Consortium Legal - Nicaragua
  April 16, 2004 - Managua, Nicaragua

Income Non Subject to Income Tax Payment
  by Xiomara Valverde Sequeira

The Income Tax is one of the most important taxes within the national taxation system because the subjects and activities that are affected by it are very wide. The Income Tax is regulated by the Fiscal Equity Law, which is published in the Daily Official Gazette Num. 82, on May 6, 2003. This Law establishes that the tax base to calculate the annual income is the net rent, which is the gross income obtained by the taxpayer minus the deductions authorized by law. The Fiscal Equity Law, in Article 5, defines the concept of gross income as the income of any nature received and accrued by the contributor during the taxable year and that is not specifically exempted by the law. Despite the aforementioned, this same law, in article 11, establishes as exempted the revenues not constituent of income and therefore not subject to the income tax law. These are: 1. The National Lottery prizes, except those over Fifty Thousand Córdobas which are subject to a 10 % withholding in the source of income. 2. The sums received in concept of insurances, unless the insured object was income or product, in which case they are considered as income. 3. The indemnities workers or their beneficiaries receive, contemplated in the Labour Code, Collective Agreements subscribed under the Labour Code, and other labour nature indemnities, and any income received according to social security legislation. 4. The thirteenth month or Christmas bonus. 5. Interests from deposits placed in current accounts, savings account, fixed-term accounts and deposit certificates, which an average balance of less than Five Thousand USA Dollars (US $ 5.000,00) a month or their equivalent in national currency, converted applying the official exchange rate, as well as the interests of the financial instruments with terms over four years. Financial instruments are those considered as such by the Superintendence of Banks and Financial Institutions. 6. The dividends or profit sharing ordered or distributed to shareholders or partners, domiciled or not in Nicaragua , by Corporations that pay IR. 7. The interests of mortgage certificates, bonds and other credit instrument issued by the Government. 8. The interests yielded by credits granted by international credit institutions and development agencies or foreign governments institutions. 9. The interests yielded by loans granted to the State and their institutions, by banks or foreign private institutions. 10. The interests yielded by short, medium and long term loans granted by banks or foreign financial institutions to national financial institutions and to national persons and companies. Anyone interested must prove to the "Dirección General de Ingresos, DGI" (General Direction of Income) that the bank or financial institution is duly authorized by the competent authority in the country of the organization that grants the loan. 11. The interests, capital gains and other income perceived from credit instruments acquired in stock markets duly authorized to operate in the country by natural or artificial persons residing abroad. 12. Nicaraguan diplomatic representatives, if they are subject to analogous benefit in the country where the representation is located. 13. Income received by natural persons residing abroad and who occasionally provide technical assistance to either the State or official institutions, as long as these remunerations were donated by governments, foreign or international institutions. Anyone interested must provide proof with an endorsement issued by the Ministry of Foreign Affairs (MINREX) to the "Dirección General de Ingresos, DGI" (General Direction of Income). The aforementioned income concepts (non taxable income constituent) are those that the law restrictively releases from paying the IR.