Nicaragua

In Nicaragua, employers face various tax obligations, including social security contributions, payroll tax withholding, and other levies.

Employer Contributions

• Social Security:
  • Employers with 50 or fewer employees contribute 21.5% of each employee's gross salary.
  • Employers with more than 50 employees contribute 22.5% of each employee's gross salary.
• Training Fund (INATEC): Employers contribute 2% of their total payroll monthly.

Payroll Tax Withholding

• Income Tax: Employers must withhold income tax from employee salaries monthly according to a progressive scale ranging from 0% to 30%.
• Social Security: Employers also withhold 7% of the employee's gross salary for their social security contribution.

Value Added Tax (VAT)

• The standard VAT rate in Nicaragua is 15%.
• Large taxpayers must pay VAT within the first five calendar days of the following month.
• Other taxpayers must pay within the first 15 calendar days of the following month.

Other Employer Obligations

• 13th-month salary: Employers are required to pay employees an additional month's salary in December.
• Vacations: Employers must provide paid vacation time to employees as per Nicaraguan labor law.

Tax Year and Filing

• The tax year in Nicaragua is the calendar year.
• Corporate income tax returns must be filed within three months of the year-end.

Additional Considerations

• Foreign Workers: Work permits are required for foreign workers and must be linked to a specific sponsor and role.
• Minimum Wage: Minimum wage rates vary by sector and are reviewed annually.

It is crucial for employers to stay up-to-date with any changes in tax laws and regulations. Consulting with a tax professional is highly recommended to ensure compliance with all Nicaraguan tax obligations.

In Nicaragua, employers are responsible for withholding and remitting various taxes on behalf of their employees.

Employee Income Tax (IR)

Employees in Nicaragua are subject to a progressive income tax based on their annual earnings. No tax is due on annual income up to C$100,000. Income above that threshold is taxed at rates ranging from 15% to 30%. Employers withhold this tax monthly based on the employee's projected annual income.

• 0 - C$100,000: 0%
• C$100,000.01 - C$200,000: 15%
• C$200,000.01 - C$350,000: 20%
• C$350,000.01 - C$500,000: 25%
• Above C$500,000.01: 30%

Employee Social Security Tax (INSS)

Employees contribute 7% of their monthly salary to the Nicaraguan Social Security Institute (INSS). This contribution covers pensions, healthcare, and other social security benefits. The employer withholds this amount and remits it to INSS.

Other Deductions

While not strictly taxes, employers also typically deduct the following:

• 13th Salary: One-twelfth of the employee's annual salary is accrued each month and paid as a bonus, typically in December. While deducted monthly, it is not remitted to the government but held by the employer.
• Vacation Allowance: Similar to the 13th salary, vacation allowance is accrued and paid to the employee upon taking vacation leave.

Employer Taxes and Contributions

Employers in Nicaragua contribute to INSS at rates dependent upon the number of employees.

• Less than 50 Employees: 21.5% of each employee's gross salary.

• 50 or more Employees: 22.5% of each employee's gross salary.

Employers also contribute to the National Technological Institute (INATEC) based on employee salaries.

Tax Filing and Compliance

Employers are responsible for withholding employee taxes and social security contributions and remitting them to the appropriate authorities. They must also file various tax returns and declarations, including monthly and annual payroll tax returns.

Employee Tax Filing Responsibilities

Generally, employees are not required to file annual tax returns if their income is solely from employment and tax has been withheld correctly. However, an employee must file if they have:

• More than two employers and their total annual income exceeds C$100,000
• Utilized allowable tax deductions or are claiming tax credits

Important Considerations

• Minimum Wage: Nicaragua has industry-specific minimum wages, and employers must ensure compliance.
• Overtime: Overtime pay is regulated, with specific rates for work beyond standard hours and on weekends or holidays.

This information is current as of February 5, 2025, and may be subject to change. It is recommended to consult with a local tax advisor for the most up-to-date information and personalized guidance.

In Nicaragua, the Value Added Tax (IVA) is a consumption tax levied on most goods and services, imports, and business transactions within the country.

VAT Rates and Exemptions

• Standard Rate: 15% applies to most goods and services.
• Zero Rate (0%): Applies to exports.
• Exempt Goods and Services: A detailed list is maintained by the Ministry of Finance and includes goods related to academic studies, medicine and human health, certain agricultural products, medical services, financial markets, sporting events, religious goods, basic foodstuffs (e.g., corn tortillas, rice, beans), used goods (unless imported), crude oil, real estate transactions, life and health insurance, domestic transport, certain financial services, construction of social housing and leasing of unfurnished accommodation, equipment used for agriculture, irrigation, electricity used for irrigation, imports of goods, machinery and equipment for media use, books, newspapers and magazines, medicines and vaccines, locally produced sanitary products and toilet paper, matches, kerosene, butane, electricity, veterinary products, insecticides, fungicides, fertilizers, and seeds. The list is subject to change, as evidenced by updates in February 2023.

Registration

• Mandatory Registration: No specific registration threshold is defined in readily available resources. All businesses conducting sales, services, and imports within Nicaragua through a permanent establishment must register for VAT. Those involved in import/export activities also are required to register regardless of turnover.
• Voluntary Registration: Not generally available for overseas companies.

Filing and Payment

• Returns: VAT returns are filed monthly.
• Payment: Generally due in full on the same day as the return. However, large taxpayers (annual income exceeding NIO 160 million) make an advanced bi-weekly VAT payment within the first five business days after the 15th of each month and a final payment by the fifth calendar day of the next month.
• Deadlines: Returns are typically due by the fifth calendar day of the following month.

Other Indirect Taxes

• Selective Consumption Taxes (ISC): Levied on specific goods at rates ranging from 9% to over 30% (e.g., oil has a fixed rate per gallon according to type).
• Stamp Taxes (ITF): Apply to certain documents, using both fixed and ad valorem rates.

Additional Information

While this overview provides a summary of Nicaraguan VAT regulations as of today, February 5, 2025, tax laws and regulations are subject to change. It's essential to consult with a tax advisor or refer to official government sources for the most current information, particularly before making business decisions.

Nicaragua offers several tax incentives, primarily focused on boosting specific sectors like tourism, renewable energy, and export-oriented businesses.

Tourism Incentives

• Income Tax Exemption: Projects approved by the Tourism Incentives Committee can receive income tax exemptions for up to 10 years from the start of operations. This applies to investments of USD 30,000 or more outside Managua and USD 100,000 or more within Managua.
• Property Tax Exemption: These tourism developments can also be exempt from property taxes for up to 10 years.
• VAT and Other Tax Exemptions: Exemptions are available on local purchases and imports of goods and services needed for construction, outfitting, and equipping tourism infrastructure. This includes construction materials, furniture, equipment, and accessories during the investment phase.

Renewable Energy Incentives

• Broad Tax Benefits: A special law covers the renewable energy sector, providing exemptions and benefits for Corporate Income Tax (CIT), Value Added Tax (VAT), customs duties, and municipal taxes.

Free Trade Zones (FTZs)

• Income Tax Holiday: Businesses operating within FTZs can qualify for a 10-year income tax holiday, renewable for another 10 years. After the full exemption period, a 60% exemption may apply. This requires approval from the National Free Zone Commission.
• Exemptions from Other Taxes: FTZ companies are generally exempt from capital tax, stamp duties, indirect taxes, excise taxes, export taxes (on locally-produced goods), municipal taxes, and property transfer and capital gains taxes when selling property within the FTZ upon closure.
• Duty-Free Imports: Raw materials, machinery, equipment, spare parts, and other operational necessities are exempt from import duties.

Export Incentives

• Income Tax Credit: A 1.5% income tax credit of the free-on-board (FOB) value of exports is available.
• VAT Exemption for Export Processing: Businesses exporting at least 25% of their production are exempt from VAT on machinery, equipment, raw materials, and supplies used in export processing.

Other Sector-Specific Incentives

Incentives also exist for sectors such as forestry, mining, fishing, and aquaculture. These often include exemptions or reductions in income tax, property tax, import duties, and other taxes. Details may vary depending on the specific activity and investment.

General Tax Information (as of February 5, 2025)

• Corporate Income Tax Rate: 30%
• No Foreign Tax Credit: Nicaragua does not recognize foreign tax credits.
• Capital Gains Tax: 15%
• Loss Carryforward: Losses can be carried forward for three years but not carried back.

It is important to note that tax laws and regulations are subject to change. Consulting with a tax advisor or legal professional is recommended for the latest information and guidance on specific circumstances.