Managua

Taxation in Managua, Nicaragua

What are the tax rates in Managua, Nicaragua? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Managua, Nicaragua.

Personal taxation in Managua

Effective personal income tax rate

Annual income$25,000$40,000$80,000$125,000$200,000
Rate21%24%27%28%29%

Teleport city rankings for personal income tax

Personal taxation puts Managua in position 102 of all Teleport Cities.
WORSTBEST

Basis

Residents and nonresidents are taxed only on Nicaraguan- source income.

Residence

A national or a foreign individual who remains in Nicaragua for more than 180 days during the calendar year, even if not continuously, is considered a resident for tax purposes.

Filing status

A married couple living together may elect for a joint or separate assessment.

Rates

The rates for a resident individual are progressive up to 30%. The rate is 15% for a nonresident individual deriving Nicaragua- source income.

Deductions and allowances

A deduction equal to 25% of education, health and professional services expenses is granted annually (up to a maximum of NIO 5,000, to be increased to NIO 20,000 by 2017), provided supporting invoices are available.

Taxable income

Taxable income includes income from employment, trading income and income from investments in Nicaragua that exceed NIO 100,000.

Capital gains

Capital gains are subject to a 10% tax.

Other taxes on individuals

Stamp duty

Stamp duty is levied on certain types of documents issued in Nicaragua or abroad that produce effects in Nicaragua. The amount varies depending on the transaction.

Inheritance/estate tax

If the property is required to be registered with the Public Record of Property, an occasional withholding tax will apply at rates ranging from 1% to 4%.

Social security

The employee is required to contribute 6.25% of his/her gross salary to social security, for salaries up to NIO 77,934.88.

Compliance for individuals

Penalties

Penalties apply for late afiling, failure to file or for engaging in tax avoidance/evasion.

Filing and payment

Individuals with income in excess of NIO 100,000 annually must file an income tax return. No return is required where the taxpayer's sole source of income is employment income and the employer has withheld tax.

Corporate taxation in Managua

Teleport city rankings for corporate income tax

Corporate taxation puts Managua in position 235 of all Teleport Cities.
WORSTBEST

Basis

Nicaragua operates a territorial tax system under which residents and nonresidents are taxed only on Nicaraguan-source income. Branches are taxed in the same manner as subsidiaries.

Taxation of dividends

If dividends are considered income from economic activities, they are not part of gross income and are not included in taxable income; however, if considered capital income, gross dividends are taxed at a rate of 10%.

Residence

A company is resident in Nicaragua if it is incorporated or domiciled in the country, or has its place of effective management in Nicaragua. Nicaragua has introduced the concept of a permanent establishment (PE), under which a PE may be treated as a resident for tax purposes. A PE for these purposes includes a head office of management or administration and a branch office, representative office, factory or workshop, as well as a mine, an oil or gas well, a quarry or any other place of the extraction of natural resources.

Losses

Losses may be carried forward for three years. The carryback of losses is not permitted.

Incentives

Reduced tax rates are available to companies operating in the tourism and energy sectors.

Rate

The standard corporate rate is 30%. Small and medium-sized

Taxable income

Taxable income is defined as gross income, less costs and expenses allowed by Nicaragua legislation.

Capital gains

A 10% capital gains tax applies to gains derived by both residents and nonresidents.

Other taxes on corporations

Real property tax

The municipalities levy a 1% tax on the value of real estate.

Social security

An employer is required to contribute 18.5% of the gross salary of an employee to social security, for salaries up to NIO 77,934.88.

Stamp duty

Stamp duty is levied on certain types of documents issued in Nicaragua or abroad that produce effects in Nicaragua. The amount varies depending on the transaction.

Compliance for corporations

Consolidated returns

Consolidated returns are not permitted; each company must file a separate return.

Penalties

Penalties apply for late filing or failure to file, or for engaging in tax avoidance/evasion.

Rulings

A taxpayer may request a binding ruling on the tax consequences of a particular transaction that affects the taxpayer.

Tax year

The tax year generally is the calendar year, although a taxpayer may request permission to adopt one of the following tax periods: April-March, October-September or January-December.

Filing requirements

The tax return must be filed within three months after the company’s year-end.

Other taxation in Managua

Value added tax

Filing and payment

The VAT return must be filed in the month following the tax period, and any VAT due must be paid at that time. Taxpayers falling within the scope of the large taxpayer regime must file a VAT return every 15 days.

Rates

The standard rate is 15%.

Taxable transactions

VAT is levied on the sale of goods and the provision of services.

Anti-avoidance rules

Transfer pricing

Transfer pricing rules will apply as from 30 June 2017.

Investment basics

Foreign exchange control

There are foreign exchange controls, and the Nicaraguan Central Bank issues foreign exchange rates on a monthly basis. There are no restrictions on the import or export of capital. Repatriation payments may be made in any currency. In principle, residents may hold bank accounts in any authorized currency, and nonresidents may do so in special cases.

Accounting principles/financial statements

IFRS/IAS. Financial statements must be prepared annually.

Principal business entities

These are the public and private limited liability company, partnership, sole proprietorship and branch of a foreign corporation.

Withholding tax

Dividends

Dividends paid to a nonresident are subject to a 15% withholding tax. The rate increases to 17% if the payment is made to a resident of a tax haven jurisdiction.

Other

A 1.5% withholding tax is levied on reinsurance premiums. Income from insurance premiums and income from maritime and air transport are subject to a 3% withholding tax. The rate in other cases generally is 15%.

Technical service fees

Technical services fees paid to a nonresident are subject to a 15% withholding tax. The rate increases to 17% if the payment is made to a resident of a tax haven jurisdiction.

Interest

Interest paid to a nonresident or a nonfinancial institution is subject to a 15% withholding tax. The rate increases to 17% if the payment is made to a resident of a tax haven jurisdiction.

Royalties

A 15% withholding tax applies to patent royalties paid to a nonresident. The rate increases to 17% if the payment is made to a resident of a tax haven jurisdiction.