Nicaragua is a growing hub in Central America, attracting global investors with its strategic location and business-friendly government policies. However, to succeed in this market, companies need to have a deep understanding of the Tax and accounting requirements in Nicaragua.
For example, knowing the different corporate tax rates and credits available to foreign investors. This piece explains the significance of accounting and tax requirements in Nicaragua, providing essential insights for prospering in this evolving Central American nation.
How Do I Set Up a Company in Nicaragua?
To register a company in Nicaragua, businesses must follow these steps:
Drafting Act of Incorporation: Mandate the involvement of two shareholders possessing a minimum startup capital of C$10,000. It is imperative to designate a Nicaraguan resident legal representative. The final document necessitates certification by a Nicaraguan public notary.
Acquiring Accounting and Corporate Books: Secure the essential books required for company registration from local bookstores.
Submission of Act of Incorporation at VUI: Present the necessary documents at the Investment Service. The Commercial Registry processes the submission, demanding a payment equivalent to 1% of the company’s capital, capped at C$30,000.
Registration as a Trader and Accounting Bookkeeping: Following processing, register as a trader and the accounting books at the Commercial Registry via VUI.
Obtaining the Single Registration Document: This document, attained simultaneously with the previous step, encompasses the Municipal License, INSS License, and Tax Payer Registration. This process incurs a payment of 1% of the company’s capital.
Appointment of Legal Representation: Shareholders are required to designate a resident Nicaraguan legal representative. The powers of this representative can be limited by the Board of Directors. Ensuring the selection of a reliable individual is crucial.
Accounting and Taxation Requirements in Nicaragua: Key Local Tax Rates
Understanding accounting and taxation in Nicaragua is vital when entering this market. Here is a selection of key tax rates.
Income Tax: Residents are subject to income tax of between 0 – 30% depending on their taxable income. For instance, anyone earning between 350,000 – 500,000 Nicaraguan cordobas pays an income tax rate of 25%.
Corporate Tax: Corporate Income Tax (CIT) applies solely to income sourced within the country, charged at a flat rate. The rate is determined as the higher of either 30% of net taxable income (gross taxable income minus permitted deductions) or a fixed minimum tax ranging from 1% to 3% of the gross income earned in the fiscal year.
Value-added Tax: Nicaragua has a VAT tax of 15% on the sale of goods, services, and imports. Exports of goods and services are subject to a 0% rate.
Capital Gains Tax: Income generated from leasing both fixed and non-fixed assets are taxed at a rate of 12% and 10.5% WHT (Withholding Tax) respectively.
Property Tax: According to Executive Decree No. 3-95 of the Real Estate Tax, a tax rate of 1% is applied to 80% of the cadastral value of properties already registered or acquired by December 31 of each taxable year.
Social Security: An employee’s social security contribution (7.00%) is considered a deductible expense for income tax purposes.
Common Questions When Understanding Accounting and Taxation in Nicaragua
Based on our extensive experience, these are the common questions and concerns of our clients when seeking to understand accounting and taxation requirements in Nicaragua.
Law 822 has integrated a definition of ‘permanent establishment’ into Nicaragua’s income tax system. This term denotes a location where a non-resident taxpayer conducts all or part of their business, encompassing entities such as a management office, branch, agent, factory, workshop, or sites related to resource extraction like mines, oil wells, gas wells, and quarries.
Additionally, this definition covers construction or installation projects and supervisory activities lasting more than six months. It also includes consultancy services if they extend beyond six months within a year.
The General Revenue Directorate (DGI).
Nicaragua adheres to the IFRS Standards and the IFRS for SMEs Standard, as there is no specific accounting law in the country. The CCPN has mandated the use of both IFRS Standards and the IFRS for SMEs Standard as professional requirements in Nicaragua.
The CCPN, formed under the Law on the Practice of Public Accounting (Law No. 6, April 14, 1959), stands as Nicaragua’s sole legally recognized institution representing the accounting profession. Its members include both public accountants and authorized public accountants (CPAs).
Biz Latin Hub Can Manage Tax and Accounting Requirements in Nicaragua
At Biz Latin Hub, we offer a comprehensive range of market entry and back-office solutions in Latin America and the Caribbean.
We maintain a significant presence in the LATAM region, bolstered by robust partnerships that span the area. This extensive network equips us with many resources to facilitate international projects and expand into new markets across various countries.
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.