On June 23, 2022, the Inter-institutional Agreement MHCP-MITRAB-SIBOIF No. 01-2022 “Regulations for the Constitution of Savings and/or Pension Funds established in the Tax Concertation Law and its Regulations”, (the “Normative”) was published in the Gazette, Official Newspaper of Nicaragua, Number 115, in order to establish the regulations that will govern the Savings and/or Pension Funds Commission, as well as the mechanisms for the approval, modification and/or denial of funds of savings and/or pensions, in the terms of article 19, numeral 6, of the Tax Concertation Law (TCL), in order to provide the savings and/or pension funds with an adequate legal framework for their development.
As you will remember, the Tax Concertation Law establishes in its article 19 numeral 6, that the benefits paid by savings and/or pensions funds other than those of social security, which have the approval of the competent authority, are exempt from the Income Tax of work income.
In this regard, article 15 numeral 6 of Decree No. 01-2013, Regulations to the Tax Concertation Law, establishes: “The benefits paid with savings and/or pensions funds are those that are received once the agreed conditions are fulfilled and approved by the Commission for Savings and/or Pension Funds.”
The Normative created the Savings and/or Pension Funds Commission (the “Commission”), which will be integrated by a regular member with its respective substitute from each of the following institutions:
1. Ministry of Finance and Public Credit (MHCP).
2. Superintendency of Banks and Other Financial Institutions (SIBOIF); and
3. Ministry of Labor (MITRAB).
The Normative establishes that Savings and/or Pension Funds have the following characteristics:
1. Be for the benefit of employees who work in institutions or companies, public or private;
2. Have a minimum of 20 employees affiliated to the fund;
3. Be made up of the contribution of the employees, and of the employer in case the latter so agrees;
4. Provide savings, credit or guarantee benefits, exclusively to its members.
The Fund´s approval request must be made in writing to the MHCP, who will forward said request to the Commission.
A Committee must be created made up of a representative of the employer and one of the employees chosen by agreement or consensus in order to establish controls and supervision of the use and management of the Savings and/or Pension Funds. In the event that there are one or more trade union organizations in the institution or public or private companies, the employees will be represented by a member of each of these organizations.
Something very important that the Normative establishes is that the Savings and/or Pension Funds cannot be invested in the economic activities of the employer.
However, although the beneficiaries of the Fund are the employees, the Regulations require that the applications for approval of said Fund be submitted by the interested employers, who must file all the requirements mentioned in article 10 of the Normative. These requirements refer mainly to the documentation of the company that employs the employees.
By provision of article 11 of the Normative, it is established that the Fund must contain at least:
1. Validity of the plan:
2. Forms of participation in the plan and conditions of permanence and retirement;
3. The system of contributions;
4. Applicable conditions to enjoy the benefits of the plan;
5. Resource investment rules, if applicable;
6. Constitution of the Administrative Board or Committee, form of election and operation in
7. Dissolution and liquidation procedure;
8. Other provisions.
The authorization granted by the Commission is valid for five years, and may be renewed at the request of a party for a shorter or equal period.
At Alvarado y Asociados, we are available to advise our clients in preparing or reviewing the operating regulations of the Savings and/or Pension Fund, as well as in the necessary support to obtain their approval by the Commission.