Registration of ultimate beneficial owner and its proper compliance in Nicaraguan commercial companies

By: Karla Abea

The registration of the beneficial owner is an obligation that falls on all the mercantile companies registered in Nicaragua. As of August 25, 2020, through Law number 1035 of August 25, 2020: “Law of Amendment to Law No. 698, General Law of the Public Registries and the Commercial Code of the Republic of Nicaragua”, the first obligations to register the beneficial owner of all Nicaraguan companies were created.

In addition to the publication of Law number 1035, the National Directorate of Registries (DNR) issued subsequent Regulations and Circulars through which the whole process to register the beneficial owner was established and regulated, part of these instruments are the Regulations for the Operation of the Registry of Beneficial Ownership of Business Corporations (hereinafter NFRBF), Circular number 008-2021DNR and 009-2021DNR.

In order to comply with this obligation, through Circular number 008-2021DNR, the deadlines in which the commercial companies had to comply with the registration of their beneficial owner were determined, according to their corporate name, the companies whose name begins with the letters of the alphabet from A to H corresponded to the first cycle that ended on October 18, 2021 and the companies whose name begins with the letters from I to Z, had to register in the second cycle, at the latest on April 18, 2022. Thus, by this date, all companies should have registered their beneficial owner.

In addition to the commercial companies registered in Nicaragua, the NFRBF also established the obligation to register the beneficial owner of the branches of foreign companies registered in the country, under a special procedure and deadline that to date has not yet been determined, so these entities are not yet required to comply with this registration but they do have the option to request to the DNR a Certificate of non-registration that allows them to support that to date they do not have an established mechanism to comply with the registration.

The beneficial owner registration process is completely online, through the beneficial owner registration platform enabled for this purpose by the competent authorities, for which the designated person must create an account in the system and a business profile, as long as he/she has the authorization of the company to carry out the registration.

Regarding the information to be provided in the Beneficial Ownership Register, the NFRBF in articles 5, paragraph 3 and article 7, paragraphs 3 and 4 has determined that all the complete, clear and precise information of the shareholders of the company and their chain of ownership, up to natural persons, must be recorded. In other words, the declaration must provide the necessary information and documentation of each of the natural and legal persons involved, at the different levels, in the chain of ownership of the company.

Likewise, Article 11 of the NFRBF contemplates special situations for specific entities, such as legal entities listed on the stock exchange, for which all the information of the company must be completed in the system, such as: name, registration data, country of origin and residence, domicile, shareholding percentage, information of the Legal Representative and additionally register the name of the stock exchange, the country and code under which the company is listed. Additionally, a certificate from the stock exchange must be submitted indicating that the legal entity is listed on the stock exchange.

Regarding the beneficial owner of a state or multilateral entity, the name of the entity, domicile, country and name of its legal representative must be indicated; legal entities owned by the State must indicate the name of the company, name of the country and date of incorporation.

In addition to the information detailed above, the National Directorate of Registries has the power to request any other information it deems pertinent.

The supporting documentation to be submitted to the Registry of Beneficial Owner, as established in Circular number 009-2021DNR, corresponds to the legal entities that are shareholders of the national company, which must attach the Articles of Incorporation, Certificate of Registration and updated Certificate of shareholder composition, which must be apostilled and in Spanish language. Otherwise, the aforementioned Circular allows the companies to present a Notarial Declaration at local level where all the required information of the foreign juridical person is stated, which must be granted by the legal representative of the Nicaraguan company.

Once the first beneficial ownership registration has been made, corporations are obliged to make an ordinary update every twelve months, when there have been no changes in the corporation and its shareholding chain, or an extraordinary update when any modification is made that reforms the corporation or affects the beneficial ownership declaration.

In practice, as recommended by the DNR, the companies that made the registration outside the cycle that corresponded to them, must comply with the update within the dates established in Circular number 008-2021 in order to be within the period of compliance with the obligation.

Failure to register the beneficial owner or to update it in due time and form, leads to the imposition of fines established in Chapter VI of the NFRBF, but in addition to this, the consequences go beyond a pecuniary fine, since the registry traffic is also immobilized, so they will not be able to make any type of registration in the Public Mercantile Registry.

At present, as of the entry into force of the Law of Amendments and Addition to the Law of the Notary Public and the Commercial Code of the Republic of Nicaragua, Law number 1113, which entered into force as of April 4, 2022, Nicaraguan Notaries will not be able to issue any public instrument in which a company is a party that has not complied with the obligation to register its final beneficiary; the above limits the development of legal activities of the companies.

Likewise, the national financial system will not be able to carry out any type of transaction with companies that do not present the updated Certificate of Beneficial Ownership and in the same way, in the institutions of the State, it will not be processed any request made by legal entities that are in noncompliance with this obligation, This includes the impossibility of managing Municipal Solvency, fiscal procedures such as updating data, unblocking the Single Window of the taxpayer where the fiscal solvency is managed, participating in bids, carrying out customs processes, among others.

With the above, we can conclude that the Beneficial Ownership Registry and its updating is an obligation that must be complied with by all commercial companies registered in Nicaragua in order to avoid the imposition of sanctions and limitation of their legal, commercial and financial activities.