How can a foreigner open a company in Nicaragua?

Nicaragua, located in Central America, offers excellent investment opportunities. The country boasts strong economic growth, security and a strategic location. Opening a business here is quick and easy, and entry barriers are low.

Investors can take advantage of a growing middle class, thriving tourism and government incentives to start a business in the country. Registering a company in Nicaragua is the first step towards entering this market with enormous potential.

Types of companies

Several types of companies can be registered in Nicaragua, including corporations, limited liability companies, limited liability partnerships, cooperative companies and sole proprietorships.

The appropriate type of company will depend on the business objectives, the size of the company, the number of partners or owners, the level of responsibility desired to be assumed, and other factors.

For example, if you are a company with several partners and want to limit the liability of each partner, then a limited liability company may be an appropriate option. If it's a small business and you want complete control over it, a sole proprietorship may be more suitable.

It is important to emphasize that in order to form a company in Nicaragua, you must comply with certain legal and financial requirements established by law. Before making a decision, it is recommended that you seek professional advice to ensure that you are choosing the right option and complying with all legal requirements in your country.

Business incentives

In Nicaragua, there are several incentives to motivate starting a business. Some of them:

• Tax incentives. The government offers tax incentives for new businesses in the first years of operation. These benefits may include exemption from income tax, VAT and import duties on machinery and equipment necessary for the operation of the company.
• Free zones. Nicaragua has free zones, which are demarcated geographic areas that offer tax and other incentives to companies locating there. These incentives include exemptions from income tax and VAT, as well as the elimination of import and export duties.
• Guarantee Fund. The Government of Nicaragua offers a Guarantee Fund to support companies' access to credit. This fund provides guarantees to banks so they can provide loans to companies that would otherwise not have access to financing.
• Training. Governments and other organizations offer training programs and technical assistance to companies to improve their productivity and competitiveness. These programs may include training in areas such as business management, marketing and technology.
• Investment legislation. Law No. 344 on attracting foreign investment establishes equal treatment of foreign and domestic investment, eliminates restrictions on the method of entry of foreign capital into the country and recognizes the right of a foreign investor to own and use property without restrictions.

Types of taxes and their percentages for companies

In Nicaragua, companies must pay different types of taxes, which are classified as direct and indirect taxes.

Direct taxes:

• Income tax. This tax applies to the profits earned by a company in a particular financial period. The percentage varies depending on the company's profit level and can range from 1% to 30%.
• Real Estate Tax. This tax applies to real estate owned by the company. The percentage varies depending on the cadastral value of the assets and can range from 0.25% to 1.5%.

Indirect taxes:

• Value added tax. This tax applies to value added when selling goods and services. The percentage is 15%.
• Selective consumption tax. This tax applies to certain goods and services that are considered luxury or non-essential, such as alcohol, cigarettes and high-end cars. The percentage varies depending on the product or service and can range from 5% to 50%.

Employers and employees also have to pay social insurance in the country, which is called «Social Security». By law, employers are responsible for paying taxes and social security contributions to employees to the Nicaraguan tax authorities. The employer makes the deduction directly from the employee's salary and reports it to the Social Security Institute. In addition, for non-residents working locally, there is a 20% withholding rate.

8 steps to register your company

Step 1. Select your company type

The first step when registering a company in Nicaragua is to determine the type of company you want to register. The most common types are:

• Limited Liability Company (Sociedad de Responsabilidad Limitada — SRL). SRL provides foreigners with the following advantages: full ownership of SRL, confidentiality, no taxes, two shareholders (participants), self-government, no mandatory share capital and limited liability.
• Corporation (Sociedad Anónima — SA)
• Branch of a foreign company

Step 2. Select a company name

Before registering your company, you need to choose a suitable name. The Nicaraguan Ministry of Development, Industry and Trade (MIFIC) has developed guidelines for acceptable names, which can be found on their website.

Step 3. Prepare the necessary documents

Next, prepare the necessary documentation for the type of company you have chosen. The key documents are:

• Charter (for SRL and SA)
• Application for company registration (for all types)

These forms can be obtained from the MIFIC website.

Step 4. Identify the company's officers and shareholders

You will need to indicate at least one director (for SRL and SA) or one representative (for a branch of a foreign company). Directors or representatives must be at least 18 years of age. Shareholders can be individuals and legal entities.

Step 5. Capital requirements

There is no minimum capital requirement for branches of foreign companies. The minimum investment amount is approximately $1,410 (including registration fee).

Step 6. Register your company

Once your documents are ready, you can submit your application to the Nicaraguan Ministry of Development, Industry and Trade (MIFIC). This can be done in person at their office or online.

Step 7: Register for taxes

After registering your company, you must register for taxes with the Nicaraguan Internal Revenue Service (DGI). This can be done in person at your local tax office or online.

Step 8. Obtain the necessary permits and licenses

Depending on your business, you may be required to obtain additional permits or licenses. Check with relevant authorities and industry regulators for specific requirements.

Time Frame: The entire registration process, from preparing documents to receiving your Certificate of Registration, can take anywhere from 6 to 8 weeks, depending on the complexity of your application.