Overview: Nicaragua

Contributed by Carlos Ayón-Lacayo and Victor Valle, EY Law

According to official figures, Nicaragua has maintained a growth rate of 4.7% and 4.5% in 2016 and 2017 respectively. However, due to the social and political unrest that the country has experienced since April 2018, the economy has slowed down. According to the Central Bank of Nicaragua, for 2018 the economy contracted by 5.016%.

Despite this, Nicaragua offers significant tax incentives in many industries, including import duty exemptions, property tax incentives and income tax relief. The country has a well-established free trade zone regime with significant foreign investments in textiles, car harnesses, medical equipment, call centers and back-office services. The construction sector has also attracted significant investments, driven by large infrastructure and housing projects, as well as by the telecoms sector, resulting in increased coverage of mobile telephony and broadband.

In reference to the current crisis derived from the arrival of COVID-19, the State of Nicaragua has not issued pronouncements or decreed the application of labor measures. For this reason, the employment sector has been implementing the tools or measures established by the Labor Code for events of force majeure and that affect the survival of workplaces. The main measures are:

  1. Collective suspension of employment contracts.
  2. Individual suspension by mutual agreement for a specified period.
  3. Cancellation of employment contracts as a result of the company’s request for definitive cease.
  4. Partial hiring to continue operations with a minimum of workers.
  5. Bilateral vacation enjoyment agreement between employer and worker.
  6. Reduction of shifts. The employer may decide on a shorter working day without a salary reduction.

Additionally, telecommuting is largely being applied despite the fact that it is not regulated by current labor legislation. Telecommuting can be implemented taking into consideration the same minimum rules and rights and guarantees for the benefit of workers established in local laws.

When it comes to the post-pandemic job market opportunities, it is very difficult to be able to predetermine Nicaragua’s short-term future. Many companies have been reducing operations. Despite this, the Government of Nicaragua has not decreed any special regulation, nor has it been made known if there is a plan to alleviate the situation in the short or medium term.

There are companies that, having access to information technologies, have been able to adapt and face new challenges. E-commerce platforms are in high growth due to their legal possibilities to operate in the local market.

In the financial sphere, the board of directors of the Superintendency of Banks and other Financial Institutions (SIBOIF), issued a statement in June establishing temporary conditions that financial Institutions can grant to debtors of all types of credits in all sectors of the economy.

The temporary conditions range from:

  • The deferral of payments.
  • Extending the original payment term.
  • Granting grace periods of up to 6 months for principal and interest.
  • Conducting an assessment of an individual case based on the institution’s internal policies.

This is subject to certain classification criteria of the portfolio or debt. All requests for temporary conditions have to be made before 31 December 2020.

Additionally, the crisis has forced the business sector to adopt e-commerce modalities and measures, which are not particularly regulated in local legislation. However, the legal basis of e-commerce is found in the political constitution on the principles of the right to protection and respect for privacy and freedom of business, that serve as a basis for contractual parties to freely agree on their contracts, provided that they do not contravene express law, morality or good customs.

In this sense, despite the fact that Nicaragua does not have legislation related to e-commerce, anyone who wishes to undertake contracting and activities related to e-commerce will have this possibility with public limitations, such as those related to consumer rights and data privacy.

The rights of consumers are regulated in Law No. 842 ‘Law for the Protection of the Rights of Consumers and Users’ and its regulations, contained in Executive Decree No. 36-2013. The protection of personal data is regulated in Law No. 787 ‘Law on Protection of Personal Data’ and its regulations, contained in Executive Decree No. 36-2012.

In the current circumstances, from the contractual standpoint, it is favorable to incorporate and apply the ‘rebus sic stantibus’ principle within the clause of the contracts in force and those that will be formalized in the future, since the crisis has had a direct impact on economic stability and compliance of contractual obligations. This leads to reviews of the repercussions and effects that the pandemic may cause to each of the contractual parties, with the objective of avoiding breach of contracts and finding healthy alternatives to face contractual obligations, particularly in service and lease contracts.

At EY LAW Nicaragua, we are currently advising all those companies and investors to adjust to changes in the current times and providing our support in advising and accompanying them in all legal and regulatory processes related to the above aspects.

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