Joint and several liability of the legal representative in tax matters in Nicaragua

Nicaraguan law requires companies to register as taxpayers with the General Revenue Directorate (DGI). The Single Registry of Taxpayers includes basic data of the company, such as: shareholder composition, current board of directors, fiscal domicile, economic activity, legal representative, etc. It is the taxpayer’s obligation to keep this information updated, being necessary to carry out an updating procedure at least every 2 years.

It is important to point out that, in accordance with the provisions of the tax legislation and Law No. 761 “General Law of Migration and Foreigners”, the General Directorate of Revenue (DGI) requires for the registration process that the legal representative of the company must be a Nicaraguan national or have a valid Nicaraguan residency card.

For tax purposes, the appointment of the legal representative has legal effects of great relevance that must be taken into consideration, since the Nicaraguan legislation contemplates the figure of “Responsible for Tax Debt of Others”. In this sense, art 19 of Law No. 562 “Tax Code of the Republic of Nicaragua” and its amendments establishes:

“People who by the nature of their functions or by legal provision, must comply or enforce such obligations, such as, among others, attorneys-in-fact, administrators, or representatives, as the case may be, are liable for the tax debt of others.

 The liability established in this article is limited to the value of the assets that are administered or are under their responsibility. In the event that the administrator or person in charge has a hierarchical superior to whom he/she may warn in writing of the responsibility to comply in due time and form with a tax obligation and the latter ignores such warning, the administrator or person in charge shall be relieved of liability for that particular case”.

By virtue of the above, the Tax Administration is empowered to demand compliance with the omitted tax obligations with respect to the administered patrimony that was under the responsibility of the legal representative of the company, since the latter is jointly and severally liable for such tax obligations.

It is important to clarify that the effects of the aforementioned article are not limited to the figure of the legal representative, but may also be applicable to shareholders, members of the board of directors, attorneys-in-fact with powers related to the compliance of tax obligations.