received in addition to five months’ salary and social security contributions are exempt from tax.
Self-employment and business income. Income derived from selfemployment or from trade or business activities is taxable. Resident individuals are subject to progressive tax rates ranging from 10% to 30% of net self-employment and business income. Nonresident individuals are subject to a flat 20% withholding tax on this income. This income is taxable as income from economic activities.
Investment income. Dividends paid or credited by local companies to resident or nonresident individuals are subject to a 15% withholding tax.
Per diem directors’ fees. Per diem directors’ fees paid to resident or nonresident individuals are subject to 25% withholding tax.
Capital gains. Capital gains derived by residents and nonresidents are subject to a final withholding tax at a rate of 15%.
A special rule applies to transfers of property subject to registration with a public deed in the Public Registry. Progressive withholding tax rates ranging from 1% to 7% of the value of the property apply to these transfers.
Deductions. The following are personal deductions and allowances:
• Social security contributions of employed individuals
• 25% of expenses on education, health and professional services, up to a maximum amount of NIO20,000 per year (in this case, a tax return is required)
Rates. Employment income earned by resident individuals is taxable at the following rates:
Payments to nonresident individuals for employment income (salaries, other remuneration, pensions, commissions, directors’ fees and similar compensation items) are subject to a 20% final withholding tax.
Self-employment and business income earned by resident individuals (with annual gross income of NIO12 million or less) is taxable at the following rates.
If an individual’s gross income exceeds NIO12 million, the tax rate for self-employment and business income is 30%.
Payments to nonresident individuals for professional services or technical advice are subject to a 20% final withholding tax.
B. Inheritance and gift taxes
Gifts or inheritances from Nicaraguan sources are treated as capital gains and subject to a flat 15% tax.
C. Social security
Social security has two special schemes, which are compulsory and optional. The compulsory scheme applies when there is an employment relationship, and the optional scheme applies to independent professionals who voluntarily register for social security purposes.
In the compulsory scheme, the employer acts as a collector of percentage deductions made to the employee’s salary (7%). In addition, the employer must contribute 22.5% (companies with more than 50 employees) or 21.5% (companies with less than 50 employees) of payroll for social security. In principle, social charges apply monthly to nationals and legal residents from the first day of employment. Social security contributions are calculated on the gross salary of the employee.
Under the optional scheme, independent professionals must pay 22.25% of their income to get complete coverage.
D. Tax filing and payment procedures
The ordinary tax year runs from 1 January through 31 December.
Employers are responsible for withholding income taxes and social security contributions from the employees’ salaries on a monthly basis. Employees are not required to file an annual income tax return if their only source of income is employment compensation.
Returns must be filed and any tax due must be paid within two months after the end of the tax year. Self-employed individuals and individuals with a trade or business must pay installments of advance income tax.
E. Double tax relief and tax treaties
Nicaragua has not entered into tax treaties with any other countries.
F. Temporary visas
Nicaraguan law provides a three-tier classification system that imposes visa requirements based on the nationality and passport type of the traveler. Tiers may be amended from time to time without prior notice, according to agreements between Nicaragua and other jurisdictions.
Tier A. Nonresident foreign nationals holding passports issued by Tier A jurisdictions are visa exempt. On arrival into Nicaragua, each traveler must pay a USD10 fee (cash only) and is issued a tourist permit valid for up to 90 days that may be extended for up to a total of 180 days.
The following are the Tier A jurisdictions.
Abkhazia Honduras Qatar
Andorra
Hong Kong Romania
Antigua and Hungary
St. Kitts and Nevis
Barbuda Iceland St. Lucia
Argentina Iran
St. Vincent and the Australia Ireland Grenadines
Austria Israel San Marino
Bahamas Italy
São Tomé and Bahrain Japan Príncipe
Barbados Kazakhstan Saudi Arabia
Belarus Korea (South) Singapore
Belgium Kuwait Slovak Republic
Belize Latvia Slovenia
Brazil Liechtenstein Solomon Islands
Brunei Darussalam Lithuania South Africa
Bulgaria Luxembourg South Ossetia
Canada Macau Spain
Chile Madagascar Sweden
Costa Rica Malta Switzerland
Croatia Marshall Taiwan
Cyprus Islands Trinidad and Czech Republic Mexico Tobago
Denmark Monaco Türkiye
Ecuador Netherlands Tuvalu
El Salvador New Zealand Ukraine
Estonia North Macedonia United Arab
Fiji Norway Emirates
Finland Palestinian United Kingdom
France (including Authority
United States overseas territories Panama Uruguay and collectivities) Paraguay Vanuatu
Germany Poland Vatican City
Greece Portugal Venezuela
Guatemala
Tier B. Nonresident foreign nationals holding passports issued by Tier B jurisdictions are subject to visa requirements. An entry visa may be obtained at a Nicaraguan consular bureau before travel or at the port of entry. However, Nicaraguan authorities strongly recommend travelers to check in advance as to whether airlines allow boarding in the absence of a visa stamped on the passport. Normally, visas are valid for up to 30 days, renewable for up to a total of 90 days. Tier B travelers who arrive in Nicaragua without a visa stamped on the passport may be required to pay an entry fee of up to USD50 (cash only).
The following are the Tier B jurisdictions.
Algeria Gambia Myanmar
Angola Georgia Namibia
Azerbaijan Ghana Nauru
Benin Grenada
Niger
Bhutan Guinea Oman
Bolivia Guinea-Bissau Palau
Burkina Faso Guyana
Papua New Guinea
Burundi Indonesia Peru
Cambodia Jamaica
Philippines