Nicaragua: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Resident individuals are liable to tax on Nicaraguan-sourced income. Married couples are required to file separate income tax returns.

Income Tax (Impuesto Sobre La Renta)

Nicaragua’s tax law is based on the territorial concept. Income tax is levied on Nicaraguan-sourced income only. Income tax is levied on a progressive scale with a maximum of 30%.

There are no personal allowances that can be deducted from the gross income. No tax credits are also extended to residents earning foreign-sourced income and taxed on said income by foreign governments.

Rental Income

For rental income, 70% of the gross rent is taxable (consequently, only 30% of the gross rent can be deducted).

Capital Gains

Capital gains earned through selling real estate properties in Nicaragua are taxed at the ordinary income tax rates.

PROPERTY TAX

Immovable Property Tax(Impuesto de Bienes Inmuebles or Predial)

The property tax is levied at a flat rate of 1%. The tax base is 80% of the cadastral value of the property (land, buildings and permanent improvements), as assessed by the municipal cadastral office. The tax is paid to the local government (alcaldias municipals).

However, property taxes are less important in Nicaragua than elsewhere, due to a failure to establish an up-to-date national cadastre. Reportedly, many smaller municipalities do not even collect the tax, as has been their responsibility since 1992, owing to lack of knowledge or technical capacity. Also, additional problems arise in many areas as a result of the insecurity and confusion of land titles, which makes it difficult to know who is supposed to pay the tax. Thus, paying local taxes in Nicaragua has been described as a voluntary act.

Net Assets Tax (Pago Mínimo Definitivo del Impuesto Sobre la Renta)

All individuals and entities engaged in business are required to make a minimum income tax payment at the annual rate of 1% on the monthly average of total assets.

Taxpayers are not liable for the net assets tax during the first three years of their business activity. Subsequently, no tax is payable when the average balance of assets is less than or equal to US$150,000.

The net assets tax is declared in the income tax return. The income tax to be remitted is either the minimum income tax or the actual income tax liability, whichever is higher. If there is no income tax liability because of capital losses, the minimum income tax is still payable.

The Nicaraguan government is focusing on attracting foreign retirees to buy properties and then move to the country full-time for their retirement.

It is now very easy to become a permanent resident of Nicaragua, taking approximately one year. Qualifications:

1. an investor with at least US$40,000 of property; or
2. a demonstrated monthly income of at least US$500/month in the country of origin

Another attractive residency package scheme is Nicaragua’s Pensionado program. Foreign retirees are allowed to bring US$10,000 of household goods and other personal items duty-free on first arrival, and bring a vehicle into the country tax-free once every five years. Another perk is an exemption from income taxes on income generated abroad.

Foreign investors under the Foreign Investment Law 344, may (but are not required) to register investments and negotiate a foreign investment agreement with the Ministry of Economy and Development. This guarantees the investor repatriation of foreign capital, remittance abroad of the net profits and effective compensation in the case of expropriation.

Nicaragua - more data and information

• Lawyers (attorneys) with property law practices in Nicaragua

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