MAIN AREAS OF INVESTMENT IN NICARAGUA

[URRACA]

MAIN AREAS OF INVESTMENT IN NICARAGUA INDUSTRIAL FREE ZONES FOR EXPORT

"Decree No. 46-91 and its Regulation Decree No. 31-92", establish the legal framework for the Industrial Free Zones for Export (IFZE) in Nicaragua.

The main objectives of the IFZE are the generation of employment, foreign investment, export of non-traditional products, acquisition of technology and the reactivation of Nicaragua's foreign commerce. These objectives are promoted through the establishment and operation of enterprises dedicated to the production and export of goods and services. Every IFZE must be approved and authorized by the National Free Zone Commission prior to starting operations and enjoying the tax incentives.

According to article 3 of Decree No. 46-91, the IFZE will be considered outside national territory for tax status for the time period established in Decree 46-91 and Decree 31-92. The inputs and materials needed by the Zones for the production and export of goods will be imported tax-free. The period to import these goods tax-free will depend on the type of the Free Zone.

There are three types of Free Zones:

Operating or Management Companies: These are the companies in charge of the administration of the Zone (The Tenants or Users and the Administered Zones are managed by the Operating Companies).

Tenants or Users: These are the companies authorized to produce and export goods and services (these companies are within the perimeter of the management companies).

Administered Zones (ZOFA): These are the Companies authorized to produce and export goods and services (these companies are outside the perimeter of the management companies).

TAX INCENTIVES:

- Operating or Management Companies

1. 100% exemption of Income Tax on operations in the Zone for a period of 15 years from the day operations begin.

2. Total exemption of import duties on machinery, tools, spare parts and other equipment needed to operate in the Zone.

3. Tax exemption on the creation, reform, merging or restructuring of the partnership or corporation, as well as all Stamp Taxes.

4. Total tax exemption on real property transferred to the Zone.

5. Total exemption of indirect taxes, sales tax and selective consumption tax.

- Tenants or Users and Administered Zones

1. 100% exemption on Income Tax during the first 10 years of operation and 60% as of the eleventh year on all activities in the Zone. This exemption does not include taxes on personal income, salaries, or fees paid to Nicaraguans or foreigners who work in the companies established in the Zone, but it does include payments to non-resident foreigners interest payments on loans or commissions, honorariums and remittances of money for legal services outside the country or in Nicaragua, costs of promotion, marketing and consulting. There will be no tax (IR) retained by the company for such payments.

2. Exemption of the Sales Tax and Capital Gains Tax on real property acquired without cost or through purchase, if the company is closing its operations in the Zones but the goods continue under the administration of the Free Zone.

3. Tax exemption on the creation, reorganization, merging, and restructuring of the partnership or corporation as well as stamp taxes.

4. Exemption of import taxes, custom's fees and consumer taxes on imports of raw material, equipment, machinery, parts and replacement parts, samples, molds and accessories needed by the company to set up operations in the Zone, as well as taxes on equipment needed for installation and operation of food services, health centers, medical services, childcare centers, recreational areas and any other type of support services needed for employees of a company operating in the Zone.

5. Import Tax exemption on transportation equipment, be it commercial, passenger, or for the normal use of the business in the Zone. In case of sale of these vehicles outside the Zone, the import duties will be collected on a sliding scale taking in consideration the time used in country, as is applied to the Diplomatic Corps or Multilateral Organizations.

6. Total exemption of Selective Consumption and Indirect Sales Taxes.

7. Total exemption of municipal taxes.

8. Total exemption of export taxes on goods produced in the Zone.

To qualify for the tax benefits, these companies must maintain a reasonable number of employees on its payroll in compliance with its application for admission to the Zone as well as maintain reasonable salaries and social benefits. In all cases, these companies are subject to the laws of the Republic of Nicaragua.

BANKING AND FINANCE

Law No. 314, "The General Law for Banks, Financial Institutions that are not banks, and Financial Groups", Law No. 316, "Superintendence of Banks and Other Financial Institutions, " and Law No. 317, "Organic Law of the Nicaraguan Central Bank" establish the legal framework for the Financial Institutions in Nicaragua.

DEFINITIONS

- Banks: Financial Institutions dedicated to mediation operations with resources obtained from the public in the form of deposits or other financial services.

- Financial Institutions that are not banks: Financial Institutions authorized to render services of mediation in the stock market or financial services with resources from the public regulated by special laws and under the supervision of the Superintendence of Banks.

- Financial Groups: Financial institutions that keep a very close business relationship (1. - Banks, 2. - Financial Institutions that are not banks; 3. - Juridical Persons whose objective is to be shareholders in any of the institutions mentioned in point 1 and 2).

According to article 3 of the Law No. 314 every bank in Nicaragua must be incorporated as a sociedad anónima (corporation).

None of the shareholders may own more than 20% of the shares of a bank, except the government and the juridical persons, national or foreign that, legally authorized, are dedicated to financial business, or whose only objective is to be a shareholder in banks and institutions that are not banks.

The people that seek to establish a bank must request it to the Superintendence of Banks, accompanied by the following documents:

- Draft of the Articles of Incorporation and By-Laws.

- Factibility study of the bank that includes the plans of the business, name and identifications of the members of the Board of Directors and the General Managers.

- Receipt of the deposit in the account of the Superintendence of Banks of 1% of the amount of the minimum social capital. Once the bank starts operations, this deposit will be returned. In case the petition is denied, the national treasury will keep 10% of the deposit; the rest will be returned to the parties. In case of abandonment, the national treasury will keep 50% of the deposit.

- Other required by other laws and the ones established by the Board of Director of the Superintendence of Banks.

Branches of banks from abroad

According to article 9 of the Law No. 314, banks from abroad that are legally constituted are able to operate in Nicaragua through a branch, without prejudice of being shareholders in other banks in Nicaragua. Banks from abroad that obtain the authorization to operate as one according to the Law No. 314, are considered domiciled in Nicaragua for all legal effects and will be subject to the laws of Nicaragua.

Social Capital

The social capital of a national bank or the branch from a bank from abroad may not be less than one hundred and twenty million córdobas (C$ 120.000.000.00). The Board of Director of Superintendence of Banks will update the minimum social capital required at least every two years in case there are monetary variations.
TOURISM

Law No. 306, "Law of Incentives for the Tourism Industry of the Republic of Nicaragua and its Regulation Decree No. 89-99", establish the legal framework for the Tourism Industry in Nicaragua.
This legal framework has the purpose of granting incentives and benefits to individuals or groups of people, national or foreign, working in tourism activities.

Tourism activity is of national interest, having basically an export character, which allows the inclusion of local labor, generating benefits for the economy and positive effects in the balance of payments of the country.

According to article 3 of Law No. 306 the following individuals or groups of people investing directly and dedicated to tourism services and activities duly authorized by INTUR, may avail themselves of the incentives of this Law:

1) Hotel Service Industry (Hotels, Motels, Apartment hotels, Condo-hotels).

2) Investments in Protected Areas of Tourism and Ecological interest, without affecting the environment, with prior authorization from the corresponding authority (MARENA), as well as in public places of tourism and cultural interest and in historic preservation enclaves.

3) Air Transportation

4) Water Transportation (Maritime, Fluvial and Lake Transportation).

5) Internal and Receptive Tourism; and Collective Transportation for Tourism by Land.

6) Food, Beverage and Entertainment Services.

7) Investment in filming of motion pictures and in beneficial events for tourism.

8) Rental of ground and water vehicles for tourists.

9) Investment in Tourism Infrastructure and Tourism Related Equipment.

10) Development of Nicaraguan Crafts; Recovery of Endangered Traditional Industries; Production of Traditional Folk Musical Events and of Folk Dances and publications and materials for Tourism promotion.

11) Small, Medium and Micro companies that operate in all areas of Tourism.

These individuals or groups of people investing directly and dedicated to tourism services and activities in Nicaragua will benefit with the exemptions and fiscal credits of the Law. The benefits and fiscal exemptions will depend on the type of project approved by INTUR according to article 16 of Law No. 306.

TELECOMMUNICATIONS

The telecommunication regime in Nicaragua is operated under free competition. The basic telephone service is private since 2001.

Telecommunication services are divided into the following categories: public, general interest, special interest, particular interest and non regulated services. In order to render telecommunication services, an interested party must apply for an authorization before the national administration, so-called TELCOR. The authorization takes on different names depending on the service applied for. For example, if the request is to render a public service, TELCOR grants a concession. If the request is to render a general interest service, TELCOR grants a general interest license. If the request is to render a special interest service, TELCOR grants a special interest license. If the request is to render a particular interest service, all that is necessary is to register before TELCOR. However, TELCOR may require that the interested party obtains a "permit" to operate. If the request is to render a non regulated service, all that is necessary is to register before TELCOR. If the request is to cover an emergency or for experimentation purposes, TELCOR may grant a "temporary authorization" if certain conditions are met. In addition to the authorizations above described, one also needs a "permit" to have a frequency assigned. It is important to note that a license, concession, permit or authorization granted by TELCOR cannot be hypothecated, sold, transferred or in any manner disposed of by the grantee. These authorizations are personal and non transferable. TELCOR charges the operators of telecommunications services for the service they render to ultimate users. The charges vary from service to service and within the services. In addition, there is a charge for using the radio electric spectrum. The charge will depend on the strength of transmission, width of band, and coverage of the area.

Jorge Giraldez-Benard
Latin American Advisors Company Ltd.
e-mail JGiraldezB@yahoo.com
YahooPager,MSN User name: JGiraldezB
P.O. Box 140064 Coral Gables, Florida 33114 EEUU
Voice (305) 597-1555 e-fax (425) 940-5605
Web site: http://www.inversionica.com/