Sponsored Q&A: Dentons (Bolivia)

1. Can you provide an overview of the current tax laws and regulations in Bolivia?

Bolivia operates a territorial tax system based on the principle of source taxing income generated by individuals and/or legal entities arising from goods and assets located or used economically within its territory and from any activity carried out in the country, regardless of the nationality and/or residence of the parties involved or where the contracts were entered into.

A corporate income tax taxes entities incorporated or carrying businesses in its territory, including subsidiaries/branches of foreign entities. No personal income tax exists as such for individuals; thus, they are subject to a complementary tax on the value added tax on any income obtained as employees and/or as direct taxpayers.

The tax legislation has not experienced significant changes and has not evolved since its last major reform in 1986. For that matter, an integral reform is essential not only to amend existing flaws and inconsistencies in the norms, but to adapt them to new realities of industrialisation, technology, digitalisation and entrepreneurship.

2. What are the key tax obligations and requirements for businesses operating in Bolivia?
An individual and/or a legal entity that wishes to perform commercial operations in Bolivia on a habitual basis needs to obtain a tax identification number to comply with formal and material tax obligations. Monthly and annual tax returns need to be filed on different dates depending on the business’s purpose, activity, or sector (ie, industrial and oil and gas, agro-industrial, mining, and banking, insurance, services, etc). Businesses are subject to the VAT on any income resulting from imports, leases and sales made or services rendered, a transaction tax on any gross income obtained, a corporate income tax on any income obtained at the end of the fiscal year and the corporate income tax – beneficiaries abroad over any Bolivian sourced income paid, credited or remitted abroad.

3. Are there any recent or upcoming changes in tax legislation that could impact businesses or individuals in Bolivia?

Recent regulations include the creation of a tax on wealth issued in the year 2020 (tax on great fortunes). This tax not only taxes wealth accumulated in Bolivia, but it also taxes any wealth that may be kept abroad by a fiscal resident of Bolivia conflicting with the country’s source principle of taxation; residents of the country may be subject to the tax on any wealth they may have abroad.

A bill was discussed seeking to impose a VAT tax on digital services rendered by providers domiciled abroad, by either having them register as direct taxpayers or through withholding agents (banks and or financial institutions), opposing the existing source principle.

4. How does the tax system in Bolivia handle international taxation and cross-border transactions?
Bolivia has a limited double-tax treaty network and, as it is not part of the Organisation for Economic Co-operation and Development, it is not a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

Unless excluded by a tax treaty, payment of Bolivian sourced income to a beneficiary abroad is subject to the withholding tax. Bolivia has signed treaties with Argentina, Germany, Sweden, the United Kingdom, France, and Spain, and is part of the Andean Community.

Although treaties are deemed to be a source of tax law (pursuant to the Constitution and the tax code), authorities are not keen to apply them. The Tax Administration has gone as far as issuing specific regulations limiting their application in case taxpayers fail to comply with formal obligations with regards to the beneficiaries’ certificate of fiscal residence.

Transfer pricing regulations have been in effect since 2014 regulating the five methods plus the publicly quoted prices in transparent markets method. Although several assessments have been carried out in the country on this matter, only one judgment has been issued to this date.

5. What are the common tax incentives or exemptions available to businesses in Bolivia?
Temporary importation of goods is not subject to import IVA. Interests generated from banking operations, transfer of shares, debentures and other securities, securitisation process are VAT exempt, as well as the assignment of banking, insurance and pension fund portfolios and the importation of certain machinery. Several incentives exist for tourism activities in the country and for cultural activities rendered by Bolivian artists and some exemptions exist based on jurisdictions.

6. Are there any specific tax considerations for certain industries or sectors in Bolivia?
Mining, oil and gas and financial operations have specific tax considerations. An additional rate of corporate income tax is applied to mining operations resulting from favourable prices in minerals and metals; also, an additional percentage is applied if the mining company carries out manufacturing activities with raw minerals and value is added. Financial institutions and insurance/reinsurance companies with favourable returns must pay an additional income tax.

7. How does the tax dispute resolution process work in Bolivia, and what are the options available for taxpayers?
Taxpayers may file an administrative recourse before the administrative tax courts or a tax claim before judicial tax courts, both ending with a final judgment from the Supreme Tribunal. The election of the administrative or judicial courts may vary depending on the strategy and the merits of each case.

8. What strategies or best practices can businesses employ to optimise their tax planning and minimise tax liabilities in Bolivia?

It is encouraged to follow tax compliance guidelines based on prior tax assessments carried out by tax authorities, existing and applicable jurisprudence issued by administrative/judicial courts and their internal and/or external auditor’s experience. In case of doubt, it is advisable to create and keep defence files (which could be supported by formal tax consultations filed) as support in case assessments are notified in the future.

9. Are there any compliance issues or challenges that businesses often face when dealing with tax matters in Bolivia?

Assessments usually question tax credits as there is a system in place to offset VAT tax credits with tax debits, and those deductions registered as part of the business permitted when they are intrinsically related to the core of the business. Tax norms regulating the previous are quite broad, thus auditors reach discretional conclusions when determining what could or could not be credited or deducted based on their own interpretation.

10. Can you provide examples of successful tax cases or projects you have handled for clients in Bolivia?

Advice was rendered in two of the most important M&A deals in the mining sector which included cross-border advice involving at least three different jurisdictions, complex contractual structures to finance the purchase of the assets and specific and complex advice on Bolivian law as to the requisites to complete the sale, being the tax advice central in achieving tax-efficient structures to avoid any possible negative assessments in the future.