Tax Reforms For Non-profit Organizations (NPOS): Notable Changes in Income Tax Management
Róger Pérez and Douglas Vásquez, our lawyers in Nicaragua, experts in taxes and tax planning, share with us this article about the scope of Law 1040, which contains reforms and repeals to Law 822 "Tax Concertation Law" (hereinafter "LCT”).), and its impact on Non-Profit Organizations (hereinafter "NPOs”).
As of Law 1040 (hereinafter "the Law”), published on August 22, 2024 and which came into force on that same day of it publication, the regulation that granted NPOs exemption from income taxes for income from economic activities, in particular, for NPOs dedicated to the following activities: i) churches, denominations, confessions and religious foundations that have legal personality; ii) Non-profit institutions of a nature: sports, artistic, scientific, educational, cultural, business unions, charitable and social assistance institutions; organized as: civil associations, foundations, federations, confederations and business chambers; all of them that have legal personality.
The tax exemption that existed before the Law allowed the NPOs described not to pay income taxes for the income obtained as part of their constituent purposes; In which case, when this tax exemption is eliminated, the income obtained from the sale of goods and provision of services carried out by NPOs is considered as income from economic activity subject to the payment of income tax.
Take note that there was no modification to article 39 paragraph 16 LCT, which allows national taxpayers to apply donations made to NPOs as deductible. In that sense, according to the current regulation, the deduction will be possible as long as the requirements found in article 29, paragraph 13 of the LCT Regulation are met: present certification of the publication of the granting of legal personality, updated certificate of compliance issued by the Ministry of the Interior and that the NPO issues a receipt for what it has received as a donation.
Law 1040 transforms the tax regime of NPOs, which will be new processes related to income tax declarations for economic activities. This will require adaptation of the NPOs and impact on their flow in the face of the repeal of the exemption from paying the IR in question.
If you require more information or advice on the topic addressed, or other topics of tax interest, please do not hesitate to contact us.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.
As of Law 1040 (hereinafter "the Law”), published on August 22, 2024 and which came into force on that same day of it publication, the regulation that granted NPOs exemption from income taxes for income from economic activities, in particular, for NPOs dedicated to the following activities: i) churches, denominations, confessions and religious foundations that have legal personality; ii) Non-profit institutions of a nature: sports, artistic, scientific, educational, cultural, business unions, charitable and social assistance institutions; organized as: civil associations, foundations, federations, confederations and business chambers; all of them that have legal personality.
The tax exemption that existed before the Law allowed the NPOs described not to pay income taxes for the income obtained as part of their constituent purposes; In which case, when this tax exemption is eliminated, the income obtained from the sale of goods and provision of services carried out by NPOs is considered as income from economic activity subject to the payment of income tax.
Take note that there was no modification to article 39 paragraph 16 LCT, which allows national taxpayers to apply donations made to NPOs as deductible. In that sense, according to the current regulation, the deduction will be possible as long as the requirements found in article 29, paragraph 13 of the LCT Regulation are met: present certification of the publication of the granting of legal personality, updated certificate of compliance issued by the Ministry of the Interior and that the NPO issues a receipt for what it has received as a donation.
Law 1040 transforms the tax regime of NPOs, which will be new processes related to income tax declarations for economic activities. This will require adaptation of the NPOs and impact on their flow in the face of the repeal of the exemption from paying the IR in question.
If you require more information or advice on the topic addressed, or other topics of tax interest, please do not hesitate to contact us.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.