Economy of Nicaragua

Exports & Imports

Nicaragua's economy relies on exports of agricultural products like coffee, meat, and sugar, along with light manufactured goods. Key imports include machinery, fuel, and consumer goods.

Infrastructure Development

Infrastructure development is a focus in Nicaragua, with a total road network exceeding 130,000 kilometers (as of 2020 data). However, progress on new projects like improving power generation capacity, railways (limited network), and ports (modernization needed) might be slower due to the recent political situation and its impact on investment.

Taxation

Reforms aim to improve tax collection efficiency (recent estimates suggest a large informal sector exceeding 40% of GDP according to The Heritage Foundation). However, challenges persist in achieving this goal.

Monetary Policy

The Central Bank of Nicaragua (BCN) is responsible for managing inflation and exchange rates. They utilize interest rates and foreign exchange reserves to influence economic activity and control inflation. Recent actions likely involve raising interest rates to combat inflation, which is estimated to be around 10.5% in 2023 according to The Heritage Foundation.

Trade Agreements

Nicaragua participates in the Central American Free Trade Agreement (CAFTA-DR) and benefits from free trade with the United States and other countries. They also have trade agreements with other countries, but recent political events could affect trade relations with some partners.

Tax system

Capital gains tax: Nicaragua has a separate capital gains tax for some types of assets, such as real estate. The rate can vary depending on the asset and holding period.
Corporate tax rate: The corporate tax rate in Nicaragua is a flat 30%.
Sales tax (VAT): Nicaragua utilizes a Value Added Tax (VAT) system with a standard rate of 15% applied to most goods and services. Basic necessities like bread and milk might be exempt.
Property tax: Property tax applies to both residential and commercial properties in Nicaragua. Rates vary depending on location, property type, and value.
Payroll tax: Yes, Nicaragua has a payroll tax system that includes contributions to social security. The employer withholds these taxes from employee salaries.
Tax deductions and credits: Tax deductions and credits in Nicaragua are limited compared to developed countries. Some deductions exist for business expenses and certain investments.
Tax compliance: Tax compliance in Nicaragua is considered a developing area. The government is working on improving tax administration, but challenges like a large informal sector persist.
Tax burden: The overall tax burden in Nicaragua is considered moderate to high for businesses due to the flat corporate tax rate. Individuals with lower incomes face a minimal tax burden, while higher earners pay a larger share through progressive income tax brackets.