Taxes

Tax Concertation Law (822), mainly aims to modernize and improve tax administration and simplify the payment of taxes, regulate the exemptions, reduce tax evasion and broaden the tax base.

Income Tax

The Income Tax (IR, for its acronym in Spanish) is a direct and personal tax that is applied to income of Nicaraguan source obtained by tax payers, whether residents or not. Income is classified as follows:

• Work income
• Income from economic activities
• Capital income and earnings and loss of capital

The income tax is also applied to any increase in capital that is not justified and to income that is not explicitly exempt or exonerated by law.

Nicaragua's income tax aliquote for income from economic activities is 30 percent.

The Tax Concertation Law establishes that any person, natural o legal (even if foreign), that remains in the country for more than 180 days within a one year period, not necessarily in an uninterrupted period, will be subject to income tax and must pay as if that person were a Nicaraguan resident.

Starting in January 2013, the fiscal year will change from July 1st through June 30^th of the next year, to calendar year from January 1 through December 31^st of that same year.

Value Added Tax

The Value Added Tax (IVA, for its acronym in Spanish) is 15 percent of the value of a product or of an activity carried out. Article 111 of the Tax Concertation Law establishes a series of activities that are exempt from the IVA.

A new concept of the Tax Concertation Law is the auto-transfer of IVA. This applies when a service is provided or when benefit is obtained from the use of property by a natural resident person, or a natural or legal non-resident, that are not responsible tax collectors of IVA. In this case, the user who is paying must pay 15 percent of the amount of the service to the tax administration in the month that it takes place and may accredit this amount for the following month.

Selective Consumption Tax

The Selective Consumption Tax (ISC, for its acronym in Spanish) is an indirect tax that is applied to the transfer and import value of goods and merchandises in annexes I, II and III of the Tax Concertation Law. Exports are subject to 0 percent of ISC. Some products subject to ISC include alcoholic beverages, beer, cigars, cigarettes, sodas and sparkling water.

Stamp Tax

This tax applies to certain documents listed in article 240 of the Tax Concertation Law when they are issued in Nicaragua, or when issued in foreign countries, but take effect in Nicaragua. The person that receives the good or right is obligated to pay the tax. The Stamp Tax is applied according to the rates established in articles 240 and 241 of the Tax Concertation Law.

Real State Tax

The real estate tax (IBI, for its acronym in Spanish), which must be paid by December 31st every year, is applied to properties located within the boundaries of each municipality. Terrains, stable or permanent plantations and the fixed and permanent constructions or installations on them as defined in articles 599 and 600 of the Civil Code, are considered real estate (immovable objects, their parts, and the goods that are permanently fixed to the property).

The real estate tax payment is one percent over the base, which can be established in three ways:

• Land Registry Municipal Appraisal, in which the Land Registry of the Ministry of Treasury and Public Credit establishes norms of appraisal.
• The Municipal Self-Appraisal, which is declared by the tax payer based on the property’s description according to formats, value tables and municipal costs provided by the municipal Mayor’s Office. The land appraisal can also be outsourced by the Mayor’s Office to companies specialized in land and property appraisal.
• If the property value is estimated by the tax payer, the value is based on the book value or acquisition value of the property minus the accumulated depreciation; whichever is highest.

Municipal Tax on Incomes

The Tax Plan of the Municipality of Managua establishes the payment of a monthly tax equal to one percent of total gross income. This tax applies to any person or entity engaged in the sale of goods, industrial activity or the provision of services, whether the services are professional or not. Exports, state institutions, among others are exempted of paying this tax. Furthermore, this tax applies only to economic activities that take place within the municipality of Managua.

Customs Duties on Imports

Customs duties on imports (DAI, for its acronym in Spanish) taxes are contained in the Central American Import Tariff and apply to the CIF value of goods imported from outside Central America. DAI taxes are applied ad valorem, that is, proportional to the value of the imported goods, whose average maximum rate is 10 percent. The DAI is governed according to the Convention on Central American Tariffs and Customs, its protocols, the relevant provisions of the treaties, agreements and international trade agreements and regional integration, as well as established under the World Trade Organization (WTO).