BUSINESS OPPORTUNITIES

In this section we inform on international conventions and treaties, as well as on national laws, whose benefits and competitive advantages can be taken advantage of by foreign or national investors.

FREE TRADE AGREEMENT WITH THE UNITED STATES (CAFTA-DR) AND INVESTMENT OPPORTUNITIES

The Free Trade Agreement between the United States, Central America and the Dominican Republic (CAFTA-DR) has opened up new opportunities for Nicaragua, both in terms of trade advantages and investment. This agreement has fostered the country's economic growth and has provided several significant benefits.

One of the main advantages of CAFTA-DR for Nicaragua is preferential access to the United States market. The agreement removes most tariff barriers for Nicaraguan products, allowing exporters to compete on a level playing field in the US market. This has led to a significant increase in Nicaraguan exports to the United States, benefiting various economic sectors, such as agriculture, manufacturing, and services.

In addition to preferential access to the US market, CAFTA-DR has also facilitated foreign direct investment (FDI) in Nicaragua. The guarantee of protection and fair treatment for investors has generated confidence in the country's investment climate. This has led to an increase in investment in key sectors such as agriculture, renewable energy, manufacturing, free zone and tourism.

In the manufacturing sector, CAFTA-DR has boosted the growth of the garment and textile industries in Nicaragua. US companies have established factories in the country to take advantage of the agreement regarding the exemption of tariffs and the hiring of skilled labor. This has generated employment and has helped diversify the Nicaraguan economy.

The provision contained in CAFTA that allows manufacturing companies to use raw material from any origin/country, to be manufactured in Nicaragua, has been very important. This has given rise to the relocation and/or expansion of many companies to the country, taking advantage of the tariff advantages, the geographical ones due to the short distance with the North American market, the quality and low cost of labor with the advantage of affinity. culture between the two countries.

In the agricultural sector, CAFTA-DR has created significant opportunities for unique producers. The elimination of tariffs has allowed greater competitiveness in products such as coffee, beef, fruits and vegetables. As a result, Nicaraguan farmers have increased their exports to the United States and have diversified their export markets.

In summary, CAFTA-DR has provided investors in Nicaragua with a series of advantages and opportunities such as those already mentioned. Preferential access to the US market has increased exports and fostered the diversification of the economy. In addition, the agreement has stimulated foreign direct investment in strategic sectors such as agriculture, renewable energy, manufacturing, and tourism. In addition, CAFTA-DR provides stability and a solid legal framework that protects the rights of investors.

Ultimately, CAFTA-DR has been a catalyst for economic growth in Nicaragua and has provided significant opportunities for investors interested in doing business in the country.

FREE TRADE AGREEMENT (ADA) BETWEEN EUROPE AND NICARAGUA

This agreement has provided multiple benefits for both foreign investors and businessmen operating in Nicaragua, generating new opportunities, and strengthening trade relations with Europe.

One of the main benefits of the ADA Treaty for investors is preferential access to the European market. This agreement has eliminated a large part of the tariff barriers to Nicaraguan exports to Europe, which has allowed investors to access a market of 500 million consumers. This opening has boosted the growth of Nicaraguan exports to Europe, opening new business opportunities to diversify the country's economy. It has also encouraged foreign direct investment in Nicaragua.

European companies are interested in taking advantage of the trade opportunities and benefits of the agreement, such as exemption from tariffs.

Preferential access to the European market is particularly beneficial for Nicaraguan investors in sectors such as agriculture, manufacturing, and services. Nicaraguan agricultural products, such as coffee, vegetables, and tropical fruits, have found a strong market in Europe, which has stimulated investment and the expansion of agricultural production in the country. Similarly, the manufacturing sector has experienced significant growth with the entry of investors interested in taking advantage of the advantages of preferential access to the European market.

In addition, of access to the European market, the ADA Treaty offers Nicaraguan investors and businessmen guarantees of protection and fair treatment. This generates confidence and legal certainty to make long-term investments. The agreement also promotes cooperation in areas such as intellectual property, facilitating the transfer of knowledge and technology between Europe and Nicaragua.

LAW 917, EXPORT FREE ZONES LAW

The growth of companies in the free zone sector has been remarkable in the last 20 years, generating export volumes in US$ that already equal the value of Nicaragua's traditional exports.

The tax benefits of the free zone and the opportunities of the Free Trade Agreement with the United States (DR-CAFTA) have attracted investors from all continents. There are 183 free zone companies that generate 140,000 direct jobs and reached exports worth US$ 3.852 billion in 2022.

The most developed activities are clothing textiles, car harnesses and a growing sector of Back Office service companies, Business Process Outsourcing (BPO) and Call Centers.

THE TAX BENEFITS OF FREE ZONE COMPANIES

We indicate here the most relevant, not all those established in the law:

100% exemption during the first ten years of operation and 60% from the eleventh year onwards, from the payment of Income Tax generated by its activities in the Zone.

Exemption from all taxes, customs and consumption duties related to imports, applicable to the introduction into the country of raw materials, materials, equipment, machinery, dies, parts or spare parts intended to qualify the Company for its operations in the Zone.

Total exemption from indirect, sales or selective consumption taxes, such as VAT, ISC, etc.

Total exemption from municipal taxes.

Total exemption from export taxes on products fabricated within the Free Zone premises.

WHAT ARE THE REQUIREMENTS TO CONSTITUTE A FREE ZONE COMPANY

To enter the free zone regime, the main requirement is that the company allocate all its production to the export of goods or services abroad. Local marketing is not allowed.

The company must be incorporated in its public deed with a single corporate purpose. Existing companies under the general tax regime cannot transfer or convert their operation to be admitted operating under the free zone regime. Only apply an operation that, due to its characteristics, meets the requirements and is a new operation in the market.

WHAT IS THE PROCEDURE TO APPLY TO BE A FREE ZONE COMPANY

The National Commission of Free Zones (CNZF) is the authority with the powers to authorize applications from companies to be part of the free zone regime.

The applicant company must present all the legal, technical, and economic information and documentation related to its project: investment plan and schedule, estimated value of exports, labor to be generated, source of funds, investor information. In addition, information about the physical facilities must be presented: Plans, distribution of the physical plant, Project area, location.

The management and processing of admission to the free zone regime can only be carried out by consultants accredited and authorized by the National Commission of Free Zones. The request must be submitted under the methodology, guidelines and forms established for this purpose by the Commission.

Once the application has been submitted, the approval and authorization must be obtained, and if so, the rights and fees that apply according to the type of operation and classification, including the guaranteed deposit, will be paid.

TOURISM

Nicaragua offers a favorable environment for tourism investment, supported by the Tourism Incentives Law 306. This legislation provides a wide range of benefits that are highly attractive to investors. One of the key benefits is the exemption from import taxes, which means that tourism companies can purchase equipment and supplies without incurring additional costs. In addition, purchases intended for investment are exempt from VAT, which represents significant savings for investors.

Another important advantage is that the taxes for the purchase of vehicles for business also enjoy these exemptions, which facilitates the acquisition of the means of transport necessary for tourism development. Additionally, it enjoys a tax reduction of Income Tax, which in Nicaragua is the 30% that the investor would have to pay, to only 3% per year during the first ten years, which provides significant financial stability to investors. and fosters a favorable environment for growth.

The Tourism Incentives Law 306 also offers the possibility of extending benefits to 5 additional years through a new investment that exceeds fifteen thousand dollars. This provides flexibility and ongoing opportunities for those who wish to expand and expand their tourism business in Nicaragua.

It is important to note that the Nicaraguan Tourism Institute (INTUR) is the institution in charge of granting these benefits. To obtain these benefits, certain requirements are required, such as the presentation of a solid business plan, an investment plan that includes financing mechanisms, an operational management plan and a calculation of working capital for a period of six months. These requirements ensure that investments are viable and sustainable in the long term.

In addition to tax benefits and facilities for investors, Nicaragua has an undeniable tourist attraction. Its beautiful beaches and adventure tourism stand out as promising investment opportunities. With miles of unexplored coastline and impressive natural landscapes, Nicaragua offers an ideal setting for resort development, water activities, and extreme sports. The combination of tax benefits and exceptional tourism make Nicaragua an unbeatable destination for those looking to invest in the tourism industry.

OTHER INCENTIVE LAWS FOR ECONOMIC SECTORS

Law 344 Foreign Investment Promotion Law

Grants the foreign investor free access to the purchase and sale of foreign currency and free convertibility; transfers abroad of invested capital, as well as profits and dividends, payments for debts contracted abroad, income and technical assistance.

Provides the investor with legal certainty related to his investment and the enjoyment of the same rights as Nicaraguan investors.

Law 382 Temporary Admission Regime for Active Improvement

The spirit of this law is the promotion of exports. For this, the tax system is created to allow both the entry of goods for raw materials into the national customs territory and their local purchase without the payment of all kinds of duties and taxes, if these goods are re-exported as components of finished products, after being subjected to a process of transformation, elaboration, repair, etc.

In this way, the costs for export products that benefit from this tax regime are lower and their sales prices are more competitive abroad since they are not subject to the payment of taxes for the importation of raw materials or components.

Companies that export, directly or indirectly, at least 25% of their total sales and with an exported value of not less than US$ 50,000.00 per year can benefit from this regime.

Law 532 Law for the Promotion of Electricity Generation with Renewable Sources

This Law is aimed at promoting investment in renewable energy by granting the investor a series of tax incentives:

Exemption from the payment of Import Tariff Duties (DAI), of machinery, equipment, materials and supplies intended exclusively for pre-investment work and construction work; also, of solar panels and batteries for generation of solar energy.

Exemption from the payment of Value Added Tax (VAT) on machinery, equipment, materials, and inputs intended exclusively for pre-investment work and construction of the works.

Exemption from the payment of Income Tax (IR) and from the defined minimum payment of IR established in Law No. 822, Tax Agreement Law, for a maximum period of 7 years from the start of commercial or commercial operation of the Project.

Exemption from all current Municipal Taxes on real estate, sales, and registration during the construction of the Project, for a period of 10 years from the commercial operation of the Project, which will be applied as follows: exemption of 75 % in the first three years; 50% in the following five years and 25% in the last two years.

Law 694 Law for the Promotion of Income of Pensioned Residents and Rentier Residents

It grants benefits, mostly in the form of tax incentives, to those people who request to reside indefinitely in Nicaragua within the immigration category of Pensioned Resident or Rentier Resident. To obtain the status of Pensioned Resident, you must demonstrate that you receive a stable and permanent monthly pension abroad equivalent to US$ 600.00. And to obtain the status of Resident Renter, you must demonstrate that you receive abroad, in a stable and permanent way, income that generates a monthly amount equivalent to US$ 750.00.

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