Main changes to the Income Tax in Nicaragua
On February 28th, 2019, Law 987 was enacted in Nicaragua, Law of Reforms and Additions to Law 822, Law of Tax Concertation, which in its legal provisions reformed substantial aspects of Income Tax, both in the rates of the Definitive Minimum Payment (PMD) and in the monthly advances of this tax.
In addition, the withholding tax rates for certain labour, economic and capital income and capital gains and losses were modified.
In addition, on March 15, 2019, Presidential Decree 08-2019 was published, which regulates this law.
Below is a comparison of the main changes in income tax:
| BEFORE | REFORM | ||||
| Art. 13. Definition of income from economic activity (first paragraph) | Broad definition to include any activity. Also included for financial institutions as this type of income are those of capital and capital gains and losses. | ||||
| Art. 24 withholdings | Increase % | ||||
| Indemnification 10% | Diets 12.5% | Non-resident natural person 15% | Indemnification 15% | Diets 25%
Daily subsistence allowance for municipal authorities 12.50% |
Non-resident natural person 20% |
| Art. 32, numeral 5, exemption for cooperatives | Exempt roof is increased | ||||
| An exempt roof of C$40,000,000.00 was established | IR exempt ceiling increased to C$60,000,000.00 | ||||
| Art. 33, numeral 2 | Condition exemption | ||||
| The habit of the operations is changed | You always pay sales tax on remunerated sales | ||||
| Art. 34 Income exclusions | |||||
| Rents and capital gains that do not represent 40% with regard to economic rents | The 40% parameter is deleted. Only financial institutions will integrate income | ||||
| Art. 38 Integration of income | |||||
| Capital gains and rents of more than 40% were integrated with regard to economic rents | All taxpayers are excluded and only financial institutions integrate income | ||||
| Art. 39 numeral 15 | |||||
| Deduction of interest and other | The interest deduction limitation is established and financial leasing is included in this limitation | ||||
| Art. 41 numeral 1, adjustment to deductibility | |||||
| The income from economic activity was established with definitive withholding that does not give the right to deduction | In addition to the income from economic activity on a proportional basis, that from income and capital gains is included as non-deductible. Unless they can be identified separately | ||||
| Art. 49 Withholding to tax havens | |||||
| 17% was established | Increases to 30% | ||||
| Art. 53 numeral 3, aliquot economic activity non-residents | |||||
| It was set at 15% | Increases to 20% | ||||
| Art. 59, sub-paragraphs 1 and 3, exceptions to the minimum payment | |||||
| 1. Exception of 3 years in general
3. Ripening periods subject to authorisation by MHCP, MIFIC and MAGFOR |
1. The 3-year derogation does not apply to consortia or small taxpayers who have changed regime
3. Ripening periods only decided by the MHCP |
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| Art. 61 Taxable base minimum payment and aliquot | |||||
| 1% of gross annual income | 3% of annual gross income large taxpayers. Of the 2% for the fishing sector in the Caribbean.2% of annual gross income main contributors 1% of the annual gross income of other taxpayers |
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| Art. 62 Determination of minimum payment | |||||
| Calculation according to 1% | Calculation according to 1%, 2% and 3% aliquot | ||||
| Art. 63 Minimum payment integer forms | |||||
| Advances of 1%, the balance in favor is established, the margin of sale or commercialization is recognized for this payment and the advance of great contributor with ISC and financial entities anticipate under profits of 30% or 1% | Advances of 1%, 2% and 3%, the balance in favor is eliminated, the sales or commercialization margin is maintained as long as the supplier anticipates its gross income and the advance of a large taxpayer with ISC and IECC and financial entities anticipate profits of 30% or 3%
Cooperatives with incomes greater than C$60 MM will anticipate 1% over income or over margin with DGI authorization |
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| Art. 65 second paragraph. Credits and balance payable | |||||
| Definitive withholding are not creditable except for those of income and capital gains when these are integrated | Definitive withholding are not creditable, except for the income and capital gains of financial entities | ||||
| Art. 69, numeral 1. Obligation to pay | |||||
| 3 months after the fiscal year | 2 months after the fiscal year | ||||
| Art. 80 Taxable base real estate income | |||||
| 30% deductible tax base | 20% deductible tax base | ||||
| Art. 81 Taxable income movable income | |||||
| 50% deductible tax base | 30% deductible tax base | ||||
| Art. 87 Tax rate – income and capital gains | |||||
| 5% to trusts
10% residents rents and capital gains 10% non-resident capital gains and interest 15% non-resident capital rents 17% to tax havens
Property subject to public register-rents and capital gains 0.01 – 50,000 1% 50,000.01 – 100,000 2% 100,000.01 – 200,000 3% 200,000.01 up to 4%.
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10% to interest of foreign financial institutions 15% resident and non-resident income and capital gains, including trusts 30% to tax havens
Goods subject to public registration – definitive withholding on income and capital gains 0.01– 50,000 1% 50,000.01 – 100,000 2% 100,000.01 – 200,000 3% 200,000.01 – 300,000 4% 300,000.01 – 400,000 5% 400,000.01 – 500,000 6% 500,000.01 up to 7% |
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| Art. 89 (second paragraph) final retention | |||||
| Definitive withholding for income integration become the account of the IR | Definitive withholding from financial institutions are considered on account of IR | ||||
| Art. 92 Payment and declaration – income and capital gains | |||||
| Self-assessment within 30 days after the entire withholding of income and capital gains from assets subject to registration that did not withhold | Self-assessment in 5 days after the month in which no withholding was made for income and capital gains | ||||
Melvin A. Estrada Canizales
Partner
García & Bodán
Nicaragua