Cristian Marroquín
In tax matters, non-compliance with obligations is not always due to the non-payment of taxes, but also to the omission in the presentation of declarations and reports. In El Salvador, even when a taxpayer has not carried out operations in a given fiscal period or financial year, there is still an obligation to present their tax returns and reports. Failure to do so can result in financial penalties and affect them financially.
In this way, we will address the most important tax returns and reports that every taxpayer must comply with to avoid unnecessary fines:
I- Presentation of Income Tax and VAT returns
As established in art. 48 of the Income Tax Law (LISR), the corresponding tax must be paid by means of a sworn declaration, contained in the form prepared by the General Directorate of Internal Revenue, and must be filed within four months following the end of the tax year or period in question.
For its part, art. 93 of the Law on Tax on the Transfer of Movable Property and the Provision of Services (LIVA), establishes that taxpayers and, where appropriate, those responsible for the tax, must submit a monthly sworn statement on the taxed, exempt and non-taxable operations carried out in the tax period, and according to art. 94 of the aforementioned law, the sworn declaration will include the payment and must be carried out in the first ten working days of each month.
However, since these legal provisions refer to the settlement and payment of the tax corresponding to each one, it can be interpreted that if there is no tax to settle or pay, no declaration should be filed.
However, art. 91 of the Tax Code (TC) establishes that they are obliged to file tax returns within the stipulated period. For this purpose, those subject to taxes under the authority of the Tax Administration, whether as taxpayers or as responsible parties, even when it does not give rise to the payment of tax, in accordance with the provisions of the corresponding laws, except in the cases expressly indicated by the respective tax laws.
In this sense, we must point out that there is no regulation that frees companies from filing Income Tax (ISR) and VAT returns, even if these do not result in tax to be paid. This situation is reinforced by art. 100 of the CT, which establishes that the obligation to file an income tax return remains in force even for taxpayers excluded from the obligation to pay income tax (previously qualified non-profit associations or foundations).
Based on the above, failure to comply with the obligation to file the return is punishable by a fine equivalent to 40% of the tax determined, which in no case may be less than one minimum monthly wage (USD365.00).
Likewise, failure to file the corresponding return within the established legal period is punishable according to the following details:
- A fine equivalent to 5% of the amount of tax to be paid if the declaration is submitted with a delay of no more than one month.
- A fine equivalent to 10% if it is submitted with a delay of more than one month, but no more than two months.
- A fine equivalent to 15% if the delay is more than two months, but no more than three months.
- A fine equivalent to 20% if the delay is more than three months.
The fines indicated in the previous paragraphs may in no case be less than two minimum wages. If the tax return does not show any taxes payable, the penalty applied will be one minimum wage.
II- Payment on account declaration
As established in art. 151 of the CT, the income tax collection system, through advance payments, consists of obligatory payments made by, among others, legal persons under private and public law, associations of persons, de facto and irregular companies, domiciled for tax purposes, except for those exclusively engaged in agricultural and livestock activities, even if for the previous financial year they have not calculated tax in their income tax return.
For the purposes of the previous paragraph, agricultural and livestock activities are understood to be the exploitation of animals and land, provided that the legal entity is not also engaged in the agro-industry of these products.
The amounts will be determined by monthly periods and in an amount of 1.75% of the gross income obtained by the economic branch and must be verified within ten working days following the end of the corresponding monthly period, using forms provided by the Tax Administration.
In this sense, art. 152 of the CT states that the sworn declaration of payment on account must be presented together with the advance payment within ten working days following the calendar month being settled. The obligation to present the declaration remains even if it does not give rise to the respective payment or advance payment on account.
Failure to file the payment or advance payment return is punishable by a fine of 50% of the unpaid amount, which in no case may be less than nine hundred and eighty colones (USD112.00), even if there is no advance payment to be made.
III- Address update report for receiving notifications
All taxpayers must establish, at the time of registration, an address within the national territory to receive tax notifications. This address cannot be a post office box. They are also obliged to update the information corresponding to their address for notification purposes, in the first ten working days of each year, using the appropriate form.
Likewise, taxpayers are also obliged to report any change in the place to receive notifications using the corresponding form, within five working days of the change occurring.
Failure to comply with the obligation to report, update address and report change of address to receive notifications is penalized as follows:
- A fine of nine times the monthly minimum wage (USD3,285.00) for not informing or informing outside the corresponding period about this update.
- A fine of five times the monthly minimum wage (USD1,825.00) for not informing or informing outside the corresponding period, the change of place or address to receive notifications, by the agent designated for this purpose, in writing.
- Failure to report the effective change of address, place or address for receiving notifications. Fine of nine monthly minimum wages (USD3,285.00).
- Setting or reporting a place, address or domicile for receiving notifications that are false, non-existent or incomplete. Fine of nine monthly minimum wages (USD3,285.00).
IV- Report on the distribution or capitalization of profits, dividends or surpluses and/or list of partners, shareholders or cooperative members.
Finally, as established in art. 124 of the CT, legal persons that distribute dividends, surpluses or profits must inform the Tax Administration, on the respective form and within January, of all distributions made in the immediately preceding year, and must provide the value of the shares, contributions or rights, as well as the value of the dividends, surpluses or profits of any type or denomination that have been distributed.
Legal people must send, within the same period, a list of their partners, shareholders, or cooperative members, whether they have received a distribution of dividends, surpluses, or profits. Likewise, in the form indicated in the first paragraph of this article, they must report in January of each year those who acquired or lost such status in the previous year, including the book value of their shares, equity interests or contributions.
Failure to submit late submission or submission containing errors of the report on profit distribution or the list of partners, shareholders or cooperative members carries a fine of 0.1% of the equity or book capital recorded in the balance sheet, discounting the unrealized asset revaluation surplus. This penalty cannot be less than three monthly minimum wages (USD 1,095.00).
In conclusion, tax compliance is not limited to the payment of taxes; it also implies the timely and correct filing of returns and reports, even when there are no taxes to be paid. In El Salvador, failure to comply with these obligations can result in significant penalties that affect the financial stability of companies and their record with the Tax Administration.
Keeping up to date with these responsibilities not only avoids fines but is also key to obtaining tax solvency, allowing compliance with other commercial procedures, such as registrations in the Commercial Registry and the Registry of Real Estate and Mortgages.
If you need assistance in complying with your tax obligations, and/or have any related questions, you can contact us at the following email address: taxelsalvador@consortiumlegal.com.