Nicaragua's New Tax Regime: Belt and Road SEZs

Roger Pérez, Partner at ARIAS Nicaragua and expert in Tax Law, and Eleonora Castillo, Paralegal at ARIAS Nicaragua, present this article on the new fiscal regime in the country:

The Belt and Road Special Economic Zones ("ZEE”, for its acronym in Spanish) represent a modern model for attracting and facilitating both foreign and domestic investment, which has been implemented in various countries around the world, such as Panama, Mexico, and China, among others. In Nicaragua, on October 31 of the current year, the Official Gazette No. 203 published Law No. 1264, "Law on the Belt and Road Special Economic Zones” (hereinafter, the "Law”).

The new Law introduces a regulatory framework governing the creation, organization, operation, administration, and development of ZEE, as well as the granting of benefits in various areas. Moreover, it aims to foster economic and national production development to ensure production growth, job creation, and the promotion of international trade. This Law applies to legal entities —public, private, mixed, national, or foreign.

Entities referred to above must operate as ZEE in sectors such as manufacturing, agroindustry, technology, value-added services that facilitate international trade, and other sectors deemed of national interest, as well as State bodies and entities directly or indirectly linked to their development. The new regulatory framework defines ZEE as: any delimited area within the national territory in which investments are established for the processing, transformation, and generation of value-added goods and services for export, enabling productive diversification, formal employment generation, technology transfer, and the strengthening of national competitiveness.

In this regard, every company operating under a ZEE must engage in processing, transformation, and value-added activities for the export of goods and services, in accordance with the Law’s provisions. These companies may be national or foreign:

• National ZEE: must be incorporated as commercial entities under Nicaraguan law, having as their sole corporate purpose the production of goods and services for export.
• Foreign ZEE: foreign companies may establish subsidiaries, consortia, or branches pursuant to the applicable provisions of the current commercial legislation.

In line with its fundamental objective — economic development— the Law establishes a comprehensive fiscal regime. It introduces incentives in tax, customs, port, border, administrative, and other applicable areas. Accordingly, companies operating under the ZEE regime shall enjoy the following tax and customs benefits:

1. Income Tax on Business Activities ("IR”): 100% exemption from income tax for a period of 10 years, renewable every 10 years indefinitely, provided they comply with applicable national legislation.
2. Dividend Tax: 100% exemption on dividends derived from economic activities for 10 years, renewable every 10 years indefinitely, subject to compliance with applicable laws.
3. Taxes and Fees on Non-Resident Foreigners: exemption from taxes and fees applicable to non-resident foreigners in connection with:
   1. loan interests;
   2. commissions;
   3. fees; and
   4. payments for legal, promotional, marketing, advisory, or related services, whether rendered abroad or in Nicaragua.
      
4. Customs Taxes: exemption from all taxes, customs duties, and excise taxes associated with imports of goods and services intended for their operation, as well as taxes applicable to equipment necessary for the installation and operation of any goods or services that seek to meet the needs of the personnel of companies operating in SEZs, including, among others, cafeterias, health services, medical assistance, daycare centers, and recreation areas.
5. Value Added Tax (VAT): exemption from VAT on local purchases and imports of goods and services used in ZEE operations.
6. Indirect, Sales, or Selective Consumption Taxes: full exemption from indirect, sales, or selective consumption taxes.
7. Transfer Taxes: full exemption from taxes on the transfer of movable and immovable property.
8. Municipal Taxes: full exemption from municipal taxes.

It is worth noting that these benefits do not include income taxes on wages paid to Nicaraguan or foreign employees working within ZEE-established companies.

In addition to the fiscal benefits, companies operating under ZEE will also enjoy the following administrative benefits:

1. simplified procedures in environmental, tax, customs, labor, migration, and other regulatory matters;
2. a single-window system for all import and export procedures within the ZEE;
3. facilitated port, airport, and border operations for import and export;
4. educational incentives through comprehensive training programs for human capital;
5. preferential energy rates;
6. preferential rental rates for state-owned industrial infrastructure;
7. long-term lease of state land under concession agreements.

The governance of the ZEE regime will be overseen by a Special Commission, composed of various national institutions and entities. The structure and operation of this Special Commission will be detailed in the forthcoming regulations of the Law. For its part, the administration of the ZEE regime will be entrusted to the National Free Zones Commission ("CNZF”, for its acronym in Spanish), which will be empowered to authorize, issue permits, and oversee the operations of companies under the ZEE framework. The applicable procedures will also be established in the Law’s regulations.

It is important to highlight that any disputes, claims, or controversies arising between the State and a foreign investor regarding the application, execution, or interpretation of the Law and its regulations must first be addressed through consultation and amicable negotiations before the competent authority. If no solution is reached within thirty (30) business days following the submission of the request, the foreign investor may submit the dispute to the applicable national legal framework or opt for international arbitration pursuant to treaties or international agreements to which Nicaragua is a party.

On the other hand, any conversely, disputes, claims, or controversies between the State and a national investor shall be resolved in accordance with the Nicaraguan legal system.

At ARIAS, we place our experience at your disposal to guide you through the process of applying for and obtaining these benefits -from the incorporation of the commercial entity to compliance with the new regulatory and fiscal provisions- ensuring adherence to the requirements established by Law.



The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.