Nicaragua: A Growing Hub in Central America
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.
Setting 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.
- 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.
Visit our website for more information about tax and accounting requirements in Nicaragua.
