The original article eight of Law 532 “Law on Promotion of Electricity Generation with Renewable Sources” established that the period available to all national or foreign investors involved in economic activities related to this law, would be ten years. Those ten years were counted from the date such norm came into force. The Law in question became effective on May 27, 2005, as stated in The Gazzette, issue No. 102, of the same year. This meant that since last Thursday, May 28, 2015, those benefits would no longer be available to interested investors.Considering the economic peak in the “green” energy sector, as well as the change and diversification we are experiencing in the energy matrix, the extension of these tax benefits that the Government insists on promoting is very timely. The initiative to reform Law No. 532 outlines a modification to the original term in order to establish that the tax benefit application period will conclude on January 1st, 2018; that is, the opportunity to benefit from these incentives would be extended for over two years.
Benefits provided by Law No. 532 are listed in article seven (7) and they are as follows:
1.Exemption from payment of import duties (DAI in Spanish) for machinery, equipment materials and supplies used in pre-investment and construction work.
2.Exemption from payment of Value Added Tax (IVA in Spanish): similarly to import duties, this exemption applies to machinery, equipment materials and supplies used in pre-investment and construction work.
3.Exemption from Income Tax (IR in Spanish): for a maximum period of seven years counted from the date when the project initiates operations.
4.Exemption from all Municipal Taxes: there will be a ten year extension for all taxes applicable to real estate property, sales, licenses. These ten years will be counted from the date when the project starts operations. However, this is a partial exemption and it is distributed as follows: 75% in the first three years, 50% in the next five years and 25% in the last two years. The above does not apply to geothermal projects according to article 68 of “Law No. 443 Law of Exploration and Exploitation of Geothermal Resources”.
5.Exemption for the Exploitation of Natural Resources: exemption from taxes for the exploitation of natural resources for a maximum period of five years.
6.Exemption from Stamp Tax (ITF in Spanish): that may result from the construction, operation or expansion of a project for a period of ten years.
In conclusion, an extension to the original period will be a great benefit to continue promoting “green” energy projects in Nicaragua. Having these series of tax benefits is the kind of initiative that attracts foreign investment to our country. Therefore, we applaud the approval by the National Assembly of the abovementioned reform and we encourage investors to explore the potential available in Nicaragua.
By: Avil Ramírez Mayorga
CENTRAL LAW Nicaragua