Tax Requirements in the implementation of commercial policies for discounts, rebates, and bonuses in Nicaragua

Generally, most companies engaged in commercializing goods and providing services implement sales policies and commercial strategies that allow them to offer better prices or incentives to attract or retain customers. This enables them to better position themselves in the market, compete with other companies in the sector, increase their sales volume, and consequently promote a rapid turnover of their products.

However, despite being a common commercial practice used by many companies in various markets, it is important to note that the application of discounts, rebates, and bonuses is duly regulated under Nicaraguan tax legislation. Therefore, a series of legal requirements must be met for their correct application. The application of these tax requirements is mandatory for all taxpayers who use this benefit and varies depending on the type of strategy used (discount, rebate, or bonus). Consequently, the omission of any of these requirements may imply that the amounts granted as discounts are subject to Income Tax and Value Added Tax (VAT) and are not considered deductible for Income Tax (IR) purposes.

In practice, it is common to observe, during audits conducted by the General Directorate of Revenue (DGI), adjustments to Income Tax (IR) and Value Added Tax (VAT) due to non-compliance with all or part of the tax requirements established in Law No. 822 “Law on Tax Concertation of the Republic of Nicaragua”, its reforms, and regulations. This could result in substantial economic losses for the company and significantly affect its sales and service provision strategies.

Considering the above, it is essential that before promoting commercial sales and service provision strategies involving discounts, rebates, and/or bonuses, companies seek advice to understand the various applicable tax regulations and ensure compliance with the requirements established by law. Additionally, they should anticipate the tax effects of these commercial policies to mitigate potential tax contingencies in their declared sales and service revenues, deductible costs and expenses associated with their economic activity for Income Tax (IR) purposes and concerning the collection of Value Added Tax (VAT) in their capacity as the Responsible Collector.