Nicaragua

Corporate - Deductions

Last reviewed - 08 December 2019

Depreciation

Depreciation must be computed using the straight-line method. Depending on the type of construction and the estimated life of fixed assets, annual rates for depreciation are as follows:

Asset Rate (%)
Buildings 3/5/10
Vehicles 12/20/33
Plant and equipment 10/14/20
Other assets 10/20/50

Alternative method of depreciation

Taxpayers under the TAP regime (see Customs duties in the Other taxes section) may, at their convenience, request a different depreciation rate (i.e. accelerated depreciation) from the tax authorities. Used fixed assets acquired abroad may also be subject to a different depreciation rate.

Goodwill

Goodwill, meaning the excess paid over book value in a transaction, can be deductible for CIT purposes if the capital gain is considered in the seller’s CIT return. However, the tax authorities must authorise the tax periods in which the goodwill will be amortised.

Start-up expenses

Start-up expenses are amortised over a three-year period of time after the beginning of business operations.

Interest expenses

As a general rule, deduction of interest is allowed when derived from loans of financial institutions; however, the interest paid derived from loans of non-financial institutions will be deductible up to the amount resulting from applying the average lending rate of the national bank at the date of obtaining the loan, if fixed, or at the date of each payment, if variable.

In order for interest paid to a non-resident to be deductible, the corresponding 15% WHT must be withheld and paid.

Bad debt

Corporations are allowed a deduction for receivables as an allowance for doubtful accounts as long as there is supporting documentation of the credit, identification documents of the debtor and creditor, and administrative and judicial collection proof.

Charitable contributions

A deduction is allowed, at up to 10% of the corporation's income, for charitable contributions made to the government and its institutions, the Red Cross, and other organisations.

Compensation

A deduction of up to 10% of the accumulated profits before this expense is allowed for payments made to employees as bonuses or in addition to their salaries or wages.

Life insurance

A deduction is allowed for employee insurance payments made.

Fines and penalties

Penalties or charges made by tax, customs, social security, or municipal authorities are not deductible for CIT purposes.

Taxes

In principle, income tax expense is not deductible for CIT purposes. Municipal or local taxes (i.e. real estate tax, monthly sales and services tax, annual registration tax) are deductible from CIT.

Net operating losses

Losses may be carried forward and deducted from future profits, for up to three years. The carryback of losses is not allowed.

Payments to foreign affiliates

Payments made from affiliates to foreign related parties are deductible for CIT purposes, provided the following requirements are met:

  • The expenses (i.e. royalties, interest, and services) are needed to generate taxable income.
  • The expenses are duly supported (e.g. agreements, invoices, payment receipts).
  • The expenses are incurred within the fiscal period.
  • The WHT is applied and paid to the tax authorities.