CHANGE IN VAT COLLECTION FOR NEW AND USED VEHICLES AS OF JUNE 2023
On June 28, 2023, Decree No. 44070-H was published in Official Gazette No. 116, Amendment No. 122. This decree repeals Consideration X and Articles 11, 12, and 13 of Executive Decree No. 32458-H from June 6, 2005, and eliminates the special methodology for VAT collection in the commercialization and importation of new and used vehicles.
Similar to what happened with other goods such as imported beer, carbonated beverages, refrigerators, washing machines, used stoves, incandescent and fluorescent lighting products, imported used vehicle spare parts and accessories, plywood, iron for roofing, and iron rods, the commercialization and importation of new and used vehicles have now also been included in that list. There has been a transition from a single-phase system of VAT collection, determination, and settlement at the factory or customs level to the traditional VAT system, where a tax credit is recognized for purchases and a tax debit for sales.
With the partial repeal of the aforementioned decree, all importers of new or used vehicles will pay VAT under the traditional system. In this system, the tax is paid at customs based on the cost without the presumed margin that was previously applied. In principle, this payment should be considered as a credit that can be applied to the VAT tax debit generated with the sales invoice of the vehicle to the final customer at the 13% rate. Under this new procedure, the agency or importer of the new or used vehicle would calculate the value-added tax (real profit margin) that was effectively applied in the sales operation, without using the presumed profit margin that was previously applied.
The Association of Vehicle and Machinery Importers (Aivema)
At the beginning of July 2023, the Association of Vehicle and Machinery Importers (Aivema) pointed out that the sector has not yet begun to apply the changes with the publication of the decree, as it believes that there is an error in it. The document indicates that its entry into force was from June 1, but it was published on June 28.
In any case, according to the provisions established in articles 18 of the Political Constitution, 1 of the Civil Code, and 239-242 of the General Law of Public Administration, specifically article 9 of the Code of Tax Rules and Procedures, regulations, and other general administrative provisions must be applied from the date of their publication in the Official Gazette or from the subsequent date indicated therein.
However, the published Decree makes no reference to what is established in paragraph 3 of Article 9 of the VAT Law and point 3 of Article 12 of the Regulation of that same law, which expressly indicates that transfers of real and registered movable property subject to transfer tax are not subject to VAT. Therefore, any sale of a new or used vehicle after its importation, where the transfer tax must be paid, should not be subject to the 13% VAT charge. With this in mind, it remains uncertain whether importing agencies of new or used vehicles can credit the VAT paid at customs if, at the time of selling the vehicle to the final customer, they cannot charge VAT due to the corresponding transfer tax payment.