In Nicaragua, traditionally, non-profit legal entities were constituted as Associations, Foundations, Federations and Confederations which were granted legal personality by Legislative Decree of the National Assembly. The legal personality granted abroad was also recognized with which they carried out activities in Nicaragua, which in turn were obliged to be registered with the Directorate for Registration and Control of Non-Profit Legal Entities of the Ministry of the Interior. All these organizations enjoyed the same tax benefits, if the resources obtained were destined to the fulfillment of their objectives of constitution and bylaws, in addition to complying with legal and tax requirements.
With the entry into force of the General Law for the Regulation and Control of Non-Profit Organizations published in La Gaceta, Official Gazette No. 66 of April 6, 2022, the Non-Profit Organizations (NPOs) had to adopt the required legal transformations, since a new legal framework was established, applicable to some non-profit legal entities, both national and of other nationalities, that develop their activity in the national territory.
In this new legal framework, Non-Profit Organizations (NPOs) were denominated as non-profit legal entities, whose purpose is humanitarian, religious, cultural, educational, social or fraternal or for the realization of other types of altruistic actions that are generally financed with aid and donations, which were classified as follows:
- Religious and/or charitable.
- Civil and/or social, cultural, and educational.
- Sports, physical education, and physical recreation.
- Business associations.
Among the legal forms that could be accepted as Non-Profit Organizations (NPOs), we find:
- Association.
- Business Guild Entities.
- Chambers.
- Binational Chamber.
- Business Chamber of special organization.
- Mixed Chamber.
- Foundation.
- Federation.
- Confederation.
- Association Alliances between Non-Profit Organizations (NPOs) and State entities.
Art. 32 of the Tax Concertation Law (Law No. 822) identified and considered as subjects exempted from the payment of Income Tax on economic activities, to:
“3. Churches, denominations, confessions and religious foundations that have legal personality, with respect to their income from activities and goods destined exclusively for religious purposes;”
“4. Artistic, scientific, educational and cultural institutions, labor unions, political parties, Nicaraguan Red Cross, Fire Brigades, charitable and social assistance institutions, indigenous communities, non-profit civil associations, foundations, federations and confederations, which have legal personality;”
The above was modified with the recent amendments to the Law of Amendments and Additions to Law No. 1115, General Law of Regulation and Control of Non-Profit Organizations; Law No. 1040 Law of Regulation of Foreign Agents; and of Amendments and Repeals to Law No. 822, Tax Concertation Law, by which numeral 3 of art. 32 of the LCT has been repealed and in turn numeral 4 of said article was amended, as follows:
“3. Repealed.”
“4. Institutions of a trade union nature, political parties, the Nicaraguan White Cross, Fire Brigades, indigenous communities, which have legal personality”.
Therefore, the effect of the tax reform was to broaden the IR tax base and reduce the list of subjects exempted from Income Tax by economic activity. The latter must comply with their formal tax obligations as indicated in art. 33 LCT, which establishes the conditions to enjoy the subjective exemptions.
In this sense, the subjects exempted for income from economic activities continue to be subject to the rules that regulate the scope, requirements, and conditions for the application of the exemption:
- The exemption is understood without prejudice to the obligation to make the corresponding withholdings. Taxpayers who pay exempt persons or companies must inform the Tax Administration every month of the amounts paid, and the withholdings not made.
- When the exempt subjects habitually carry out lucrative economic activities with third parties in the market of goods and services, the income from such activities shall not be exempt from the payment of this tax.
- The exemption does not imply that the taxpayers will not be subject to tax audits by the Tax Administration.
- The other tax obligations that may correspond to them concerning the tax, such as registration, filing of returns, making withholdings, providing information on their activities with third parties, and any other that may be determined in the Tax Code.
On the one hand, all NPOs, regardless of whether they are considered exempt or not, are obliged to comply with legal requirements related to compliance with formal tax obligations, such as:
“19. To keep formal accounting records of their assets, with generally accepted accounting systems and under the tax provisions in force in the country;
20. To keep a Minutes Book, in which the resolutions adopted by the General Assembly and the Board of Directors shall be recorded;
21. To keep two accounting books, a journal and a general ledger, in an organized manner, applying generally accepted accounting principles;
22. To keep an inventory of the NPO’s assets;
23. To keep, conserve and guarantee the proper handling of the minutes, membership, journal and general ledger books; 24;
24. Submit to the General Directorate of Registration and Control of NPOs the accounting balances according to the fiscal period in force, together with a copy of the tax declaration made before the General Directorate of Revenues;”.
On the other hand, the NPOs that became part of the tax base in the Income Tax (IR) for income from economic activity, must comply with all the accounting and formal obligations, without prejudice to the general, formal, and other obligations established in the Tax Code and other tax regulations, such as:
- Provide the financial statements, annexes, returns, and other documents of tax application, signed by the representatives of the company.
- To file returns by electronic means, in the cases determined by the Tax Administration.
- To provide the Tax Administration, when required by the Tax Administration for auditing purposes, with the details of the commercialization margins and price lists that support its income.
- Submit, when required by the Tax Administration, all supporting documentation for any type of tax credit.