This time we present the second installment of our edition of Laws that offer tax benefits in Nicaragua. Previously we mentioned the benefits offered by the Law on Conservation, Promotion and Sustainable Development of the Forestry Sector in addition to the Law on Tourist Incentives and on this occasion we make a brief explanation of the incentives offered on other legal provisions and laws from which we can all benefit.
- Tax Benefits in the Tax Concertation Law.
- For export:
As a general rule, the Tax Concertation Law (LCT) established that Value Added Tax (VAT) taxes all acts performed in the national territory, on the activities of:
- Disposal of goods;
- Importation of goods
- Export of goods and services; and
- Provision of services and use or enjoyment of goods.
However, as an incentive to promote exports and not to increase the price of exported products, it was established in article 109 of the Law that Exports of goods of domestic production or services rendered abroad would be applied a rate of 0% Value Tax Aggregate (VAT).
Similar to the VAT, with the Selective Consumption Tax, which is a tax levied on the alienation of goods, import of goods and export of specific goods, it was established that exports of goods are taxed with 0% of the Selective Consumption Tax (ISC).
In addition, the LCT established in its article 273 a tax credit that may be applied to advances or annual Income Tax with the previous approval of the tax administration in an amount equivalent to 1.5% of the FOB value of exports.
B. Agricultural producers
Article 127 of the LCT lists a number of disposals of goods exempt from the transfer of VAT, some of them related to the agricultural sector.
“Agricultural goods produced in the country, not subject to processing or packaging …”
“The alienation of insecticides, pesticides, fungicides, herbicides, defoliants, fertilizers, fertilizers, seeds and biotechnological products for agricultural or forestry use”
“Agricultural machinery and spare parts, agricultural tires and irrigation equipment”
The nature of this is not to increase the price of the product that ultimately the final consumer has to pay.
Additionally, art. 274 exempts from VAT and ISC the disposals of raw materials, intermediate goods, capital goods, spare parts and accessories for machinery and equipment to agricultural producers and micro, small and medium industrial and fishing companies, by means of specific lists.
2. Free Trade Export Processing Zones.
Nicaragua offers significant tax incentives under free zones regime for those companies interested in establishing export-oriented operations of Textiles and Apparel, Manufacturing and Agribusiness.
These benefits are also granted to all the activities related to the export to the export of international services listed under this regime such as Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO); Information Technology Outsourcing (ITO), among others.
100% exemption from Income Tax during the first 10 years of operation, and 60 percent from the 11th year onwards. This exemption does not include personal income taxes, wages, or salaries paid to Nicaraguan or foreign workers.
Exemption from taxes on transfers of real estate including earnings of capital tax, if any, whether the company closes its operations and the property continues to be part of the free zone regime.
Tax exemption from the set-up, transformation, fusion and reforming of The company, as well as on stamp duties.
Exemption from all taxes, customs and consumption duties related to imports of supplies, raw materials, equipment, machinery, dies, or spare parts, samples, molds and accessories designed to empower the company for its operations, as well as taxes applicable to the equipment needed for installation and operation of cost-effective dining halls, health services, health care, childcare, leisure, and any other benefits that tend to satisfy the needs of the personnel of the company.
Exemption from customs taxes on transport equipment, including vehicles used for cargo, passengers or service intended for normal use of the company.
In case of selling such vehicles to purchasers outside the Zone, customs taxes will be charged, with respective discounts applied due to the time of use, similar to those for diplomatic missions or international organism.
Full exemption from indirect, selective-sales or consumption taxes.
Full exemption from municipal taxes.
Full exemption from export taxes to products processed within the zone.
Exemption of all taxes on local purchases
For additional information, please contact Carlos Navarro at cnavarro@alvaradoyasociados.com.ni