The Regulation of Investment Companies in Nicaragua

Dec 1, 2015 | English Blog

Having our legislation reserved a space for forty-five years for a proper regulation of Investment Companies, since the adoption of the Special Law on Financial Companies, Investment and others, known as Decree 15-L of April 9, 1970, and various attempts along these years; today Nicaragua has a legal body that regulates such companies satisfactorily.

In this regard, the Investment Companies Act, Act No. 899, published in the Gazette No. 76 of April 27, two thousand fifteen aims to regulate the constitution, authorization, operation, supervision and liquidation of investment companies, these being specialized to conduct financial operations in order to promote the creation or expansion of companies and project financing for various productive activities, by capturing and channeling medium and long term internal and external resourc- es.

Such Act provides that the pooled resources be invested directly by acquiring shares or units; or indirectly, by providing credit for the reorganization, development, or corporate merger as well as in those projects that promotes the development of activities and key sectors such as energy, real estate, road infrastructure and municipal development.

The benefits of this law can be applied in different situations, from the potential execution of projects of great magnitude by the private sector, capitalization or expansion of companies, investment strategies that channels funding directly or indirectly to companies in order to maximize its value by generating management and professional advice for further disinvestment in the same with the aim of providing high capital gains to inves- tors; alternatives to access investors and structuring significant transactions, to redirecting financial resources to execute projects of social interest by the public sector.

Without any doubt, the creation of such investment companies will promote greater investment capital, bringing dynamism to
the economy, with the consequent benefit to the public interest and economic growth.

Regarding this Law, it is necessary to emphasize the following:

  • The company must be incorporated as a limited company.

  • The capital must be subscribed and paid in cash and shall not be less than C$800,000,000.00 (approximately US$ 29, 000,000.00).

  • Shareholders and founding directors of the company will be published on the Superintendence website; in case of legal entities, shareholders holding more than five percent of the issued share capital will be also published. The previous is to ensure that anyone can object their quality as shareholders or directors under the regulations of willful or negligent conduct, and impediments to be directors established by law.

  • The authorization to be constituted as Investment Company must be approved by the Superintendence prior to the constitution itself, since the number and date of the Official Gazette in which the resolution was published must be mentioned in the Public Deed.

  • Mergers, acquisitions of shares, capital reductions and reforms to the social pact, require the approval of the Superintendent.

  • Investment Companies legally established abroad may operate in the country through the establishment of a branch.

  • These Companies must apply a number of corporate governance policies to regu late the internal relations as well as the relations between the Company, the supervi sory entity and the public.

  • Companies must comply with regulations of internal and external audit specified in the Act. In this regard, the internal auditor shall be appointed by the General Meet ing of Shareholders and endorsed by the Superintendent of Banks and for external auditors the Company may only hired registered Firms the Register kept by the Superintendence, which must comply with the regulations, issued for this purpose.

    Such companies may perform the following operations:

  • Grant medium and long term financing for the development of investment projects in energy, real estate, road infrastructure, tourism, technological development, innovation, and municipal development, among others.

  • Obtain loans and credits from financial institutions, non-banking financial intermedi aries and foreign financial institutions.

  • Make investments in companies linked to the object of the law, provided its liability is limited to their participation.

  • Investing in the purchase and sale of securities, such as bonds, stocks, certificates of deposit.

  • Issue on their own, values aimed at attracting resources to fund operations through appropriate mechanisms and complying with the provisions of law.

  • Receive investor’s resources to be managed by the investment company either directly or through their placement in third through management contracts or trusts.

  • Act as trustee.

  • Grant loans for initial and basic studies of productive investment projects whose

    productive character is made in the country.

  • Other operations authorize by the Board, as long as the same are linked to the

    object of the law.

  • Investment funds created or managed by investment companies are taxable under

    Article 280 of Act. 822, Tax Concertation Law. Meaning, that Economic Activities Income is taxed by a tax rate of 5% on taxable gross income, 5% withholding on Capital gains generated by the sale of any asset or fund and exempt from income received and derived from certificates of participation issued by an investment fund.




    Furthermore, the Act provides as prohibited transactions:

  • Pool resources from the public through savings deposits.

  • Grant loans for an amount under Two Million Dollars or its equivalent in Cordobas.

  • Acquire property, except those intended for its own use of its offices or agencies, and those assets received as credit recovery, judicially or not.

  • Provide guarantee or assurance regarding obligations of a third party.

  • Participate in companies in which they have a limit of responsibility greater than its contribution.

  • Perform activities not provided by its articles of incorporation and the authorization resolution of approval.

    Finally, it is important to note that the companies are subject to the provisions of the General Law on Banks Non-Banking Financial Institutions and Financial Groups, Law No. 561, especially in regard to liquidation provisions, sanctions, capital, reserves and profits; and also Investment Companies will make cash contributions to the annual budget of the Superintendence up to 1.0 (one) per thousand active or equivalent parameter as determined by the Board of the Superin- tendence, proposed by the Superintendent, under the Law No. 316, law of the Superinten- dence of Banks and Other Financial Institutions, as amended.