As a general principle, expenses may be deducted for CIT purposes as long as they are necessary to generate Bolivian-sourced income and are properly documented.
Apart from the above, the Bolivian Tax Code (BTC) has established minimum amounts (BOB 50,000) for which taxpayers must document their economic transactions through documents of payments recognised by the Bolivian financial system and regulated by the Autoridad de Supervisión del Sistema Financiero or ASFI (i.e. the bank regulator), including the possibility to document economic transactions through payments made via foreign financial institutions. Non-compliance with these requirements implies the lack of the possibility to compute input VAT and to deduct the associated expenses for CIT purposes.
Depreciation of fixed assets is permitted for CIT purposes if fixed assets contribute to generate taxable income. Depreciation must be calculated based on a straight-line method and considering useful lives included in the tax law. Fixed assets that are not included in the tax law must be depreciated under a straight-line method in accordance with their useful lives, and this needs to be communicated to the tax authorities within ten working days following the incorporation of the affected fixed assets.
Some of the assets included in the tax law are as follows:
|Asset||Useful life (years)||Depreciation rate (%)|
|Fixture and furniture||10||10.0|
|Equipment and facilities||8||12.5|
|Processing plants for the oil/gas industry||8||12.5|
|Ships and motorboats||10||10.0|
Intangible assets (including goodwill) with a true cost can be deductible for tax purposes within a five-year period as long as taxpayers have paid a price for their acquisition.
Taxpayers may choose to deduct start-up expenses within the first fiscal period or distribute proportionally their amortisation within a four-year period, commencing the first year of operation. Note that start-up expenses cannot exceed 10% of paid-in capital.
Interest paid to owners or shareholders is not deductible to the extent the interest rate exceeds the London Interbank Offered Rate (LIBOR) plus 3% in the case of foreign owners/shareholders and to the extent the interest rate exceeds the official interest rate on loans published by the Central Bank of Bolivia for national owners/shareholders. Interest deductible on shareholder loans may not exceed 30% of the total interest paid to third parties.
Allowances for bad debt provisions are permitted if determined as required by law, which establishes an average method based on uncollectable receivables of the last three years. Uncollectable receivables are defined by current legislation as those that come from trade receivables and either: (i) remain unpaid for more than one year and have been sued without obtaining a seizure or (ii) when the receivables do not justify being sued due to the quantity of the receivables, remain unpaid for more than three years.
Donations are not deductible unless made to non-profit organisations that are not subject to CIT. These donations are deductible up to a maximum of 10% of the donor’s net taxable profit.
Salaries, as well as associated compensations, paid to employees without the application of withholding taxes (WHTs) (i.e. RC-IVA) are not deductible.
Provisions for employees’ severance payments are deductible. Provisions of other bonuses (e.g. holiday, productivity bonuses) accrued on behalf of employees are tax deductible as long as they are paid prior to the annual CIT filing due date and the company demonstrates it has withheld taxes (if applicable).
Fines and penalties
Fines and penalties arising from late tax payments are not tax deductible (except interest and restatement by inflation associated with tax obligations).
Taxes effectively paid by the corporation as a direct taxpayer, other than CIT, are deductible for tax purposes. Any transaction tax (tax on gross income) that has been offset against CIT paid is not deductible for CIT purposes.
Taxes paid in the acquisition of fixed assets are not deductible. These taxes must be included in the cost of the asset and depreciated accordingly.
Other significant items
In broad terms, the following additional items are not deductible for tax purposes, according to current legislation:
- Owners’ or shareholders’ personal withdrawals and living expenses.
- Fees paid to individuals (i.e. acquisition of goods and services) for which no WHTs have been withheld.
- Amortisation of trademarks and other intangible assets, unless a price has been paid to acquire them.
- Provisions that are not specifically authorised by the tax law and regulations.
- Depreciation of fixed assets that include a revaluation reserve.
- Losses arising from illegal acts.
Net operating losses
Tax losses can be utilised over the following three fiscal years. New entrepreneurial productive projects with a minimum capital of BOB 1 million can utilise tax losses over the five fiscal years following the start-up of operations (including hydrocarbons and the mining sector).
Tax losses cannot be restated due to inflation in any case.
Bolivian legislation does not envisage carryback provision for tax losses.
Payments to foreign affiliates
Payments to foreign affiliates are subject to a 12.5% WHT with no restriction if the Bolivian company is remitting Bolivian-sourced income (e.g. interest on loans, provision of any kind of services, royalties).