Taxpayer beware! Tax reform means significant changes in audit process!

The National Assembly approved towards the end of the month of February 2019 tax reforms that  not only revised law 822 Law of Tax Concertation, but it also changed the law 562 which is the current tax code. Both of these laws and their respective bylaws are what regulate the national tax system in Nicaragua with the former having more to do with the specific taxes themselves and the latter with regulating the procedures that both taxpayer and tax administration have when exercising or protecting each of their respective rights.

For this article we will focus on the changes that were put in place that have modified the current tax code. Also, we will mention how the DGI has put into practice and enforced some of these changes.

Less time to prepare for audits

If you own a business most likely you’re familiar with the reduction in time that taxpayers have had to prepare and declare monthly taxes. A similar reduction has also been made in regard to the amount of time a taxpayer has to present to the DGI documents pertaining to a requirement for audit.

Previously, when the tax administration would solicit to review or audit documents from a taxpayer an initial period of 10 business days was granted, wherein the taxpayer would comply with the documents being requested. Of course, having only 10 days to comply with such a request is can at times be daunting, especially considering that this request could come at any moment. Therefore, the same article of the tax code permitted an extension of an additional 10 days whenever requested in writing by the taxpayer.

Now, with the current reforms that have been approved, the optional 10 day extension no longer exists. So in fact if for any reason the tax administration would require that documents be presented for audit, then in effect a single 10 day term would be the total amount of time any and all taxpayers will have to prepare themselves.

The DGI is now ONLINE

Another change is that the DGI has been formally authorized to use electronic methods to communicate with taxpayers. Previously, if the DGI wanted to notify the public about an important change in administrative policy such a change would have to be published in the Official Gazette or in a newspaper of national circulation. Also, prior to the reforms, if the DGI wanted to request the presence of the taxpayer to the tax office or request information, then a representative of the tax administration and a supervisor would have to physically present themselves with a letter requesting the presence or documents from the taxpayer.

These requirements have been longstanding, in effect the tax code has been the same one now for almost 15 years, with the exception a few reforms. Nonetheless, with the current reforms all this has now changed. No longer does the DGI have to physically publish important policy changes, neither do they need to physically present letters of requirement for taxpayers to present information or documents, to the contrary all those things can now be done online.

In fact, as per the reforms with the simple publication of a policy change on their website www.dgi.gob.ni, (you can see the section for this on the upper right hand side of the website) the change has become official and is now in effect. Also, the DGI can now with a simple email send a list requiring additional information, documents or the physical presence of a taxpayer at the tax office.

Conclusions

The recent tax reforms approved since February and that have been in effect since March 1^st of 2019, not only have affected taxes, but they have also changed the way the DGI can interact with taxpayers. The obligations that taxpayers have increased and the DGI is through technology going after taxpayers that aren’t declaring, are submitting erroneous information and haven’t been managing correctly their accounting records.

Therefore, we recommend that if you haven’t already take the opportunity you have now to prepare for these changes and a possible visit from the DGI.

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SAENICSA is an accounting and tax firm located in Managua, Nicaragua. We have provided tax, accounting and payroll services to businesses both nationally and internationally. If you would like to know more about how we can help your business be ready for an audit, feel free to CONTACT us.