The Plurinational State of Bolivia operates a territorial tax system based on the principle of source; hence it taxes income generated by individuals and/or legal entities arising from goods and assets located or used economically within the Bolivian territory and from any activity carried out within the country, regardless of the nationality and/or residence of the parties involved or where the contracts have been entered into. Based on said principle of source, the Plurinational State of Bolivia imposes the corporate income tax (CIT) on legal entities incorporated in its territory, including subsidiaries and branches of foreign legal entities. The CIT is imposed under the Tax Law (Law 843, as amended and restated), its regulatory decrees and administrative resolutions issued by the Tax Administration.

Based on the source principle of taxation, Tax Law (Law 843, as amended and restated), imposes a 12.5 % [corporate income tax – beneficiaries abroad (CIT-BA)] withholding tax to non-residents (individuals and/or legal entities) benefiting from dividends, interests, rents, royalties, technical assistance and technical services payments from individuals and/or legal entities in the Plurinational State of Bolivia; hence, local individuals and/or legal entities, paying, remitting or crediting Bolivian sourced income to non-residents are bound to withhold and pay the CIT-BA on behalf of the non-resident beneficiary as a withholding agent or substitute.

The Plurinational State of Bolivia has a limited double-tax treaty network that may reduce or eliminate the 12.5% withholding tax rate on such types of income, specifically regarding services provided. The Plurinational State of Bolivia is not a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

In addition, departmental and municipal governments (local territory level) impose tax on windfalls, real estate and vehicles. The rate for these taxes is set forth in departmental and municipal ordinances adopted by each local municipality on an annual basis.

Likewise, there is an excise tax that is applicable to the sale or definitive importation of certain luxury goods: cigarettes, vehicles, alcoholic drinks among others. There are no departmental or municipal taxes levied on income.

Definitive importations are also subject to customs duties at rates ranging from 0% to 40%, depending on the good’s categorization. Customs duties are calculated over the “transaction value” of the merchandise valued pursuant to current customs regulations, in addition to transportation and insurance costs.

In this chapter

• Legal system
• Taxation authorities
• Business vehicles
• Financing a corporate subsidiary
• Corporate income tax
• Cross-border payments
• Payroll taxes
• Indirect taxes

Legal system

The Plurinational State of Bolivia and its Departments operate under a civil law legal system based on the Civil and Commercial Codes. From a tax perspective, the Bolivian legal system enables the national jurisdiction to issue certain taxes that are of its exclusive domain and allows departmental governments and  municipalities to create others within their jurisdictions as long as they create taxes with different taxable events.

Taxation authorities

The National tax system in the Plurinational State of Bolivia is administered by the National Tax Service (NTS) that is in charge of national taxes. Departmental governments and municipalities are in charge of departmental and municipal taxes. 

Business vehicles

A non-resident may either establish a Bolivian business vehicle to carry on business in the Plurinational State of Bolivia or operate directly through a foreign entity depending on the frequency of the activities to be carried out. If a legal entity wishes to operate in the Plurinational State of Bolivia on an habitual basis, it is mandatory to incorporate a business vehicle by adopting any of the existing corporate vehicles set forth in the Commercial Code.   

Corporation

The Bolivian Commercial Code enables the incorporation of limited liability companies and unlimited liability companies. Limited liability entities (sociedades de responsabilidad limitada and sociedades anónimas) are the most common vehicles to perform commercial activities in the Plurinational State of Bolivia, as they allow the limited liability of their partners and/or shareholders.

The place where a company incorporates does not impact its income tax liability. Some tax incentives have been issued (exemption of import tariffs and VAT on certain machinery, transaction tax and CIT exemptions in case certain conditions are met) when incorporating manufacturing investments in certain jurisdictions such as Oruro and Potosí.  The establishment of a corporation requires that the incorporation capital be paid and the amount depends on the activity that the company will perform and its specific regulations (telecommunication, financial, insurance, etc.)

Partnerships

There are three main types of partnerships in the Plurinational State of Bolivia:

i. General partnerships (sociedad colectiva), which are private entities with a legal personality and unlimited joint liability.

ii. Simple limited partnerships (sociedad en comandita simple), which have a legal personality and are comprised of two types of partners: general partners with unlimited liability, and limited partners whose liability is limited by the amount they have contributed to the legal entity.

iii. Limited shareholders partnerships (sociedad comanditaria por acciones), which have a legal personality and are comprised of two types of partners: general partners with unlimited liability, and limited partners whose liability is limited by their contributed amount. Limited partnerships shall be governed by the rules specifically applicable to this type of company and, to the extent not provided for, by the provisions for limited liabilities companies (sociedades anónimas).

Foreign corporations (with or without a Bolivian branch)

A foreign corporation that carries on habitual business in the Plurinational State of Bolivia is subject to tax under the Tax Law (Law 843, as amended and restated), its regulatory decrees and the Tax Code (Law 2492) in respect of such income. The determination of whether a corporation is carrying on business in the Plurinational State of Bolivia is generally made in accordance with commercial and civil laws. In that regard, foreign entities may only carry out isolated commercial activities in the Bolivian territory without having to incorporate in the form of a branch and/or subsidiary.  There is no statutory provision in the law defining what “habitual” and/or “isolated” commercial activities are.  Also, Bolivia has neither developed the concept of what should be construed as a permanent establishment (PE) under domestic tax law nor has it issued specific local regulations on the matter.  In that regard, the concept of PE acquires significance only in the presence of a tax treaty.

Based on the principle of “source,” the Plurinational State of Bolivia considers as taxable only that income which is generated in the country.  Consequently, according to said general tax legislation and following the source rules therein adopted, the payment of Bolivian sourced income made to a foreign beneficiary is subject to a withholding tax in the percentage of 12.5% over the amount effectively paid, remitted or credited (dividends, interests, royalties, technical assistance, services in general, etc.).

Net profits obtained by branches of foreign entities are presumed to be distributed to their parent companies at the annual filing due date of the CIT (120 days after the end of the fiscal year); hence, the branch needs to withhold and pay the CIT-BE on such deemed distributed income.

Financing a corporate subsidiary

Equity financing

Contributions for shares

Where an equity investment is made into a Bolivian corporation in exchange for shares, the amount of the investment is added to the corporation’s “stated capital” account. Subject to certain adjustments, a corporation’s stated capital is generally the same as its paid-up capital for tax purposes.

Contributions without taking additional shares

Where an equity contribution is made by a shareholder to a Bolivian corporation without the issuance of additional shares, the amount is added to the “contributed surplus” account of the corporation and not stated capital. However, eventually, said contribution needs to either be capitalized (in exchange of shares) or returned to the shareholder.  

Distributions of paid-up capital

A corporation is permitted to make distributions of its paid-up capital to a non-resident shareholder without incurring Bolivian withholding tax.

Debt financing

General

As a general rule all costs and expenses are deductible provided that they are related and necessary to the income producing activity of the company (necessary expenses incurred to obtain and maintain the source of income). Any costs or expenses related to Excluded and/or Exempted Items of Income are not deductible. 

Interest expenses are generally deductible for income tax purposes to the extent that the acquired debt (principal amount) is invested in the taxpayer’s main business activity and as long as they do not exceed the permitted rates.

Withholding tax implications

As a general rule, payments performed pursuant to foreign debt agreements and cross-border leasing agreements are subject to a 12.5% effective withholding for income and remittance taxes on the interest portion.

Thin capitalization

Interest paid by a company with respect to loans granted by its owners and/or partners may not be deducted to the extent that such interest exceeds (i) for operations carried out with entities domiciled abroad, the rate of LIBOR plus three percent (LIBOR + 3%) and (ii) for local operations, the local bank rate published by the Bolivian Central Bank.

Also, interest paid to owners and/or partners of a company that may be deducted may not exceed thirty percent (30%) of the totality of interests paid by the company to unrelated parties in the same fiscal year.

Stamp tax

The Plurinational State of Bolivia does not impose a stamp tax in respect of debt or equity financing.

Corporate income tax

Income tax rate

The general statutory corporate income tax rate for Bolivian entities including Bolivian branches of foreign companies is 25%.  

An additional rate of corporate income tax of 12.5% is applied on mining operations resulting from favorable prices in minerals and metals (on exploitation activities).  Also, an additional 7.5% is applied if the mining company carries out manufacturing activities with raw minerals and value is added.

Banking and Financial institutions (except for development banks) and insurance/reinsurance companies with a return on equity index higher than 6% must pay an additional income tax of 25%. This additional income tax may neither be offset with the transactions tax (IT, by its acronym in Spanish), nor may it be considered a deductible expense for purposes of the corporate income tax.

A tax on gross income (transaction tax) taxes gross income arising from the performance of any economic or commercial activity (including non-profitable activities) at a rate of 3% on a monthly basis. Some exceptions may apply on the sale of investments) and the sale of minerals, oil, and gas within the local market, as long as such sales will ultimately be exported.  The CIT paid at the end of a fiscal year may be credited against future IT taxes to be paid in the following fiscal year.

Computation of taxable income

Taxable base

The taxable base is obtained at the end of a fiscal year after deducting from the gross income obtained every necessary expense incurred by a company (necessary expenses incurred to obtain and maintain the source and to preserve its source).

Deductions

As a general rule, all costs and expenses are deductible provided that they are related to the income producing activity. Any costs or expenses related to Excluded and/or Exempted Items of Income are not deductible. Some costs and expenses are limited or forbidden, depending on the facts and circumstances of each case, e.g., related party charges (interests), commissions, among others.

Income tax reporting and payment

For any given taxable year, the corresponding income tax return and tax liability must be filed and paid within 120 days following the closing of the fiscal year. The closing of the fiscal year varies depending on the commercial activity carried out, as detailed below.

Cross-border payments

Transfer pricing

Commercial and/or financial transactions between related parties must be carried out as if they were agreed between independent parties. Local companies related to foreign companies need to draft their accounting records and financial statements separately in order to be able to determine any taxable net income of Bolivian source.

The Plurinational State of Bolivia has issued Transfer Pricing rules by means of Law 549, dated July 21, 2014.  In order to regulate the above-mentioned law, Supreme Decree No. 2227 was issued on December 31, 2014.  Specific administrative regulations are being developed by the Tax Administration in order to norm the previous regulations and therefore specifically determine the taxpayer’s obligations with regards to the regulations enacted.

The law basically sets forth that in order to readjust or revalue a transaction’s value between related parties, any of the following methods could be used:

i. Comparable Uncontrolled Price Method
ii. Resale Price Method
iii. Cost Plus Method 
iv. Profit Split Method
v. Transactional Net Margin Method
vi. Publicly quoted Prices in Transparent Markets Method.

In case it is not possible to determine the value of the transaction using any of the previous methods, a different method may be applicable pursuant to the nature and economic reality of the operation.  Transfer pricing rules are not applicable to related entities domiciled in the Plurinational State of Bolivia.
Withholding tax on passive income

When Bolivian sourced income is paid, credited or remitted abroad to a beneficiary that is a non-resident alien individual or legal entity, the payment (interests, rents, royalties, dividends) should be subject to the CIT-BE tax at a rate of 12.5%.  The withholding may not apply or may be reduced under applicable double tax treaties.

Withholding tax on services fees 

Whether rendered in the Plurinational State of Bolivia or abroad by a non-resident, services fees (regardless of their nature) are subject to a 12.5% withholding tax. The withholding may not apply or may be reduced under applicable double tax treaties.

Tax treaties

The Plurinational State of Bolivia has entered and ratified the following tax treaties to avoid double taxation:

1. Andean Pact Countries, Directive 578
2. Republic of Argentina (October 30, 1976)
3. Federal Republic of Germany (September 30, 1992)
4. Kingdom of Sweden (January 14, 1994)
5. United Kingdom of Great Britain and Northern Ireland (November 3, 1994)
6. Republic of France (December 15, 1994)
7. Kingdom of Spain (May 30, 1997). 

Multilateral Instrument

The Plurinational State of Bolivia is not a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).  Rather, it relies on the limitation on benefits provisions in its existing income tax treaties and the provisions of its domestic law to implement the Base Erosion and Profit Shifting standards.

Payroll taxes

Retirement contributions

The contribution to private funds made by an employee is equal to at least 12.71% of the employee’s wages. Employers are responsible for withholding such contributions from the employee’s wages.  Depending on the employee´s salary, he/she may need to make further contributions ranging from 1% to 10% of his/her salary.

Health contributions

The employee must be affiliated to any Health Administering Entity (HAE) approved by the National Health System. Contributions to the HAE by the employer are equal to 10% of the employee’s wages.

Payroll withholding tax

Employers should withhold an amount equal to 13% of the amount paid as salary to each employee, unless he/she is able to offset said tax with all the VAT credit resulting from goods and services obtained. 

Other contributions

The employer must also fund amounts equal to 1.71% of the worker’s salary for a professional risk insurance of the employee, 2% corresponding to the Social Housing Plan and 3% pursuant to a solidary contribution. 

Indirect taxes

Value-added tax (VAT)

Activities performed in the Plurinational State of Bolivia such as sale, lease or definite importation of movable tangible property are considered as taxable transactions. As a general rule, the taxable base is the price or value of the consideration paid for the goods and/or the services rendered. The VAT general rate is 13%.  As the tax is included in the final price, the effective tax rate amounts to 14.94%.

As a general rule, VAT tax credits may offset VAT tax debits provided that they constitute a cost or expense of the taxpayer’s income producing activity, hence related to its core business. 

There is a VAT reimbursement regime for individuals with average monthly income up to BOB 9,000. The amount to be reimbursed is 5% of purchase goods included in fiscal invoices. In order to access this regime, individuals must register before the tax authorities.

Selected VAT incentives

The temporary importation of goods is not subject to import VAT.  Among others, the following transactions are VAT exempt: interests generated from banking operations; transfers of shares, debentures and other securities; transfers of goods resulting in a securitization process; assignment of banking, insurance and pension fund portfolios; cultural activities rendered by Bolivian artists.  Several incentives exist for tourism activities in the country and for the importation of capital goods and industrial plants in the agricultural, industrial, construction and mining sectors.

Proposed extension of VAT to digital services

The Bolivian Legislative Branch has initiated discussions on a Bill (Bill of amendments on Law No. 843) intended to impose a 13% VAT on digital services from foreign service providers, including on: the purchase and sale of goods; downloads; the supply of software and data storage; streaming of music, videos, video games, photos, magazines, and data; and advertising.

Other taxes

Tax on windfalls

The beneficiary of a windfall is taxed at a rate that ranges from 1% to 20% (depending on the beneficiary’s relationship with the donor) applicable on value of the goods transferred.

Financial transactions tax 

This tax is a national level tax. It was created to tax any credit or debit in the taxpayers account in foreign currency and it is withheld by Bolivian banks (and other savings institutions). It is applied over funds that are either withdrawn or transferred from checking or savings account. The taxable base is the amount withdrawn or transferred. The tax rate is 0.30 per thousand.  There are very limited exemptions. Although the tax was created with a two-year term limit, Law 1135 (dated December 20, 2018) extended this term for another term (until the year 2023), beginning on January 1, 2019. A final extension was promulgated by Law No. 1546 (dated December 31, 2023) until December 31, 2028.

Tax on games

Taxes are imposed on gaming and gambling activities and commercial participations carried out by legal entities in general.  Those legal entities providing gaming and gambling activities or entertainment are taxed at a rate of 30% over the gross income obtained pursuant to the prices determined, minus VAT.  In addition, individuals participating in gaming activities or commercial participations are subject to the tax at the rate of 15% of the sale price (excluding VAT).

Complimentary regime on the VAT tax

The Plurinational State of Bolivia does not have a personal income tax as such, thus, it only taxes individuals when they are under a labor relationship and/or are carrying out independent commercial activities on a regular basis (lease of real estate and goods, serving as board directors, comptrollers, etc.).  The tax rate is 13%. 

Tax on fortunes

A tax on Great Fortunes was enacted in order to tax wealth of individuals including -enunciatively and not limited to- real estate, movable, goods, financial assets, rights, cash and any other material or intangible goods with an economic value.

Taxes paid on real estate and movable goods subject to registry and income paid by professionals may be compensated with the tax.

Selected Customs incentives

Customs tax and specific taxes on vehicles were lowered to 0% to promote the importation of hybrid vehicles that could employ additives originating from plants, as well as flex fuel, hybrid, rechargeable and electrical technology.