Business in Nicaragua- The Most Important Changes in the Recent Tax Reform.

Jul 8, 2015 | English Blog

In recent years, the country´s the government has been committed to improving Taxation in Nicaragua and attempting to follow the legislative model used by some of the other countries in the region. Starting January 1st, 2013, a new tax law (Law Nº. 822, Tax Concertation Law) came into force in and completely changed the taxation system in Nicaragua. Two years later a new law was issued by the National Assembly containing more than 80 amendments, additions and repeals (Law Nº 891) which came into force December 18th, 2014. 

Here you can find a list of the most relevant changes and additions:

Income Tax

  • Income Tax levies all unjustified increases in the Tax Payer´s patrimony. Now Law 891 establishes that all income received by the taxpayer that cannot be classified or justified as income, extraordinary gains, capital contributions, loans etc. will be subject to taxation if documentation that proves the origin of the money is not provided.
  • Branches of nonresident companies in the maritime or aerial transport business, whether it is merchandise transport, cargo transport or international transport of passengers, will not be considered to have a permanent establishment in Nicaragua and therefore will be taxed as non residents.
  • The trustee and the fiduciary are now considered taxpayers in a Trust legal figure.
  • Nonresidents working outside of Nicaragua and paid by Nicaraguan Residents (or permanent establishments of nonresidents), will be subject to taxation.
  • Disposals or transfers of securities or rights are considered a Capital Income or Capital Gain.
  • According to article 23 of Law Nº. 822, the Income Tax Rate for Economic Activities was to be held at 30%, and was to decrease by 1 percent every year until arriving at 25%. Starting in 2016 however Law Nº 891 repealed this disposition and now the Tax Rate will be fixed at 30%. The before mentioned benefit was going to benefit companies and employees alike but was repealed for both.
  • The WTH tax rate decreased from 20% to 15% for nonresident workers.
  • It is established that all non-profit organization’s income will be exempt from taxation as long as that income derives from the activities the organization was created to perform.
  • Cooperatives will be subject to Income tax for all income over the amount of C$ 40,000.000.00.
  • Revaluated assets are no longer subject to depreciation.
  • The balance in favor of the tax credit from the exports benefit (one point five percent (1.5%) that is left after paying the annual Income Tax will not be reimbursed.
  • In Kind contributions are subject to Capital Gains tax.
  • Nonresidents Capital Income is now subject to a 15% WTH tax.

Value Added Tax

  • Auto Transfer of VAT was repealed.
  • Oxygen for clinical or hospital use as well as chemical reagents for clinical or hospital use are exempt from VAT.
  • Machinery, equipment, irrigation equipment as well as accessories, spare parts and tires used in agricultural production are exempt from VAT.
  • Solar panels and deep cycle solar batteries used for power generation as well as renewable source lamps and thrifty power plugs are now exempt from VAT.
  • Domestic production of: trousers, skirts, shirts, shorts, socks, shoes, slippers, rubber boots and leather military-style boots for the field, blouses, dresses, pants, bras, vests, bras, cloth diapers and clothing for children are now subject to VAT.
  • Banking and microfinance services are exempt from VAT.
  • Agriculture Services are now exempt from VAT.

It must be taken into consideration the fact that, the Tax legal System here in Nicaragua is an ever-changing one. We have seen 3 major Tax Reforms in the last 5 years, and that, by fact, tends to confuse people and companies alike. However, even though it tends to change constantly, we have seen great advances in the taxation system, and most importantly, the Government has made tremendous efforts to keep all of the current benefits and ta