Living There

Taxation Researcher | March 18, 2019

INDIVIDUAL TAXATION

Nicaragua luxury houses

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

The tax period for individuals in Nicaragua begins on 01 July of the current year and ends in 30 June the following year. The tax year 2019-2020 is from 01 July 2019 to 30 June 2020. The tax year 2020-2021 is from 01 July 2020 to 30 June 2021.

Taxpayers may request prior approval from the tax authorities to adopt as their tax period one of the following: 01 April to 31 March, 01 October to 30 September, or 01 January to 31 December.

INCOME TAX (Impuesto Sobre La Renta)

Taxable income includes (1) employment income, (2) trade and business income, (3) earnings from immovable and movable properties, and (4) other income. Income tax is levied on a progressive scale with a maximum rate of 30%.

INCOME TAX ON OTHER INCOME

TAX BASE, NIO (US$) TAX RATE
Up 100,000 (US$3,509) 10%
100,000 - 200,000 (US$7,018) 15% on band over US$3,509
200,000 - 350,000 (US$12,281) 20% on band over US$7,018
350,000 - 500,000 (US$17,544) 25% on band over US$12,281
Over 500,000 (US$17,544) 30% on all income over US$17,544

INCOME TAX ON EMPLOYMENT INCOME

TAX BASE, NIO (US$) TAX RATE
Up 100,000 (US$3,509) 10%
100,000 - 200,000 (US$7,018) 15% on band over US$3,509
200,000 - 350,000 (US$12,281) 20% on band over US$7,018
350,000 - 500,000 (US$17,544) 25% on band over US$12,281
Over 500,000 (US$17,544) 30% on all income over US$17,544

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.

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RENTAL INCOME
Rental income earned by residents is taxed at the ordinary income tax rates. The tax base is 70% of the gross rent. Consequently, only 30% of the gross rent can be deducted to account for income-generating expenses.

For rental income earned from real property on which no buildings have been erected, the tax base is 80% of the gross rent (only 20% of the gross rent can be deducted).

CAPITAL GAINS
Capital gains earned through selling real estate properties in Nicaragua are taxed at a flat rate of 10%.


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.

In Managua, property tax is levied on the 80% of the cadastral value minus the fixed amount of NIO40,000 (US$1,404).

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 NIO3,038,625 (US$106,618).

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.

CORPORATE TAXATION

INCOME TAX

Income earned by companies is subject to corporate income tax at a flat rate of 30%. Income-generating expenses are deductible when calculating taxable income.

CAPITAL GAINS TAX

Capital gains realized by companies are subject to capital gains tax at a flat rate of 10%.

RESIDENCY

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. An individual applying for residency must satisfy the following qualifications:

  1. an investor with at least US$40,000 of property; or
  2. a demonstrated monthly income of at least US$500 per 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.

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.

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