7 Reasons to Invest in Nicaragua - #6 Legal Framework
Aug 1st, 2010 by Kevin
Law for the Promotion of Foreign Investment (Law No. 344)
The main legislation that governs foreign investment consists of Law No. 344 for the Promotion of Foreign Investments and its bylaws, as well as other sector-specific laws that provide incentives for investment.
Law No. 344 provides: a) equal treatment of foreign and domestic investment; b) eliminates restrictions on the way in which foreign capital can enter the country, and c) recognizes the foreign investor’s right to own and use property without limitation, and in the case of a declaration of eminent domain, to receive proper indemnification. The law makes no distinction between acquisition, merger, takeover, or green-field investment. There are no restrictions in Nicaragua on converting or transferring funds associated with investments. Many transactions are freely and fully conducted in U.S. dollars. Remittances of investment capital, earnings, loan repayments and lease repayments are freely allowed through the private foreign exchange market operated by local financial institutions. The Law also contemplates:
- Total currency conversion
- Freedom to repatriate all capital and profits
- There is no pre-established minimum or maximum investing amount
- 100% international ownership permitted; there is no discrimination against foreign investors, whether it be on total ownership of the company or as shareholders.
- Prompt and fast depreciation of capital goods.
- National loans are accessible through local banks, according to their terms of approval.
- Property protection and security. The Nicaraguan law recognizes and guarantees the legal rights of national or international investors, property rights and the right to dispose freely of the goods, capital and the profits of the company (everything as established under the law).
On-going reforms of the judicial system and administrative procedures are expected to continue to improve the business climate and help attract increasing amounts of foreign investment into Nicaragua. Recent government actions have included successful performance under an IMF program that required a significant reduction in the budget deficit and provided new resources and debt relief; opening a "one-stop office" for investors in the Ministry of Development, Industry and Trade (MIFIC), and completion of a decade-long privatization program.
Nicaragua is a member of the Central American Agreement for the Protection of Industrial Property, and there is full protection under the law for intellectual property, including patents, trademarks and brand names. Nicaragua is also a member of the World Trade Organization and therefore adheres to the Agreements on the Trade Related Aspects of the Rights of Intellectual Property.
Nicaragua’s banking policies enable the free flow of financial resources to the private sector. Options to obtain credit include commercial and industrial loans, various types of credit lines, factoring, leasing, and bonded warehousing.
The Country has signed and ratified a total of 19 bilateral investment agreements with Mexico, Spain, Taiwan, Denmark, the United Kingdom, the Netherlands, Korea, Ecuador and the Dominican Republic, among others. The U.S.-Central America Free Trade Agreement (CAFTA), includes investment protection obligations that supersede provisions of traditional bilateral investment agreement.
Mediation and Arbitration Law (Law no. 540)
- The Law governs two methods alternate to the judicial process (Mediation and Arbitration) to expeditiously solve any dispute resulting from contractual relations.
- It can be used by both national and foreign investors, and by the State of Nicaragua to resolve differences on property and non-property assets.
- It applies both nationally and internationally, without detriment to the treaties, Conventions, covenant or any other instrument of International Law subscribed by Nicaragua.
- In the arbitration proceedings, the Court shall be composed of highly trained professionals who have special expertise in the area relevant for resolving the dispute, who are freely chosen by the parties, under the procedures previously agreed upon by the parties, and without their nationality being an impediment to act as such, unless the parties have so decided.
- Unless otherwise agreed by the parties, the maximum time established by law for the Arbitral Tribunal to issue its final award is 6 months starting from its creation date.
- Agreements reached by the parties through a Mediation process as well as arbitration awards resulting from an Arbitration process are final and enforceable without delay under the rules established by the Code of Civil Procedure of Nicaragua.
Other articles in this Series:
Reason #2 – Infrastructure Investment
Reason #3 – Investment Incentives
