Country Article / Postcards
Pay Less Tax in Nicaragua
Date: 12/10/2005Dear International Living Reader,
Good news for anyone buying or selling real estate in Nicaragua: The Nicaraguan government has reduced the title transfer tax from 4% to 1%, effective since October.
When you sell real estate in Nicaragua, you now pay 1% of the property price, as listed on the escritura (title deed), to the government. This is so the title can be transferred into the buyer's name.
This title transfer tax (also known as "credit against income tax") isn't, strictly speaking, a tax you pay, but rather a tax credit toward the seller's income tax--the title transfer tax is applied against the seller's income tax (if he files a tax return). There is no upper limit for this tax credit.
Note that, although deciding on who (buyer or seller) pays the title transfer tax is part of the real estate negotiation, it's the seller only who gets the benefit of the tax credit.
This tax reduction wasn't widely reported in the Nicaraguan media, possibly because many people under-declare the true value of their property on the escritura. Also, the tax credit is only of benefit if you pay income tax…most Nicaraguans don't. The government hopes, I imagine, that this transfer tax reduction will encourage economic movement through the proper payment of taxes.
I admire their optimism.
Lief Simon
Real Estate Editor, International Living
P.S. In other Nica news, the DR-CAFTA legislation is now in effect, which is good news if you plan to set up a business in Nicaragua. This will eliminate import duties for many things, a bit like Mexico under NAFTA, and make imports and exports cheaper and easier.
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