Effective Tax Rate on Rental Income
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Nonresident individuals are liable to tax on Nicaraguan-sourced income. Married couples are required to file separate income tax returns.
The tax period for individuals in Nicaragua begins on 01 July of the current year and ends in 30 June the following year. The tax year 2019-2020 is from 01 July 2019 to 30 June 2020. The tax year 2020-2021 is from 01 July 2020 to 30 June 2021.
Taxpayers may request prior approval from the tax authorities to adopt as their tax period one of the following: 01 April to 31 March, 01 October to 30 September, or 01 January to 31 December.
INCOME TAX (Impuestro Sobre la Renta)
Income earned by nonresident individuals on Nicaraguan sources is generally subject to 15% final withholding tax. Calculation of taxable income depends on the classification of the income.
Rental income earned by nonresident individuals from leasing real property is taxed at a final withholding tax rate of 15%. The tax base is 70% of the gross rent. Consequently, only 30% of the gross rent can be deducted to account for income-generating expenses.
For rental income earned from real property on which no buildings have been erected, the 15% withholding tax is levied on 80% of the gross rent (only 20% of the gross rent can be deducted).
A withholding tax rate of 10% is levied on capital gains realized by nonresident individuals through selling real estate properties located in Nicaragua.
Immovable Property Tax (Impuesto de Bienes Inmuebles or Predial)
The property tax is levied at a flat rate of 1%. The tax base is 80% of the cadastral value of the property (land, buildings and permanent improvements), as assessed by the municipal cadastral office.
In Managua, property tax is levied on the 80% of the cadastral value minus the fixed amount of NIO40,000 (US$1,404).
However, property taxes are less important in Nicaragua than elsewhere, due to a failure to establish an up-to-date national cadastre. Reportedly, many smaller municipalities do not even collect the tax, as has been their responsibility since 1992, owing to lack of knowledge or technical capacity. Also, additional problems arise in many areas as a result of the insecurity and confusion of land titles, which makes it difficult to know who is supposed to pay the tax. Thus, paying local taxes in Nicaragua has been described as a voluntary act.
Net Assets Tax (Pago Mínimo Definitivo del Impuesto Sobre la Renta)
All individuals and entities engaged in business are required to make a minimum income tax payment at the annual rate of 1% on the monthly average of total assets.
Taxpayers are not liable for the net assets tax during the first three years of their business activity. Subsequently, no tax is payable when the average balance of assets is less than or equal to NIO3,038,625 (US$106,618).
The net assets tax is declared in the income tax return. The income tax to be remitted is either the minimum income tax or the actual income tax liability, whichever is higher. If there is no income tax liability because of capital losses, the minimum income tax is still payable.
Income earned by companies is subject to corporate income tax at a flat rate of 30%. Income-generating expenses are deductible when calculating taxable income.
CAPITAL GAINS TAX
Capital gains realized by companies are subject to capital gains tax at a flat rate of 10%.