When people sign up for our free updates we always ask: “What’s the top thing you would like to know about San Juan del Sur?”
Looking back over the past year, questions about starting a business keep coming up.
So in order to get them answered, we collected the best questions and sent them to Eduardo Cabrales Cuadra, attorney with the legal firm Garcia & Bodan.
His answers are relevant whether you’re a San Juan del Sur veteran or just starting to explore Nicaragua as a place to find a business niche and fund your life.
Let’s dive in:
Can foreigners own a business in Nicaragua?
Definitely. The most important thing for Nicaragua (and I´m sure every Government) is for businesses to pay income tax on their operations. So, as long as you are law-abiding and pay your taxes, Nicaragua welcomes all business operated by foreigners.
Do you need to be a resident to start a business in Nicaragua?
As per my previous answer, the key element to operate a business in Nicaragua is tax payment. For this you need a RUC ID (tax payers ID) which is only granted to residents. You can get a RUC ID for a Nicaraguan Company, or a foreign company registered in Nicaragua as these legal entities are considered to be residents.
What kind of businesses has Garcia & Bodan helped expats with in San Juan del Sur?
Because of our location in San Juan del Sur, most businesses operate in the real estate and tourism sectors. To give you a few examples, we’ve helped expats set up construction companies, real estate development companies, businesses dedicated to hotel and restaurant operations, tour operators, recreational activities, boat charters, wood development companies and, most recently, San Juan’s own brewery company.
What are the steps to setting up a business in Nicaragua?
While not required by law, our recommendation for your first step should be to create a business plan. As attorneys we are one of the first people entrepreneurs seek once they have their mind set on a certain business. And we see some great ideas fail because there is no sense of a mid or long term plan. You should also develop a budget to make sure you are financially covered to set up your business.
What permits are needed?
The normal permits to operate are the RUC ID and the Municipal License. These represent the two main taxes you will be paying, so naturally all businesses must be registered with these institutions. If you plan to hire staff you will also need to register your employees with Social Security.
Other permits may be required depending on your specialization. For example, if you are running a restaurant, you will want a liquor license granted by the police department, a fire department check, and a health certificate. These three are granted after a joint site inspection. If you have a hotel, you’ll also want to get a license from INTUR, the Nicaraguan Tourism Institute. If you have boat business, then you will have to get permits from the Transport Institute. Again, it depends on the activity of your business.
What is the process for getting permits and registering employees?
The first thing you need is your RUC ID. Once you have this document you can start obtaining the others. Again, there are a couple of ways of getting the RUC ID, either personal, or through a company. Depending on your initial capital investment, you will be subject to a fixed monthly payment, or the general regime for taxes where you pay depending on income (the maximum being 30% of your net income.) If you have a company, you automatically go into the general regime and will pay the maximum.
After that, the different institutions will set out requirements for each permit. There is a degree of overlap in the documents required such as RUC ID, Municipal License, lease or title of your business, legal documents for the company, and then special requests depending on the type of permit.
Registering with Social Security is easier. It involves filling out a series of forms with information about the business and each of the employees.
Does it make sense to start a Nicaraguan corporation for the business?
If you want a jump start, yes, it does makes sense. The reason I say this is because if you have a company, you do not need to become a resident to start the business. As we mentioned before, since the company is national and considered a resident, it can get a RUC ID, which is what you need to get going.
This would save you the waiting time for getting your Nicaragua residency, which is the other route to follow in order to get a RUC ID. Setting up a company can be done in 3-4 weeks, whereas the residency process can take longer. Incorporation also separates your personal assets from those of the company, limiting your liabilities to the company’s capital and/or your personal investment in the business.
What are the steps to open a Nicaraguan corporation?
First you must select the type of company you want to have. While our Commerce Code outlines 4 types, the most common is the Sociedad Anónima. To set up a company, you must comply with the terms and conditions established by our Code, and then determine basic information about governance, share distribution and scope of business.
We guide you through the document to confirm that all is according to law, and highlight the relevant parts where your input is needed to make sure the articles of incorporation of your company fulfill your needs as a business. Once you have the draft ready, you go ahead and sign the document in the presence of a notary. Once signed, the document must be recorded in the Public Records, along with the registration as merchant/business.
What are the requirements for filing taxes for the business?
Nicaragua now has an online tax filing system. After you register the company in the Public Records, the next step is to obtain the RUC ID, and sign a contract that provides a username and password for tax filings. At this point, and in order to take advantage of the different accounting techniques (ie. write offs and deductions), we recommend you hire an accountant to keep your books and do your filings.
Are there any tax incentives and benefits that expats can take advantage of?
Yes. The most popular one in this area is Law 306, which is the Law of Incentives for the Tourism Industry. This is not only for expats, it is for tourism entrepreneurs in general. Basically, the law establishes tax incentives on tourism related activities – from the hotel industry, to food and beverages, recreational activities, etc. The law is very specific on what types of activities are welcomed, the requirements needed and the process of obtaining the approvals.
How can business owners get approval for tax incentives and benefits?
For this specific law, you must prepare a project profile along with the legal documentation of your business. There are specific requirements depending on the categories. If you complete all of them, INTUR will receive your project and study it. The legal department and technical department will review the file to present to the Tourism Incentives Board, which is formed by representatives of different government institutions; who will vote to approve or reject the project. If it’s approved, this is made public in the National Gaceta, and you will have a Tourism Contract outlining the terms and conditions of the agreement. These will vary depending on the activity, and a deposit may be required.
What services do Garcia & Bodan provide?
We can assist with forming the company or obtaining the RUC ID, and residency if needed. We can also help negotiating lease agreements or the purchase of real estate where the business will operate, as well as helping with necessary permits and paperwork. Finally, we offer legal counsel and assistance in filing for, following up and securing Law 306 approval to obtain the tax incentives granted by the law.
Over to you
So, are you thinking of running a business in San Juan del Sur? Share your thoughts in the comments below.
This answers above provide general information only. If you need help with your specific case, you can contact Eduardo at Garcia & Bodan.
If you found this post useful, we recommend another interview with Eduardo: The Essential Legal Steps to a Secure Property Purchase in Nicaragua.