córdobas and 3% for taxpayers with annual income exceeding 160 million córdobas for the Minimum Definitive Payment.
|Tax Obligation||Previous time frame for filing and payment||Current Time Frame|
|Monthly payment in advance of the Minimum Definitive Payment (Article 43 RLCT)||No later than the 15th of the following month||Filing: no later than the 5th day of the following month.
Payment: No later than the 15th day of the following month.
|Monthly payment in advance on account of the IR (Article 43 RLCT)||No later than the 15th of the following month||Filing: no later than the 5th day of the following month.
Payment: No later than the 15th day of the following month
|Definite withholdings to non-residents (Article 38 RLCT), Withholdings on account of Income Tax (Article 44 RLCT), Definite withholdings (Article 46 RLCT)||No later than the 5th business day of the following month||No later than the 5th calendar day of the following month|
|Annual Income Tax Return||No later than the last day of the third month after the close of the tax year||No later than the last day of the second month after the close of the tax year|
- Withholding for income received by non-residents for economic activities that do not have specific rates increases from 15% to 20% (Art 53, # 3 LCT).
- It will not be possible to integrate capital income and capital gains (that is, those derived from the exploitation or transfer of assets or rights when it does not correspond to the economic activity of the company) as income from economic activities.
- The Tax Office (DGI) is authorized to declare without tax effect the segregations of operations that the taxpayers make in order to lower their gross income with the purpose of applying a lower percentage to the Minimum Definitive Payment (Art. 61 bis LCT).
C) Capital Income and Capital Gains and Losses:
|Type of Withholding||Previous Tax Rate||Current Tax Rate|
|Capital income on immovable assets: Income from the exploitation of immovable assets that does not imply the transfer of the same and is not the business of the company (Articles 80 and 87 LCT).||10% for residents and 15% for non-residents (over a tax base of 70%)||15% (over a tax base of 80%)|
|Capital income on physical movable assets: Income from the exploitation of tangible movable assets, which does not imply the transfer of the same or the business of the company (Articles 81 and 87 LCT).||10% for residents and 15% for non-residents (over a 50% basis)||15% (on over a tax base of 70%)|
|Capital income on intangible assets: Income from the exploitation of incorporeal rights or goods, which does not imply the transfer of the same or the company’s transfer (Articles 81 and 87 LCT).||10% for residents and 15% for non-residents (over a 100% basis)||15% (Over a tax base of 100%)|
- Creation of tax rates from 5% to 7% for capital gains for the transfer of property subject to registration before a public office, applicable from USD 300,000.01 (Article 87 LCT).
Reforms that affect the agricultural and farming sector
The agricultural and farming sector is affected by the elimination from the list of exempted goods of supplies, materials and intermediate goods necessary for sector activities. This includes the elimination of exemptions for veterinary products, feed for livestock and poultry, insecticides, pesticides, fungicides, vitamins for veterinary use, machinery and equipment for irrigation, seeds and fertilizers, among others (Article 127 LCT). Likewise, the exemption for services of the agricultural sector such as pulping, descaling, grinding, threshing, among others (Article 136 LCT) is eliminated.
Agricultural and farming producers will be able to obtain part of these products with an exoneration benefit through a procedure of registration and application for tax benefit authorizations on local purchases and imports with the Ministry of Agriculture and Farming and the Ministry of Finance and Public Credit (Article 274 LCT), provided that the products are found in the lists issued by the Ministry of Finance and Public Credit (limited lists).
However, these limited lists of goods whose exoneration can be requested do not include:
- Capital goods
- Spare parts, parts, and accessories for machinery or equipment
Similarly, with the amendment, the exonerations by means of limited lists will only exonerate payment of the Value Added Tax (VAT). Prior to the reform, the benefit of exoneration for producers included exoneration from the Excise Tax (ISC) and the Import Duties (DAI).