Nicaragua

Nicaragua has a territorial income tax system under which only income generated in, or that causes effects in, Nicaragua is generally subject to income tax. Corporate income tax (CIT) is imposed on a corporation's profits, which consist of business/trading income, and passive income. Capital incomes and capital gains are subject to definitive withholding tax (WHT). General business expenses are allowed as a deduction in computing taxable income.

Corporate income tax (CIT) rate

CIT is levied only on domestic-sourced income at a flat rate of the higher of:

• 30% of net taxable income (i.e. gross taxable income less allowed deductions), or
• a definitive minimum tax of 1% to 3% on gross income obtained during the fiscal year.

The income tax will be the greater amount that results from comparing the 30% applicable to net taxable income and the definite minimum tax described above.

The law establishes the following exceptions to the 1% to 3% definitive minimum tax:

• First three fiscal periods of recently incorporated entities. For tax purposes, the beginning of business operations is when a company generates taxable income.
• Taxpayers whose sales prices are controlled by the government. In accordance with the Regulation of Law 822, these taxpayers are those engaged in the distribution of electrical power business.
• Taxpayers that ceased operations on account of force majeure.
• Investments subject to a period of development. The Treasury Ministry must approve such a period.
• Taxpayers subject to simplified regimens (fixed fee tax, transactions under the agricultural stock exchange).

Local income taxes

See Municipal sales and services tax in the Other taxes section.