Individuals residents or not in Nicaragua, receiving an income from Nicaraguan sources, are subject to tax obligations.
Liability for income tax
Nicaraguan income tax is a tax levied on the income of individuals. Individuals residents or not in Nicaragua, receiving an income from Nicaraguan sources, are subject to tax obligations.
Income for individuals include wages and other income received by reason of the position, such as salaries, seniority, bonuses, awards and other forms of additional compensation.
Tax trigger points
The development/rendering of any activities/services in the country, regardless of where the income was paid, triggers a tax obligation in Nicaragua.
Types of taxable income
- For individuals (employees), income is considered to be the wage or salary.
- For individuals, income is considered to be any income received during a fiscal year.
- Bonuses, awards, overtime, allowances and others forms of additional compensation.
The income tax of employees is paid according to the progressive table bellow; these amounts are shown in Nicaragua currency (Cordoba):
Source: KPMG in Nicaragua, 2013
Liability for social security
For the purpose of submitting contributions to social security, wages/salary would be subject to a monthly withholding of 6.25 percent. This contribution is deductible from the salary for the purposes of paying income tax.
The maximums wage/salary subject to social security contributions is C$54,954.
Employee compliance obligations
The local law established that the person who receives income from one source is not required to submit an income tax return as well. The employer is the responsible to make the income tax and social security withholdings every month. These withholdings are considered as a “final tax”.
An individual who receives income from two or more employers (or from other sources) is required to file their own tax return.
According to the national legislation, an income tax return should be submit and paid in full within 90 days after the end of the relevant tax year. The ordinary tax year runs from 1 January through 31 December.
Employer reporting and withholding requirements
Employers are responsible to withhold the employee’s income tax through the payroll. Every month they have to submit a tax return with all the employee´s withholding before tax to authorities. At the end of the tax year, the employer must submit a report with the withholdings of the period and give employees a certificate which indicates the amount of income tax withheld.
Employers who do not hold Nicaraguan income tax or Impuesto sobre la Renta (IR) will be jointly responsible for payment, subject to administrative penalties/fines according to the Tax Code.
Double taxation treaties
Nicaragua does not have any double taxation treaties with other counties.
For tax purposes, a resident is defined as the individual, when any of the following circumstances occur:
- remains in the country for more than 180 – days within a year – even if not continuously
- their center of economic interest or principal is within the country
- Nicaraguans living abroad on diplomatic missions and consular Nicaraguans officers
- Nicaraguans living abroad that perform positions or official employment on behalf of Nicaraguan state and official in active service
- Nicaraguans living abroad that exercise official employment without diplomatic or consular character
- foreigners residing in Nicaragua in diplomatic missions, when it doesn´t exist reciprocity
- legal entities, trusts, investment funds, entities or groups and permanent establishments
- to have been incorporated under the laws of Nicaragua
- to have their social or tax residence on national territory
- to have its effective headquarters address or effective management in national territory.
Accreditation or reimbursement does not apply for individuals. Reimbursements apply only to diplomats.
In 2016, Nicaragua will have transfer pricing regulations.
Work permit/visa requirements
It is necessary to apply for a visa in order to obtain resident status in Nicaragua.
Local data privacy requirements
Since 2010, Nicaragua has local data privacy laws.
Nicaragua does not have any exchange controls on local or foreign currency coming into or out of the country.
The official exchange rate is established by the Central Bank of Nicaragua.