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Hiring in Nicaragua

Nicaragua, officially known as the Republic of Nicaragua, is a country in Central America. Managua is the capital and the largest city of Nicaragua. Spanish is the official language and Cordoba is the official currency. Nicaragua is a low income country that is largely dependent upon the agriculture sector. Nicaragua’s main trading partners are the United States, El Salvador and Mexico. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Nicaragua’s legal and tax regulations. Employment regulations including probation, holidays and termination are covered by the Labor Code. Labor Code stipulates that employees are entitled to 15 days of annual leave. Residents and non-residents are taxed on their Nicaragua-source income only. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with Nicaragua’s Labor Code and tax laws.

statutory labor requirements

Probation Period

  • Trial period cannot exceed 30 days

Annual Leave

  • Employees are generally entitled to 15 calendar days of paid leave every six months. 
  • Such leave should be taken all at once, but alternate arrangements may be made.

Public Holidays

  1. New Year's Day (1st January)
  2. Maundy Thursday (9th April)
  3. Good Friday (10th April)
  4. Labor Day (1st May)
  5. Mother's Day (30th May)
  6. Sandinista Revolution Anniversary (20th July)
  7. San Jacinto Day (14th September)
  8. Independence Day of Nicaragua (15th September)
  9. All Souls Day
  10. Feast of the Immaculate Conception (8th December)
  11. Christmas Day (25th December)

Maternity Leave

  • Female employees are generally entitled to four weeks of maternity leave before the birth and eight weeks after. 
  • The Social Security Institute pays 60% of her salary and the employer pays the remaining 40%.

Paternity Leave

  • There is no statutory paternity leave

Sick Leave

  • If the employee has a non-work related illness or injury, s/he is generally entitled to 26 weeks of leave, but this is often increased to one year. 
  • The first three days are unpaid, unless the company has established a practice of paying for those days.

Work Hours

  • The work week should not exceed 48 hours or eight hours per day.

Overtime

  • Overtime hours may not exceed nine per week and are compensated at a rate of 200% of the standard wage.

Notice Period

  • Employees must provide 15 days’ notice

Severance

  • In general, the employee is entitled to pay as follows:
    • up to three years of service: one month’s salary for each year or fraction of a year
    • four to six years: 20 days’ salary for each year
    • 7+ years: five months of salary

13th / 14th Month Pay

  • Yes (Mandatory)
  • There is a statutory requirement to pay the 13th month salary 'Aguinaldo'.
  • This is an extra month salary that must be paid in the first 10 days on December. 

income tax

  • Nicaragua taxes its citizens and all residents and non-residents on their income originating in Nicaragua. 
  • Taxable income that originates in Nicaragua obtained by non-residents or non-domiciled persons is determined as a percentage of gross income, depending on the nature of the income.
  • Income derived from self-employment or from trade or business activities is taxable. 
  • Resident individuals are subject to progressive tax rates ranging from 10% to 30% of net self-employment and business income. 
  • Nonresident individuals are subject to a flat 20% withholding tax on this income.
  • Residents are subject to income tax according to the progressive tax rates shown below:

Taxable income (NIO)

Minimum tax charge (NIO)

Tax on excess (%)

Over

Not Over

0

100,000

0

0

100,000

200,000

0

15

200,000

350,000

15,000

20

350,000

500,000

45,000

25

500,000

And above

82,500

30

deductible expenses

Employment Deductions

  • An employee's social security contribution (7.00%) is considered as a deductible expense for income tax purposes.
  • The contributions from employees to saving funds and/or pensions, other than social security, are deductible, provided that these funds have the endorsement of the corresponding authority.

Personal Deductions

  • 25% of education, health, and professional services are deductible up to a maximum amount of NIO 20,000.

Business Deductions

  • Personal business-related expenses are deductible if properly documented and accounted for and if accepted by the fiscal authorities as proportional to income originated by the business activities. 
  • Total business expenses can be determined ex officio by the fiscal authorities as a percentage of gross income.

Deductible Expenses

Employment Deductions

  • An employee's social security contribution (7.00%) is considered as a deductible expense for income tax purposes.
  • The contributions from employees to saving funds and/or pensions, other than social security, are deductible, provided that these funds have the endorsement of the corresponding authority.

Personal Deductions

  • 25% of education, health, and professional services are deductible up to a maximum amount of NIO 20,000.

Business Deductions

  • Personal business-related expenses are deductible if properly documented and accounted for and if accepted by the fiscal authorities as proportional to income originated by the business activities. 
  • Total business expenses can be determined ex officio by the fiscal authorities as a percentage of gross income.

 immigration

  • Visa-exempt nationals (also referred to as Category A nationals) can travel to Nicaragua without an entry visa and stay for a period of up to 90 days, extendable in country for an additional 90 days at the discretion of immigration authorities. 
  • Category B visa nationals can opt to secure a visa at a Nicaraguan consular post or on arrival at the Nicaraguan port of entry. 
  • Category C visa nationals must obtain a Consulted Visa from a Nicaraguan consular post with prior authorization from the Immigration Department of Nicaragua.  
  • As such, these visas usually involve an extended processing time.
  • Under Nicaraguan law, travelers seeking to enter the country to perform professional activities or undertake employment must obtain a work permit following admission into the country. 
  • However, according to the Visa and Residence Permits subdivision of the General Directorate of Migrations and Foreign Citizens, travelers seeking to enter Nicaragua to exercise professional activities for short time periods (up to 90 days) are not normally issued any type of special permit. 
  • The issuance of work visas requires the submission of extensive documentation. 
  • The validity of the Work Permit usually corresponds to the length of time the foreign national will be performing work activities in Nicaragua (up to one year) and may be extended for up to one year.

Type of Visa/ Permit

Documentation

Validity

Eligibility

Work Permit

  • Completed work permit application form
  • Copy of your biodata and stamped pages of your passport
  • A letter written by the company or organization that you will work
  • Articles of Incorporation of the Company
  • Employment contract validated by the Ministry of Labor
  • Evidence issued by the Ministry of Labor that your employer conforms with labor code 14 (90% of the employer's workforce has to be Nicaraguan)

1 year (can be extended)

Under Nicaraguan law, travelers seeking to enter the country to perform professional activities or undertake employment must obtain a work permit following admission into the country.

value added tax

  • VAT is imposed at a 15% rate on the sale of goods, rendering of services, grant of use of assets, and import of goods. 
  • Export of goods and services are subject to a 0% rate.
  • VAT exemptions are available for certain items, including medicine, real estate transfer, sale of used goods, basic food products, credit instruments, tuition, and textbooks and educational supplies.

VAT

Standard Rate

15%

Zero Rate

0%

Exempt Rate

0%

withholding tax

Dividends

  • Dividends paid to a nonresident are subject to a 15% withholding tax
  • The rate increases to 17% if the payment is made to a resident of a tax haven jurisdiction

Interest

  • Interest paid to a nonresident or a nonfinancial institution is subject to a 15% withholding tax
  • The rate increases to 17% if the payment is made to a resident of a tax haven jurisdiction

Royalties

  • A15% withholding tax applies to patent royalties paid to a nonresident
  • The rate increases to 17% if the payment is made to a resident of a tax haven jurisdiction

Technical Service Fees

  • Technical service fees paid to a nonresident are subject to a 15% withholding ta
  • The rate increases to 17% if the payment is made to a resident of a tax have jurisdiction

WHT

Dividends: -

 

Nonresident

15%

Residents of a Tax Haven

17%

Interest: -

 

Nonresident

15%

Residents of a Tax Haven

17%

Royalties: -

 

Nonresident

15%

Residents of a Tax Haven

17%

Technical Service Fees: -

 

Nonresidents

15%

Residents of a Tax Haven

17%

termination

  • Employees may be terminated for just cause, but the employer must request authorization for termination from the Labor Inspection Department ahead of time. 
  • If the employer terminates without authorization, the employee can sue. 
  • Proportional vacation pay and annual bonus pay are due to the employee on termination.
  • The employee is entitled to indemnification for years of service if it is an indefinite term contract and either the employee resigned with 15 days’ notice or the employee is dismissed with just cause. 
  • In general, the employee is entitled to pay as follows:
    • up to three years of service: one month’s salary for each year or fraction of a year
    • four to six years: 20 days’ salary for each year
    • 7+ years: five months of salary

statutory benefits

  • These are mandatory benefits as postulated by law
  • These include probationary period, annual leave, public holidays, sick leave, maternity leave, overtime pay, severance pay and 13th month pay.
  • Statutory benefits also include social security benefits

Statutory Benefits

Probationary Period

Annual Leave

Public Holidays

Maternity Leave

Sick Leave

Overtime Pay

Severance Pay

13th Month Pay

Social Security Benefits

payments and invoicing 

  • The ordinary tax year runs from 1 January through 31 December. 
  • Employers are responsible for withholding income taxes and social security contributions from the employees’ salaries on a monthly basis. 
  • Employees are not required to file an annual income tax return if their only source of income is employment compensation. 
  • Returns must be filed and any tax due must be paid within two months after the end of the tax year. 
  • Self-employed individuals and individuals with a trade or business must pay installments of advance income tax.

 ease of doing business 

  • The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
  • Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
  • According to the World Bank Nicaragua ranked 142nd in the World in 2019 in terms of ease of doing business.

employee accruals

   
Christmas Bonus%

"Based on one month bonus (payable by the 10th of December)
8.33%"

Christmas Bonus Over Vacations %

0%

Severance per Year %

Triggered only if the termination is unjustified and could amount to 5 months salary.

Vacations % Employees are entitled to an annual holiday of 30 days (8.24% of annual salary)
Notice %

No statutory notice period

Christmas Bonus Over Notifications% 0%
Vacations Plus% 0%
Total percentage of Salary (yearly) The total employment accruals as a percentage of salary per anum are equal to 16.57%

 

 employer accruals

Additional information (Country Accruals)

   
Pension and Disability 13.50%
Health insurance 6.00%
Labor Healthcare 1.50%
War victims 1.50%
Christmas Bonus 8.33%
Vacations 5.48%

Employer Accruals Additional information

    Employment Accruals
Annual Leave Employees are generally entitled to 15 calendar days of paid leave every six months. This equals 4.1% (15/365 days) of annual income
Maternity Leave Female employees are generally entitled to four weeks of maternity leave before the birth and eight weeks after.
The Social Security Institute pays 60% of her salary and the employer pays the remaining 40%.
This equals 40% of 23% (12/52 weeks) of annual income
Sick Leave If the employee has a non-work related illness or injury, s/he is generally entitled to 26 weeks of leave, but this is often increased to one year.
The first three days are unpaid, unless the company has established a practice of paying for those days.
This equals 50% (26/52 weeks) of annual income
Overtime Overtime hours may not exceed nine per week and are compensated at a rate of 200% of the standard wage. Depends on the numbe rof overtime hours worked
Severance In general, the employee is entitled to pay as follows:
• up to three years of service: one month’s salary for each year or fraction of a year
• four to six years: 20 days’ salary for each year
• 7+ years: five months of salary
This equals 8.33% (1/12 months) of annual income
13th Month Pay 13th month pay is mandatory
It must be paid by December 10th and is equal to one month’s salary.
This equals 8.33% (1/12 months) of annual income
Social Security Social security contributions are levied on salaries at a rate of 21.5% for employers This equals 21.5% of annual income

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