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Legal 500 Doing Business in Nicaragua

Contributed by EY Law Central America

Doing Business in Nicaragua graphic

Introduction

After hitting a record 5.1 percent growth in 2011, the economy slowed to 4.7 percent and 4.5 percent in 2016 and 2017, respectively. The 2018 economic forecast for Nicaragua is expected to weaken due to the social and political unrest the country has experienced since April. In the first quarter of 2018, rating agencies held their classifications for Nicaragua, keeping their ratings, the positive and risk factors and challenges for the country, according to the last revisions made in the last years.

According to the 2016 Standard of Living Survey by the National Development Information Institute, general poverty in Nicaragua dropped from 29.6 to 24.9 percent between 2014 and 2016; while in the same period extreme poverty fell from 8.3 to 6.9 percent. Despite this progress, poverty remains high.  Nicaragua is still one of Latin America’s least developed countries, where access to basic services is a constant challenge.

Positive Factors

• Sustained economic growth that closes the gap of income per capita in Nicaragua in comparison to countries with similar rating.
• Tendency to reduce external vulnerabilities.
• Sustained improvement of structural weaknesses, including governance and social indicators.
• Diversified energy matrix.

Risk Factors

• Weakening of the external balance or the external liquidity.
• Resurgence of tax imbalances.
• Low levels of income per capita.
• Rigidity of the monetary policy.

 

Quick facts

Population: 6.149 million

Unemployment: 3.6% (2017)

GDP:
$ 13.814 MM
Anual growth 4.8% (2017)
$4.007 per capita

Inflation: 5.60% (2018)

Language: Spanish

Ease to doing business:  131 of 190 (2018)

Capital city: Managua

Competitiveness index: 93 (2017)

 

Legal considerations to start a business in Nicaragua

The business owner or cluster should comply with the legal business system in Nicaragua, composed of the commercial, labor, tax and management laws.

Then, they should be part of a company model, e.g., an S.A. corporation, for the company to be legally recognized.

From a legal perspective, the minimum legal considerations to start a business in Nicaragua are the following:

Be legally incorporated in the Commercial Registry, through a deed of incorporation,

Obtain the Unique Taxpayer Registration number (RUC, in Spanish) before the General Directorate of Revenue (DGI, in Spanish),

Grant a Power of Management to the legal representative of the company,

Register as a taxpayer before the Tax Administration in the area where they want to operate the business and register the accounting ledgers,

Register before the authorities of the municipality or department of the future business

Register before the General Customs Office (DGA, in English) in the System for the Record of Importers in case consumption or capital goods will be imported.

It is essential that the emerging business open an account in the national or foreign currency in any private bank of its preference.

Note: if the business investment exceeds $30,000.00, the owner can register in the System for the Statistic Registration of Foreign Investment of Nicaragua, to obtain the Investor Certificate, as required by the Law to Promote Foreign Investment and its Regulations. This registration takes place in the MIFIC's Directorate of Policies for the Promotion of Investments and Exportations.

Advice from a law firm expert in corporate law to guide the business owner in the business incorporation, as well as in labor, tax and customs topics in the company.

Labor laws

In labor matters, the basic regulations are the following:

Law No.185 “Labor Code of the Republic of Nicaragua,” which regulates the main relations between the employer and the worker, offering employees protection for their rights.

Law No. 815 “Procedure Code for Labor and Social Security in Nicaragua,” which regulates the law procedure in the event of controversies from work relationships and the ways and modalities to execute rulings under the jurisdictional scope.

Law No. 664 “General Law on General Labor Inspection,” which regulates the labor inspection system, its organization, its powers and its competencies to promote and guarantee compliance of the legal provisions related to labor rights and work activities.

Law No. 618 “General Law on Hygiene and Occupational Safety,” which regulates the minimal provisions in terms of hygiene and occupational safety, its monitoring and set of actions to protect employees when performing their tasks.

Law No. 625 “Law on Minimal Wage,” which regulates the calculation of the minimal wage of employees depending on the economic sector in which they perform their tasks.

Law No. 539 “Law on Social Security,” which establishes the social security system to regulate and develop the rights and duties of the State and employees in terms of security. It regulates institutions, resources, standards and procedures based on social responsibility.

Note: The only objective of the data and requirements herein included is to constitute a reference and knowledge to get a residence in Nicaragua. For further information, it is recommended to refer to the General Immigration Office.

Procedures to get work visas

To get work residencies, the interested party and its legal representative should go to the General Immigration Office of the Ministry of the Interior of Nicaragua.

Below are the procedures to obtain a work visa:

Fill the application form;

Provide a letter for residence addressed to the General Migration Office.

Submit the passport and a copy. Citizens from CA-4 countries, in exceptional cases, can submit the original version and a copy of the valid identification card.

For the form, submit passport size photos.

Birth certificate, duly apostilled or authenticated depending on the case.

Certificate of criminal records, issued by the corresponding authority of the origin country, apostilled or authenticated by the Nicaragua Consular Office, the Ministry of Foreign Affairs of the country of origin and the Ministry of Foreign Affairs of Nicaragua.

Health certificate, issued by the corresponding authority of the country of origin or last residence, apostilled or authenticated.

Below are other common requirements necessary for the work visa category:

  • Letter requesting residence for work reasons. This letter should include all the contact documentation of the company, type of activity to which it is dedicated and the activities that foreigners will develop in the country, as well as the list and passport number of these people.
  • Letter of the Living Expenses issued in public deed.
  • Individual work contract, duly certified by the Ministry of Labor;
  • Public deed of constitution and statutes of the company.
  • Notarial commitment of the employer, guaranteeing the return to his country of origin once the work contract has concluded.
  • Photocopy of the deed of legal representation of the company.
  • Identification card of the legal representatives of the company.
  • Two proformas of the cost of the return ticket to the country of origin, from two different airlines, which should be delivered to the General Directorate of Migration and Immigration.

Note: The only objective of the data and requirements herein included is to constitute a reference and knowledge to get a residence in Nicaragua. For further information, it is recommended to refer to the General Migration Office.

Environmental regulations

The environmental legal framework in Nicaragua is based mainly on the Political Constitution and the General Law on the Environment and Natural Resources and its Regulations. The framework for the management of natural resources is regulated in the sectoral laws for each resource.

In Nicaragua, any new industry to be installed or aiming to be expanded or remodeled should have an Environmental Permit or Authorization from the Ministry of Environment and Natural Resources (MARENA) or the Municipality. To do this, the investor should refer to Decree No. 76-2006 Environmental Assessment System, the classification of activities that require environmental permission or authorization.

Any wastewater from the company should be subject to treatment before discarding  it in the environment. Decree 33-95 Gaceta No. 118 of June 26, 1995 established the quality that the wastewater of specific industries must have before disposing it into the environment. 

Any non-hazardous solid waste generated by your company will be regulated through the Nicaraguan Environmental Compulsory Technical Standard for the Management, Treatment and Final Disposal of Non-Hazardous Solid Waste (NTON 05 014 01) which establishes the way in which domestic and non-hazardous solid waste from production processes should be handled, treated and disposed.

If the company uses chemical substances that can be considered hazardous or toxic, it should comply with the Compulsory Technical Standard for the Handling and Elimination of Hazardous Solid Waste (NTON 05 015-02).

Most of the environmental regulations are of general application to all industrial sectors. However, some industrial sectors (dairy, slaughterhouses, food industry, coffee producers, wood, furniture, leather and footwear, textiles-clothing and handcrafts) have particular technical standards, establishing conditions of location, facilities, waste management, permits and authorizations.

Some standards to take into consideration are the following:

  • Health Rules on Hazardous and Non-Hazardous Solid Waste (RM 122-2008),
  • Technical Standard for the Management, Treatment and Final Disposal of Non-Hazardous Solid Waste (NTON 015-014-01),
  • Compulsory Nicaraguan Technical Standard for the Management and Disposal of Hazardous Solid Waste (NTON 05-015-02),
  • Compulsory Technical Standard for the Environmental Management of Used Oils and Lubricants (NTON 015-032-10),
  • Environmental Technical Standard to Regulate Wastewater Treatment and Reuse Systems (NTON 05-027-05),
  • Dispositions for Control Contamination from Discharges of Domestic, Industrial and Agricultural Residual Waters (Decree No. 33-95),

 For specific business activities:

  • Technical Standard for Environmental Control of Dairy Processing Plants (NTON 05-005-003),
  • Sanitary Standard for Facilities of Dairy Products and Derivatives (NTON No. 03 024-99),
  • Environmental Technical Standard to Protect  the Quality of Water Bodies Affected by Liquid and Solid Spills from Wet Coffee Producing Plants(NTON 05-028-01),
  • Technical Standard for the Environmental Control in Slaughterhouses (NTON 05 001-99).

Intellectual property

In Nicaragua, intellectual property has four modalities:

  • Brands and other distinctive signs,
  • Patents and new technologies,
  • Copyright and related rights,
  • New Varieties of Plants.

It is also protected by the Intellectual Property Registry of the Ministry of Industry and Trade of Nicaragua, where the business owner or his legal representative should register trademarks and patents that they aim to trade, for their protection and legal protection before third parties.

The business owner should file the intellectual property to enjoy the benefits of exclusive use, trade, transfer and legal security that only the Intellectual Property Registry can provide to commercial inventions and the rights they hold.

Legal regulation of brands:

  • Law No. 380 Law on Brands and Other Distinctive Marks and their Amendment,
  • Criminal Code,
  • Decree No. 83-2001 Regulation on the Law of Brands and Other Distinctive Marks,
  • Ministerial Agreement No. 22-2011 Niza Classification (Products and Services).

Legal regulation of patents:

  • Law 354 Law on Invention Patents, Utility Models and Industrial Designs and its Amendments,
  • Law 324 Law of Protection of the Integrated Circuit Diagrams,
  • Decree 88-2001 Regulation on the Law of Invention Patents,
  • Decree 38-2001 Regulation on the Law for the Protection of Integrated Circuits Diagrams,
  • Ministry Agreement 082-2002 International Classification of Brands and Patents.

Tax Regulations

They would be the following:

  • Law on Tax Agreement (Law 822)
  • Decree No. 01-2013 Regulation of the Tax Agreement Law
  • Law No. 453 "Fiscal Equity Law”

Ministerial Agreement 09-2016 "Complete List of Goods or Merchandise Exempt from the Payment of VAT included in Article 127 of the LCT".

The tax rules that every Nicaraguan company should comply with in relation to the payment of taxes to the Municipalities are the following:

Decree 10-91 “Arbitration Plan of the Municipality of Managua”,

Decrees No. 455 “Municipal Arbitration Plan”

It is important to mention that the State of Nicaragua recognizes a series of tax exemptions to promote business investment and the promotion of employment in our country. The following benefits are generally provided:

  • Tax benefits for the exportation of national goods of 0%,
  • Tax benefits for agricultural producers exempt from the VAT transfer,
  • Tax benefits for the forestry sector with exemptions of approximately 50% of the Municipal Sales Tax,
  • Tax benefits for the export industrial free zones (Law 917) with exemptions of 100% of the IR payment generated by its activities in the Zone during the first ten years of operation and 60% from the eleventh year onwards.

Means for conflict resolution

Nicaragua has two alternative ways of conflict resolution: "mediation" and "arbitration", legal institutions regulated by Law No. 540 "Law on Mediation and Arbitration".

Nicaraguan companies may use Arbitration as a quick and effective means to resolve their conflicts before the Mediation and Arbitration Center of the Chamber of Commerce of Nicaragua. 
Arbitration is an alternative mechanism for conflict resolution that arises from the free will of the parties, who delegate to an impartial third party -arbitrator- the resolution of their dispute and he, following the procedure previously determined by the parties, decides the dispute through a "arbitration award” that is mandatory for the parties.

Some of the advantages from arbitration is that the parties can resolve their differences or conflicts in a private way and in a shorter time than if they resorted to common courts of justice, allowing the parties to continue with their commercial relations after the conflict has been settled. Another advantage for contractual relationships involving parties from different jurisdictions is that it is an easily accessible solution. The parties therefore rest assure that an impartial third party will know about the controversy and resolve about it in a fast and impartial way.

Telecommunications market

In Nicaragua, there are twenty-one operators of Internet access service licensed by the Nicaraguan Institute of Telecommunications and Postal Services (Telcor). Out of that number, there are seven private companies.  Despite the wide variety of options, three companies dominate 85.7% of that market: Claro, Telefónica and Yota.

Claro is a company owned by América Movil group and owns 64.7% of the Internet market in the country according to the 2011 statistics that are the available through Telcor. For a better understanding: out of 1.8 million of inhabitants with Internet access, 1.1 million are Claro users.

Although Telecommunication laws in Nicaragua forbid and sanction market controlling behaviors,  the number of participants determines companies' decision whether to compete for clients.

Among the problems perceived in the country’s telecommunications market are that the rates charged by operators "are the highest in Central America" and that operators set expiration dates of "air time" for prepaid cards or electronic recharges they buy.

Claro’s great presence in the Nicaraguan market is due to its strong advertising campaign, in comparison to the competition that invests less in advertising their services.

Insurance Market

 Data of the Central Bank of Nicaragua show that the insurance market has shown a sustained dynamic behavior in the last year as reflected in the 2015 BCN Annual Report.

Generally, car insurance and liability insurance policies have grown in large numbers given the increase in vehicle fleet, fire and allied lines due to the good performance of the construction of houses and commercial buildings that stimulates other economic sectors, allowing the generation of higher demand in life and health insurance.

Nicaragua's share of the insurance market according to data from the Central Bank of Nicaragua is composed of

-          Lafise 36.67%
-          The Nicaraguan Institute for Social Security 20.24%
-          América Insurance 17.48%
-          ASSA Insurance 13.48%
-          Mapfre Insurance 11.78%

Energy production and commercialization

Nicaragua offers a wide variety of investment opportunities in the energy sector. The country has the potential of approximately 4,500 MW to generate renewable energy distributed among geothermal, hydroelectric, wind, solar, and biomass energy.

The investment projects of renewable energies also have prerogatives in energy hiring as well as attractive tax incentives.

The Nicaraguan Energy System has an installed capacity to generate approximately 1,346 MW and a maximum demand of 665MW. As of March 2017, 53% of the energy came from clean sources.  As of 2020, the country's energy matrix is expected to be transformed, reducing the production of energy from thermal or non-renewable sources to 45%. The new investment opportunities for the energy sector are:

  • Hydroelectric Energy
  • Geothermal Energy
  • Wind Energy
  • Solar Energy
  • Biomass

 

 

 

Legal Developments in Nicaragua

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