Nicaragua Personal Income Tax

Resident and nonresident individuals, regardless of their nationality, are taxed on their income earned in Nicaragua. Foreign-source income is not taxed.

Nicaraguan nationals are considered resident.

A foreign individual is considered a resident for tax purposes if he or she meets either of the following criteria:

  • He or she stays in Nicaragua for more than 180 consecutive or non-consecutive days during the calendar year.
  • The center of his or her economic interests is located in Nicaragua, unless he or she can prove his or her residence or tax domicile is located in another country by submitting a certifi­cate issued by the relevant tax authorities, provided that the country of domicile is not considered a tax haven under the Nicaraguan income tax law.

Income subject to tax. The taxation of various types of income is described below.

Employment income. Annual employment income in excess of NIO100,000 is taxable, including salary, pensions, bonuses, premi­ums, commissions and allowances (for example, housing and edu­cational allowances). However, the 13th month salary (aguinaldo), labor indemnification (up to five months’ base salary), indemnifi­cation up to NIO500,000 received in addition to five months’ salary and social security contributions are exempt from tax.

Self-employment and business income. Income derived from self-employment or from trade or business activities is taxable. Resident individuals are subject to progressive tax rates ranging from 10% to 30% of net self-employment and business income.

Nonresident individuals are subject to a flat 15% withholding tax on this income.

Investment income. Dividends paid or credited by local compa­nies to resident or nonresident individuals are subject to a 10% withholding tax.

Per diem directors’ fees. Per diem directors’ fees paid to resident and nonresident individuals are subject to withholding tax at a rate of 12.5% for residents and 20% for nonresidents.

Capital gains. Capital gains are subject to the following final withholding taxes:

  • 5% on the transfer of assets held in trust by residents and non­residents (Law No. 741 on Trust Agreements, effective from 19 January 2011)
  • 10% on other capital gains derived by residents and nonresidents

A special rule applies to transfers of property subject to registra­tion with a public deed in the Public Registry. Progressive with­holding tax rates ranging from 1% to 4% of the value of the property apply to these transfers.

Deductions. The following are personal deductions and allowances:

  • Social security contributions of employed individuals
  • Contributions of employed individuals to pension or savings funds that are not part of the social security system, provided that these funds are approved by the relevant authority in Nicaragua
  • 25% of expenses on education, health and professional servic­es, up to a maximum amount of NIO5,000 per year (maximum amount will be increased to NIO20,000 in 2017)

Rates. Employment income earned by resident individuals is taxable at the following rates for the period of 1 January 2016 through 31 December 2016.

Annual taxable income

Exceeding         Not exceeding                                          Rate

NIO                         NIO                                                           %

0                          100,000                                                         0

100,000                200,000                                                         15

200,000                350,000                                                         20

350,000                500,000                                                         25

500,000                   —                                                                  30

Payments to nonresident individuals for employment income (salaries, other remuneration, pensions, commissions, directors’ fees and similar compensation items) are subject to a 15% final withholding tax.

Self-employment and business income earned by resident indi­viduals (with annual gross income of NIO12 million or less) is taxable at the following rates for the period of 1 January 2016 through 31 December 2016.

Annual taxable income

Exceeding        Not exceeding                                            Rate

NIO                        NIO                                                             %

0                         100,000                                                            10

100,000               200,000                                                            15

200,000               350,000                                                           20

350,000               500,000                                                           25

500,000                  —                                                                 30

If an individual’s gross income exceeds NIO12 million, the tax rate for self-employment and business income is 30%.

Payments to nonresident individuals for professional services or technical advice are subject to a 15% final withholding tax.

Inheritance and gift taxes

Gifts or inheritances from Nicaraguan sources are treated as capital gains and subject to a flat 10% tax.

Social security

Social security contributions are levied on salaries at a rate of 18.5% for employers and 6.25% for employees for the 2016 tax year. These rates will be increased annually. For 2016, the maxi­mum monthly salary subject to employer and employee social security contributions is NIO77,934.88.

Tax filing and payment procedures

The ordinary tax year runs from 1 January through 31 December.

Employers are responsible for withholding income taxes and social security contributions from the employees’ salaries on a monthly basis. Employees are not required to file an annual income tax return if their only source of income is employment compensation.

Returns must be filed and any tax due must be paid within three months after the end of the tax year. Self-employed individuals and individuals with a trade or business must pay installments of advance income tax.

Double tax relief and tax treaties

Nicaragua has not entered into tax treaties with any other countries.

Temporary visas

Nicaraguan law provides a three-tier classification system that imposes visa requirements based on the nationality and passport type of the traveler.

Tier A. Nonresident foreign nationals holding passports issued by Tier A jurisdictions are visa exempt. On arrival into Nicaragua, travelers are issued tourist permits valid for up to 90 days that may be extended for up to a total of 180 days.

The following are the Tier A jurisdictions.

Andorra                       Greece                       St. Kitts and Nevis

Antigua and                 Hungary                    St. Lucia

Barbuda                       Iceland                      St. Vincent and the

Argentina                     Iran                           Grenadines

Australia                      Ireland                       San Marino

Austria                         Israel                         São Tomé and

Bahamas                      Italy                           Príncipe

Bahrain                        Japan                         Saudi Arabia

Barbados                      Korea (South)           Singapore

Belarus                         Kuwait                      Slovak Republic

Belgium                       Latvia                        Slovenia

Belize                           Liechtenstein             Solomon Islands

Brazil                           Lithuania                   South Africa

Brunei Darussalam Luxembourg                   Spain

Bulgaria                       Macedonia                Sweden

Canada                         Madagascar               Switzerland

Chile                            Malta                         Taiwan

Costa Rica                    Marshall                    Trinidad and

Croatia                         Islands                      Tobago

Cyprus                         Mexico                      Turkey

Czech Republic            Monaco                     Tuvalu

Denmark                      Netherlands               Ukraine

Ecuador                        New Zealand             United Arab

Estonia                         Norway                     Emirates

Fiji                               Panama                     United Kingdom

Finland                         Paraguay                   United States

France (including         Poland                       Uruguay

overseas territories       Portugal                    Vanuatu

and collectivities)         Qatar                         Vatican City

Germany                      Romania                    Venezuela

Tier B. Nonresident foreign nationals holding passports issued by Tier B jurisdictions are subject to visa requirements. An entry visa may be obtained at a Nicaraguan consular bureau before travel or at the port of entry. However, Nicaraguan authorities strongly recommend travelers to check in advance as to whether airlines allow boarding in the absence of a visa stamped on the passport. Normally, visas are valid for up to 30 days, renewable for up to a total of 90 days.

The following are the Tier B jurisdictions.

Algeria                         Georgia                     Namibia

Angola                         Ghana                       Nauru

Azerbaijan                    Grenada                    Niger

Benin                           Guinea                      Oman

Bhutan                         Guinea-Bissau          Palau

Bolivia                         Guyana                     Papua New Guinea

Burkina Faso               Indonesia                  Peru

Burundi                        Jamaica                     Philippines

Cambodia                     Jordan                       Rwanda

Cape Verde                  Kazakhstan                Samoa

Central African            Kiribati                      Senegal

Republic                       Korea (North)           Serbia

Chad                            Kyrgyzstan                Seychelles

Colombia                     Lesotho                     Suriname

Comoros                      Libya                         Swaziland

Côte d’Ivoire                Malawi                      Tajikistan

Cuba                            Malaysia                   Tanzania

Djibouti                        Maldives                   Thailand

Dominica                     Mauritius                  Togo

Dominican                   Mauritania                 Tonga

Republic                       Micronesia                Tunisia

Egypt                           Moldova                   Turkmenistan

Equatorial Guinea        Montenegro              Uganda

Ethiopia                        Morocco                   Uzbekistan

Gabon                          Mozambique             Zambia

Gambia                        Myanmar                  Zimbabwe

Tier C. Visas for nonresident foreign nationals holding passports from Tier C jurisdictions are issued on a case-by-case basis and only on express authorization from the General Directorate of Migrations and Foreign Citizens. The authorities may require extensive documentation, and the process may take from two months to one year.

The following are the Tier C jurisdictions.

Afghanistan                 Hong Kong               Nigeria

Albania                        SAR                          Pakistan

Armenia                       India                          Sierra Leone

Bangladesh                  Iraq                           Somalia

Bosnia and                   Kenya                        Sri Lanka

Herzegovina                 Laos                          Sudan

Botswana                     Lebanon                    Syria

Cameroon                    Liberia                       Timor-Leste

China                           Mali                          Vietnam

Eritrea                          Mongolia                  Yemen

Haiti                             Nepal

General. The immigration authorities require that passports of nonresident foreign nationals be valid for at least six months beyond the date of expected departure from Nicaragua.

The above lists, immigration requirements and interpretation of existing regulations may change from time to time and without notice. It is therefore suggested that professional advice be obtained regarding entry requirements.

Work visas (and/or permits)

Under Nicaraguan law, travelers seeking to enter the country to perform professional activities or undertake employment must obtain a work permit following admission into the country. However, according to the Visa and Residence Permits subdivi­sion of the General Directorate of Migrations and Foreign Citizens, travelers seeking to enter Nicaragua to exercise profes­sional activities for short time periods (up to 90 days) are not normally issued any type of special permit. The issuance of work visas requires the submission of extensive documentation. Please consult a professional advisor for further information.

Residency visas (and/or permits)

Foreign nationals may apply for permanent or temporary resi­dency permits on admission into the country. The application process requires documentation issued and authenticated or apostilled in the foreign national’s home country. Please consult a professional advisor for further information.

Family and personal considerations

Family members. Dependents are not entitled to work in Nicaragua without a valid work permit. The application process for obtain­ing a Nicaraguan work permit may involve the submission of extensive documentation. Please consult a professional advisor for further information.

Marital property regime. Under Nicaraguan law, all assets acquired after the commencement of a marriage, with the exception of those received as a donation by either spouse, are assumed to be community property.

Forced heirship. Nicaraguan law requires intestate estates be set­tled through probate. In the case of intestacy, the Civil Code lists the order in which eligible persons may inherit.

Driver’s permits. Holders of foreign-issued driver’s licenses can drive in Nicaragua as long as their existing license is valid. On expiration, drivers are expected to obtain a local driver’s license.