Country Name: Nicaragua
Currency: Nicaraguan Córdoba (NIO)
Primary Tax Authority: Dirección General de Ingresos (DGI) – General Directorate of Revenue
Key Legislation:
- Income Tax Law (Ley de Concertación Tributaria)
- Value Added Tax Law (Ley del Impuesto al Valor Agregado – IVA)
- Corporate Tax Law
- Tax Code (Código Tributario)
Fiscal Authority Allocation
Centralized Fiscal System:
Nicaragua operates a centralized tax system, with the General Directorate of Revenue (DGI) responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), and value-added tax (VAT). Local governments collect property taxes and other minor fees, but the main tax revenues are managed centrally.
Corporate Income Tax (CIT)
Standard Rate: 30%
Nicaragua levies a corporate income tax rate of 30% on net taxable income for resident companies. Non-resident companies are taxed on Nicaraguan-sourced income.
Corporate Forms and Taxation:
- Corporation (Sociedad Anónima – SA): The most common corporate form for larger businesses, taxed at the standard 30% CIT rate.
- Limited Liability Company (Sociedad de Responsabilidad Limitada – SRL): Typically used by smaller businesses, also subject to the 30% CIT rate.
- Branches of Foreign Companies: Taxed at the same 30% CIT rate on Nicaraguan-sourced income.
Exemptions and Incentives:
- Free Trade Zones (Zonas Francas): Companies operating in free trade zones are exempt from CIT, VAT, and import duties, designed to promote exports and foreign investment.
- Tourism and Renewable Energy Incentives: Businesses in the tourism and renewable energy sectors may qualify for tax exemptions or reductions, encouraging investment in these key industries.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 15%
Nicaragua applies a VAT rate of 15% on most goods and services, including imports. VAT is levied on the sale of goods, the provision of services, and imports. Some basic goods and services, such as educational services, healthcare, and certain foodstuffs, are exempt.
Exemptions:
Basic food items, medicines, educational services, and healthcare services are exempt from VAT. Exports are zero-rated, allowing businesses to recover VAT on inputs related to their export activities.
Personal Income Tax (PIT)
Progressive Rates:
Nicaragua applies progressive personal income tax rates to both residents and non-residents earning Nicaraguan-sourced income:
- Up to NIO 100,000: 10%
- NIO 100,001 to NIO 200,000: 15%
- NIO 200,001 to NIO 350,000: 20%
- Above NIO 350,001: 30%
Dividends:
Dividends paid to residents and non-residents are subject to a 10% withholding tax.
Additional Mandatory Contributions
Social Security Contributions:
Employers and employees must contribute to Nicaragua’s social security system, which funds pensions, healthcare, and unemployment benefits.
- Employer Contribution: 19% of gross salary.
- Employee Contribution: 7% of gross salary.
Withholding Taxes
- Dividends: 10%
- Interest: 15%
- Royalties: 15%
Withholding tax rates may be reduced under Nicaragua’s double taxation agreements (DTAs).
Transfer Pricing Rules
Nicaragua follows OECD guidelines on transfer pricing. Related-party transactions must comply with the arm’s-length principle, and companies must maintain detailed documentation for cross-border related-party transactions.
Special Tax Regimes
- Free Trade Zones (Zonas Francas): Companies in Nicaragua’s free trade zones benefit from CIT, VAT, and import/export duty exemptions. These zones aim to promote foreign investment and export-oriented activities.
- Tourism and Renewable Energy: Companies in the tourism and renewable energy sectors are eligible for tax exemptions and incentives, such as exemptions from VAT and import duties for tourism-related goods and renewable energy equipment.
Other Taxes
- Real Estate Tax: Property taxes are levied by local municipalities and generally range from 1% to 1.5% of the property’s assessed value.
- Capital Gains Tax: Capital gains are taxed at the same CIT or PIT rates (up to 30%). However, capital gains from the sale of shares in Nicaraguan companies may be subject to special provisions.
- Excise Taxes: Excise duties are imposed on certain products, such as alcohol, tobacco, and fuel.
Double Taxation Agreements (DTAs)
Nicaragua has signed a limited number of double taxation agreements, primarily with countries in the region. These agreements help reduce withholding taxes on dividends, interest, and royalties, and prevent double taxation of cross-border income.
Local Taxes
Local governments in Nicaragua collect property taxes and certain municipal fees. However, most major taxes, including income tax and VAT, are administered by the central government through the General Directorate of Revenue (DGI).
Compliance and Reporting
Annual Filing:
Corporate tax returns must be filed by March 31st of the following year. Personal income tax returns are due by the same date. The tax year in Nicaragua follows the calendar year.
Penalties for Late Filing:
Penalties for non-compliance or late filing include interest and fines. Interest on unpaid taxes is generally charged at 1.5% per month, with additional penalties for significant delays.
Recent Developments
Tax Reform:
Nicaragua has implemented various tax reforms aimed at increasing tax compliance and promoting investment in key sectors like tourism and renewable energy. These reforms include the simplification of tax filing processes and enhanced measures to combat tax evasion.
Digital Services Tax:
Nicaragua is exploring the introduction of a digital services tax, which would apply to foreign companies providing digital services (such as streaming platforms and e-commerce businesses) to consumers in Nicaragua.
Increased Focus on Transfer Pricing:
Nicaragua has strengthened its transfer pricing regulations, requiring multinational companies operating in Nicaragua to maintain detailed documentation proving that their related-party transactions comply with the arm’s-length principle.
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