Personal Income Taxation in Nicaragua
For both, residents, as well as non-residents, Personal Income Taxation is charged on all the income that originates in Nicaragua. As far as income earned by non-residents in Nicaragua is concerned, Personal Income Taxation on this particular income is mostly determined as a percentage of gross income. This primarily depends on the nature of the income itself.
Personal Income Tax Rates
As per the personal income tax regime in Nicaragua, progressive rates are applied in order to calculate the tax payable. Residents in Nicaragua are subject to income tax on the following rates:
- For a taxable income between 0 NIO (Nicaraguan Cordoba) and 100,000 NIO (Nicaraguan Cordoba): Personal Income Tax is levied at a rate of 0%.
- For a taxable income between 100,000 NIO (Nicaraguan Cordoba) and 200,000 NIO (Nicaraguan Cordoba): Personal Income Tax is levied at a rate of 15%.
- For a taxable income between 200,000 NIO (Nicaraguan Cordoba) and 350,000 NIO (Nicaraguan Cordoba): Personal Income Tax is levied at a rate of 15%.
- For a taxable income between 200,000 NIO (Nicaraguan Cordoba) and 350,000 NIO (Nicaraguan Cordoba): Personal Income Tax is levied at a rate of 20%. The equivalent Minimum Tax Charge is 15,000 NIO.
- For a taxable income between 350,000 NIO (Nicaraguan Cordoba) and 500,000 NIO (Nicaraguan Cordoba): Personal Income Tax is levied at a rate of 25%. The equivalent Minimum Tax Charge is 45,000 NIO.
- For a taxable income between 500,000 NIO (Nicaraguan Cordoba) and above: Personal Income Tax is levied at a rate of 30%. The equivalent Minimum Tax Charge is 82,500 NIO.
As far as non-residents are concerned, regardless of their domicile status, the applicable Personal Income Tax Rate is 20%. This amount is supposed to be withheld at the source, from which the salary is drawn.
Corporate Income Taxation in Nicaragua
For corporate taxation in Nicaragua, territorial system of taxation is used. Under this regime, only income generated within the periphery of Nicaragua is subject to Corporate Income Taxation. Corporate Income Taxation is levied on the profits of the corporation. This comprises of business and trading income, as well as other passive income. Capital income and capital gains are also subject to a definitive withholding tax (WHT). However, general business expenses are further allowed as deductions in computation of corporate income tax.
Corporate Income Tax Rate in Nicaragua
Corporate Income Tax is mostly levied on income that has been sourced from within Nicaragua. It is determined at a flat rate, and therefore, is not subject to progressive tax payments. It is determined as the higher of the two following parameters:
- 30% of the net taxable income – i.e. gross taxable income minus the allowed deductions, or:
- A definitive minimum tax of 1% to 3% on the gross income that is obtained during a given fiscal year.
The payable income tax is defined as the greater amount that results from drawing a comparison of 30% of net taxable income, and the definitive minimum tax stipulations that are described above.
Under the stated law, it can be seen that 1% and 3% definitive minimum tax is also subject to the following exemptions:
- First three fiscal periods of incorporation of the company.
- For tax-paying entities that have sale prices controlled by the government.
- Taxpayers that have halted their operations.
- Investments that are subject to a development period. However, it must be approved by the Treasury Ministry.
Other Taxation in Nicaragua
- Value Added Tax: The following transactions are supposed to be subject to VAT within the periphery of Nicaragua:
- Supplies of goods and services
- Imported goods and services
- Exports of goods and services
VAT is levied in Nicaragua at a rate of 15% on sale of goods and services. It is further levied on grant of use of assets, as well as import of goods and services. However, for export of goods and services, the applicable rate of VAT is 0%.
- Selective Consumption Tax: For all goods and services that are mostly classified as non-essential commodities, selective consumption tax is levied at different rates.
- Custom Duties: Custom Duties are in place across all imported goods and services.
- Social Security Contributions: Social Security Contributions are set depending on the number of employees within the company. Companies with 50 employees or less contribute around 12.5% whereas companies with 50 employees or more are supposed to contribute 13.5%. The employer is also supposed to bear a Training Tax equivalent to 2% of the total payroll amount.
- Municipal Sales Tax: Municipal Sales Tax is levied on a monthly tax at a rate of 1% across all goods and services in each of the given municipalities across Nicaragua.
- Municipal Registration Tax: This is levied at a rate of 2% on the average income received by entities in the months of October, November and December of the previous year. The municipal registration tax is calculated at a rate of 1% of the capital invested in case of new