The Government of Nicaragua grants generous fiscal incentives to export-oriented sectors including free zones and other sectors such as tourism, mining, and forestry.
Tax Concertation Law (822)
The Tax Concertation Law provides numerous tax benefits to certain productive sectors of the economy in order to promote their growth and development. Waivers and exemptions granted by this law are without detriment to those granted by the legal provisions listed in the article 287.
Tax Benefits to Exporters
- 0% rate of Value Added Tax (IVA) to exports of domestically produced goods or services provides to clients abroad.
- Exports of goods are taxed at 0% of the Selective Consumption Tax (ISC).
- You can apply a tax credit to the advance payments or annual Income Tax with previous authorization of tax administration in an amount equal to 1.5% of FOB value of exports.
Tax Benefits to Agricultural Producers
- Article 127 presents a list of transfers that are exempt of transferring the Value Added Tax, some of them related to the agricultural sector.
- Additionally, article 274 provides exemption of Value Added Tax and Selective Consumption Tax, transfers of raw materials, intermediate goods, capital goods, spares, parts, and accessories for machinery and equipment to agricultural producers and micro, small, and medium industrial and fishing enterprises, through a tax list.
Tax Benefits to Forestry Sector
The Tax Concertation Law (822) extends to the year 2023 the benefits granted to the forestry sector by the Forestry Incentives Law (462).
- Plantations registered on the regulatory entity will be exempted of paying fifty percent (50%) of the Municipal Tax on Incomes (IMI) and fifty percent (50%) on profits arising from the exploitation.
- Areas where plantations are established and where forest management is done through a Forest Management Plan are exempted from Property Tax (IBI).
- Companies of any line of business that invest in forest plantations may deduct, as an expense, 50% of the amount invested for Income Tax purposes.
- Exemption from payment of duties and taxes on imports to companies of secondary and tertiary processing that import machinery, equipment and accessories to improve their technological level in the processing of wood, excluding sawmills.
Temporary Admissions Law (382)
The temporary admission regime is the tax system that allows the entry of goods into national customs territory and local purchases of the same without payment of any duties and taxes. Companies that export directly or indirectly are eligible for this scheme for at least 25% of total sales with an export value not less than US$ 50,000 annually.
Goods that can be covered under this regime are:
- Intermediate goods and raw materials such as inputs, semi-finished products, containers, packaging, any goods that enter the final export product, samples, models and patterns essential for the production and staff training.
- Capital goods directly involved in the production process, parts and accessories, such as machinery, equipment, parts, molds, dies and tools as a complement to such capital goods.
- Materials and equipment that form an integral and indispensable facility for the production process.
Industrial Free Zones for Export (917)
Nicaragua offers significant tax incentives under free zones regime for those companies interested in establishing export-oriented operations of Textiles and Clothing Industries, Manufacturing, Agribusiness and Contact Center & BPO:
- 100% exemption from payment of Income Tax (IR) during the first ten years of operation, with the possiblity of one more extension with previous authorization.
- Exemption from all taxes, customs duties, and consumption associated with the imports applicable to the introduction to the country of supplies, materials, equipment, machinery, dies, parts, or spare parts, samples, molds and accessories to enable the company for its operations within the regime. As well as taxes on equipment needed for installation and operation budget diners, health services, health care, child care, leisure, and any other goods that tend to satisfy workforce needs of the company that works in the company.
- Exemption from customs duties on transport equipment, which are commercial vehicles for passengers or services intended for normal use on a system. In the event of disposal of these vehicles to purchasers outside the area, customs duties will be charged, with discounts applied according to the time of use, similar to dispositions made by diplomatic missions and international organizations.
- Exemption of tax payment on sale of property in any manner, including the tax on capital gains, if any, provided that the company is closing its operations in the Area and the property continues to affect the regime of free zones.
- Full exemption from excise taxes, selective sales or consumption.
- Full exemption from municipal taxes.
- Full exemption from export taxes on products made within the regime.
Law on the Promotion of Renewable Electricity Generation from Renewable Sources (532)
The power generation projects from renewable sources have the following tax and tariff benefits under the Law 532, Law to Promote Electricity Generation from Renewable Sources. These taxes and tariff benefits cover new projects and carry out extensions to their installed capacity.
- Exemption from payment of import duties (DAI, for its acronym in Spanish) of machinery, equipment, materials, and supplies used exclusively for pre-investment work and of building works.
- Exemption from payment of Value Added Tax (VAT) on machinery, equipment, materials, and supplies used exclusively for the work of pre-investment and construction.
- Exemption from all existing municipal taxes on property, sales, fees for the construction of the Project for a period of 10 years from the commercial operation of the project, to be applied as follows: exemption of 75% in the first three years, of 50% over the next five years and 25% in the last two years. Fixed investment in machinery, equipment, and hydroelectric dams are exempt from all taxes, levies, municipal taxes for a period of 10 years from its entry into commercial operation.
- Exemption from all taxes that may exist for the exploitation of natural resources for a maximum period of 5 years after the start of operation. In the case of Hydroelectric Projects, it exempts the construction or operation of a project under Water Management Permit for a maximum of ten years.
- Exemption from Stamp Tax (ITF, for its acronym in Spanish) that may cause the construction, operation, or expansion of a project for a period of 10 years with the same tax exemptions.
Special Law on Exploration and Exploitation of Mines (387)
The activities related to exploration and exploitation of mineral resources are regulated in the Law 387and its Regulation Decree 11-2001.
Under this law, the holders of mining concessions are required to pay:
- Surface Rights, which is a progressive payment per hectare concession along the length of the mining concession.
- Right of extraction, set at three percent (3%) for all minerals, which is deductible from income tax applicable to the mining industry.
- In accordance with the Exploitation of Our Natural Wealth Law (316), grantees have the right, by prior compensation case, inside or outside the boundaries of the lands comprising the mining concession, provided that, they were not national lands, to obtain easements of surface necessary for carrying out the exploration or exploitation granted. The mining authority will support the concessionaire in the constitution of the easement, in cases where it is not possible to reach a direct agreement with the owner of the property.
- In accordance with the Law 316, when a licensee considers that for the development of the work for which a concession has been granted, or for the execution of works, the granted easement of private or municipal property or the necessary facilities or buildings are not enough, or proves uneconomical for payment of compensation he may require the expropriation of property to the State.
Given the importance of the mining sector for economic development, the State guarantees fiscal stability for the domestic and foreign investment related to mining activities, where the following benefits apply:
- Temporary Admission Regime, which, in accordance with Law 382 (Temporary Admission Regime to Improve Active Processing of Exports Law), allows the entry of goods into national customs territory, and the local purchase of goods or raw materials without paying any tax or fee, provided that the goods are re-exported or exonerated after being subjected to a process of transformation, processing, repair or other contemplated under applicable law.
- Under this law, if it is not possible to apply the previous suspension of duties and taxes for reasons of tax administration, the benefit will apply under subsequent refund procedure of the taxes paid.
- Exemption from taxes on the property of the company within the perimeter of the mining concession.
- Zero percent tax rate (0%) for exports, applicable to all exports in general.
Incentives for the Tourism Industry Law (306)
The Incentives for the Tourism Industry Law of Nicaragua offers various tax incentives for investment in this sector and it is considered the most generous and competitive in the region. This provides incentives and benefits for investment in accommodation, food and beverage, tour operators, tourist transportation, airlines, among others. The incentives are:
- Exemption from 80 to 100 percent of the income tax (IR) for a period of ten years.
- 100% exemption from property tax (IBI) for a period of ten years.
- 100% exemption from value added tax (VAT) applicable to design services, engineering and construction.
- 100% exemption of import tax and duty on the purchase of materials and fixtures of the building for a period of ten years.
In case of reinvestment, if at the end of the incentive regime for ten years, the investor decides to reinvest at least 35 percent of the value of the investment originally approved, they can receive all the benefits for ten additional years.
Pensioners and Retirees Law (694)
Nicaragua passed legislation to encourage retirees and pensioners to retire in the country. The Law of Resident Pensioners and Retirees provides benefits mostly in the form of tax incentives and allows retirees the following:
- Importing household goods up to a maximum of US$ 20,000 without paying tax.
- Import or buy a new car up to US$ 25,000 for personal use, exempt from import duties and sales. The imported used car should not be more than seven years old from its manufacture date.
- Importing a vehicle every 4 years with the same tax exemptions.
- Import and / or purchase of building materials up to US$ 50,000 tax free for the construction of a house.
- Exemption of sales tax (VAT) on cars hired for tourism.