Nicaragua, located in Central America, offers excellent investment opportunities with its consistent economic growth, safety, and strategic location. The process of setting up a business in Nicaragua is quick and straightforward, with low entry barriers. Investors can take advantage of the growing middle class, thriving tourism industry, and government incentives that support various sectors. The first step towards entering this market with great potential is company formation/incorporation in Nicaragua. Below, we outline the six steps that investors need to follow for this process.
Step 1: Draft Act of Incorporation – This step requires at least two shareholders, who can be individuals or corporations, and a minimum start-up capital of C$10,000 (approximately US$400). A legal representative with Nicaraguan residency must be appointed, and the final act must be authorized and certified by a Nicaraguan public notary.
Step 2: Buy Accounting and Corporate Books – These books are necessary for company registration and can be purchased at local bookstores.
Step 3: Submit Act of Incorporation at VUI – The Act of Incorporation documents are submitted at the Ventanilla Unica de Inversiones (Investment Service) and processed by the Commercial Registry. A payment of 1% of the company’s capital is required, up to a maximum of C$30,000 (approximately US$1,200).
Step 4: Register as a Trader and Register Accounting Books – Once the act of incorporation is processed, the company must register as a trader and register the accounting books with the Commercial Registry. This procedure is also done at the VUI.
Step 5: Obtain the Single Registration Document – This document can be obtained simultaneously with the previous step. It includes the Municipal License, the License of the Nicaraguan Social Security Institute (INSS), and the Tax Payer Registration (RUC) of the General Revenue Department. The Single Registration Document requires a payment of 1% of the company’s capital.
Step 6: Legal Representation – For a corporation, shareholders must appoint a legal representative who is a Nicaraguan resident or citizen residing in the country. It is important to choose a trusted individual. The representative’s powers can be limited by the Board of Directors as deemed reasonable.
While Nicaragua welcomes foreign investment with a streamlined legal process, businesses operating in the country also face challenges such as inadequate rule of law, political instability, and arbitrary government regulations. Customs delays, arbitrary valuations, and excessive fines are common. The judiciary lacks independence and is prone to corruption. Property rights are difficult to defend due to increasing expropriations and land seizures. High energy costs and uncertainty in long-term planning due to nationalization of the electricity distribution company add to the challenges.
After incorporating a company in Nicaragua, businesses have obligations to report taxes monthly to both national and municipal tax authorities. Annual year-end inventory declaration and annual year-end income tax declaration are also required. Accounting records must be maintained in compliance with Nicaraguan regulations, and fiscal documents must be utilized according to policies established by Nicaraguan Tax Authorities.
Foreigners can own and operate businesses in Nicaragua without restrictions. The process of registering a company in Nicaragua typically takes 4 to 6 weeks. “S.A.” in Nicaragua stands for “Sociedad Anónima,” which is an anonymous society where the company is separated from its shareholders. “Compañía Colectiva” is a partnership where there must be a minimum of 2 natural persons as partners.
Both “S.A.” and “Compañía Colectiva” provide limited liability to their shareholders. The key differences between them include the number of shareholders, management structure, and size of the company.
Biz Latin Hub offers comprehensive market entry and back-office solutions in Latin America and the Caribbean, including company formation/incorporation in Nicaragua, legal services, accounting and taxation, hiring, and visa processing. Their extensive presence in the region and strong partnerships enable them to assist with international projects and entering new markets.