El Salvador: Revenue tax prepayment

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Africa tax in brief - Lexology

Advance payment can be understood as: “… the payment before the occurrence of the generation event, which represents the future and uncertain event on which the legal force of the obligation depends” (Giulani Fonrouge and Susana Navarrine in “Procedimiento Tributario”, Editorial de Palma, page 159 ).

In this way, the legislature grants the advance payments of income tax, taking into account the fact that it would be impractical for the taxpayer to pay the full amount of tax due during the year to the appropriate authorities, since the income tax is due annually for the entire financial year in a single payment ; Thanks to the prepayment method, the taxpayer has the right to include this payment in his tax return for the year and to credit it to the material obligation resulting from the liquidation carried out.

Under our tax law, every income taxpayer is subject to two types of prepayment. Firstly, the withholding tax system and, secondly, the payment or advance payment system, both of which are intended to result in an advance payment of income tax.

The application of these prepayment modalities to any given income is strictly and not at our discretion. In other words, these payments must not be applied to the same income at the same time in order to avoid duplication of prepayments. The application of the aforementioned advance payment systems is not left to the debtor’s preference, but depends on the circumstances of the economic events that lead to the implementation of one or the other system. In this context, these systems are applied as follows:

The withholding tax system is applied where the law expressly provides for it. An example of this modality would be that in Art. 156 of the Tax Code, which prescribes withholding tax for services provided by a natural person who does not have an employment relationship, for which 10% of the withholding tax must be levied. The operations that are subject to this modality are regulated in Art. 155 to 160 of the Tax Code and Art. 64, 72 to 74-A of the Income Tax Act.

The payment or advance payment system is a method of advance payment of annual income tax, as regulated in the first clause of Art. 73 of the Tax Code; However, the final self-assessment of income tax, to which the payment on account relates, takes place at the end of the established tax year within the legally established deadline, requirements, basis and form of determination. In the event of such final liquidation, the appropriate adjustments must be made for payments of more or less payments on account according to the tax due at the end of the year. The above is based on the provisions of the second clause of the aforementioned Art. 73; This obligation falls through the exclusion of income that does not need to be withheld at source. On the other hand, Art. 151 defines as excluded from the system of prepayment or payment on account those who are exclusively engaged in agricultural activities and animal husbandry.

In summary, with regard to the application of one of the systems described above, we must observe the legal parameters set out in the Tax Code, since, as already mentioned, their application is not at our discretion.