Value-added tax (VAT)
The following transactions are subject to VAT when performed within Nicaragua:
- Supplies of goods.
- Supplies of services.
- Importations of goods.
- Exports of goods and services.
VAT is imposed at a 15% rate on the sale of goods, rendering of services, grant of use of assets, and import of goods. Export of goods and services are subject to a 0% rate.
VAT exemptions are available for certain items, including medicine, real estate transfer, sale of used goods, basic food products, credit instruments, tuition, and textbooks and educational supplies.
Taxpayers may recover VAT paid for the purchase of goods and services used to generate other goods and services subject to VAT. This is known as VAT liquidation, which is determined by subtracting VAT credits paid on transactions needed to generate taxable income for VAT purposes from VAT collected on the sales of goods or the rendering of services. Note that VAT paid on transactions to generate non-taxable income for VAT purposes are not allowed as VAT credits.
The exemption with right to deduct input VAT applies when:
- the input VAT is necessary in the business activity process for selling of goods or provision of services, and
- the tax is properly detailed in the invoice of a legal document.
VAT returns must be filed on a monthly basis, with payment due in full on the same day for those classified as high and principal taxpayers. Taxpayers registered as high taxpayers (with annual income greater than 160 million Nicaraguan córdobas [NIO]) must present an advanced bi-weekly VAT payment in the first five business days after the 15th day of each month and a definite return in the first five calendar days of the following month.
Selective consumption tax
A selective consumption tax is applied to goods that are considered to be non-essential. The tax base is the cost, insurance, and freight (CIF) price for imported items, and the tax is levied and paid only at that stage (based on the list of products published as an appendix to Law 822).
Customs duties relate to the importation of any good within the Nicaragua territory for commercial purposes. The following taxes apply to imports, depending on the product:
- Import Custom Duties (DAI), which are the local tariff liens in the importation of goods agreed to in the Central American Import Tariff.
- Excise Tax (ISC), which is an indirect tax levied on selective consumption of goods (e.g. tobacco cigarettes).
Temporary Admission for Active Processing (TAP) regime
Exporters can apply for the TAP regime, which is designed to allow the importation of goods without payment of duties, import taxes, or other taxes, on condition of being transformed (i.e. subject to any subsequent operation) to be re-exported or exonerated.
Nicaragua's tax system does not impose transfer taxes.
Stamp duty is levied on certain types of documents issued in Nicaragua.
The employer is responsible to withhold and pay employee income tax on a monthly basis through withholding income tax return Form IR-122, according to progressive tax rates.
Social security contributions
In principle, social charges apply to nationals and legal residents from the first day of employment on a monthly basis. Social security contributions are calculated upon the gross salary of the employee, as follows:
||Social security rates (%)
* Employers with 50 employees or less will contribute 12.50%. Employers with greater than 50 employees will contribute 13.50%.
The employer must also pay 2% of its payroll, on a monthly basis, for Training Tax (INATEC).
Municipal sales and services tax
A monthly 1% tax is levied on all sales of goods and rendering of services in each of the municipalities of the country.
Municipal registration tax
An annual 2% tax is levied by each municipality on the average of income received in the months of October, November, and December of the previous year. In the case of the incorporation of a new establishment or enterprise, the municipal registration tax is 1% of the capital invested.
Real estate municipal tax
The real estate municipal tax is an annual tax that is levied at a rate of 1% on 80% of cadastral value, as recorded by the government. If the cadastral value is not available, the cost or fiscal appraisal value may be used.