Coastal Dreaming

Nicaragua has various incentive laws for priority sectors, such as the Tourism Incentive Law, the Renewable Energy Incentive Law and the Free Trade Zones Law (for export-oriented industries, including light manufacturing, agribusiness and contact centers). According to international agreements with WTO members (Doha Article VII), Nicaragua is now one of the few countries in the region able to provide free zone and other tax incentives to exporters.

Free Trade Zone Incentives Law
In 1991, the Government of Nicaragua approved a series of laws aimed at supporting the Export Processing Zones. These laws are currently being modified to provide even more benefits to the companies governed by this program, however they currently provide:

• Total tax exemption on income and property taxes
• Total exemption on municipal taxes
• Total exemption on taxes for machinery, equipment and raw material, and on transport and support services for the Free Trade Zones
• Total tax exemption on value added tax

Tourism Investment Incentives Law (Law No. 306)
Tourism is a very dynamic industry in Nicaragua, due to the country’s breathtaking natural resources and the fiscal incentives offered to investments in this industry.

1. Qualified tourism projects can receive the following tax benefits under Law #306:
   • 80% to 90% income tax (IR) exemption
   • Property tax exemption for 10 years (IBI)
2. Tax exemptions related to project implementation:
   • Value-added tax on design/engineering and construction services
   • Exoneration of import duties and taxes and of the General Value Tax (I.G.V.) for the local purchase of construction materials and fixed building
     accessories.
3. Tax incentives can be extended if project undergoes extensive expansions
4. Over 300 projects have been approved to benefit from this law since 1999.

Forestry Incentives (Law No. 462)

Nicaragua has 4.9 million hectares (49,000 sq kilometers) of suitable agricultural land available, of which only 1.0 million hectares (10,000 sq kilometers) are being utilized. With over 2.5 million hectares of lakes and lagoons (25,000 sq kilometers), the country enjoys ample water sources.

The New Forestry Incentive Law of August 2003 provides generous tax incentives for forestry plantations:

1. Ten year tax exemption on:
   • 50 percent of municipal taxes on sale of land.
   • 50 percent of profits.
   • The payment of taxes on real estate in the case of forest plantations and areas under forest management.
2. Companies investing in forest plantations can reduce 50 percent of the amount invested as costs.
3. Exemption from import duties for companies of secondary transformation and third transformation that import machinery, equipment and accessories excluding saw mills.
4. All state institutions must give priority in their acquisitions, to goods made from certified wood. Recognition of up to five percent higher pricing will benefit the certified producer.
5. 100 percent deduction of income tax when land is destined to reforestation projects or forest plantations.

Renewable Energy Incentives Law (Law No. 532)

The Law for the Promotion of Energy Generation from Renewable Sources promotes the development of new projects, expansion of existing ones, and biomass and biogas energy sources. Fiscal, economic and financial incentives are granted to this effect:

1. Exemption of customs duties on the importation of machinery, equipment, material and raw material necessary for all construction of stations, including sub transmission lines necessary for energy transportation from the generation facility to the Sistema Interconectado Nacional, or National Interconnected Grid (SIN)
2. Exemption of the Value Added Tax (IVA) levied on machinery, equipment, material and raw material utilized during pre-investment stage, construction of structures, including the construction of the sub transmission lines necessary to transport energy to the Sistema Interconectado Nacional or National Interconnected Grid (SIN).
3. For ―isolated systems with their own generation facilities, this exoneration covers pre investment, construction and all the investment made in distribution grids associated with the project (i.e. panels and solar batteries for solar energy generation)
4. Exemption of the income tax (IR) for a maximum period of seven years. During this same period, the income derived from the sale of carbon dioxide bonds will also be exempted.
5. Exemption of all the Municipal Taxes on real estate, sales and registrations during the construction of a project, for a period of ten years to be applied in the following manner: exoneration of 75 percent during the first three years; 50 percent the five following years and 25 percent for the last two years. Fixed investment in machinery, equipment, and hydroelectric dams will be exempted from all taxes and duties, for a period of ten years.
6. Exemption of taxes on the exploitation of natural resources for a maximum period of five years after the beginning of operations.
7. Exemption of Fiscal Seals Tax incurred by the construction or operation of the project or expansion of a project for a period of ten years.

Other articles in this Series:

Reason #1 – Tourism

Reason #2 – Infrastructure Investment

Reason #3 – Investment Incentives

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